NRG Energy, Inc. v. Md. Pub. Serv. Comm'n

• Decision Date: 30 September 2021
• Docket Number: No. 1181, Sept. Term, 2020,1181, Sept. Term, 2020
• Citation: 252 Md.App. 680,260 A.3d 770
• Parties: NRG ENERGY, INC., et al., v. The MARYLAND PUBLIC SERVICE COMMISSION, et al.
• Court: Court of Special Appeals of Maryland

252 Md.App. 680
260 A.3d 770

NRG ENERGY, INC., et al.,
v.
The MARYLAND PUBLIC SERVICE COMMISSION, et al.

No. 1181, Sept. Term, 2020

Court of Special Appeals of Maryland.

September 30, 2021

Argued by: Karen O. Moury (Eckert, Seamans Cherin & Mellott, LLC, Harrisburg, PA, Jeffrey P. Brundage, Eckert, Seamans, Cherin & Mellott, LLC, Washington, D.C.) for Appellant.

Argued by: Christopher S. Gunderson (Venable, LLP, Baltimore, MD, Jessica M. Raba, Baltimore Gas and Electric Co, Baltimore, MD) (Deidre Cheek Lynch, Public Service Commission of Maryland, Baltimore, MD) for Appellee.

Panel: Graeff, Reed, Alexander Wright, Jr. (Senior Judge, Specially Assigned), JJ.^*

Graeff, J.

252 Md.App. 683

This appeal arises from an order issued by the Maryland Public Service Commission (the "Commission"), one of the appellees. The order addressed, among other things, the price

252 Md.App. 684

that Baltimore Gas and Electric ("BGE"), another appellee, is permitted to charge to supply Standard Offer Service ("SOS") electricity to its customers. Appellants, NRG Energy Inc., Vistra Corp., Direct Energy Services, LLC, and Interstate Gas Supply, Inc. D/B/A IGS Energy, collectively referred to as the Energy Supplier Coalition ("ESC"), objected to the portion of the order that addressed the appropriate charge for the "Administrative Adjustment" portion of BGE's electric

260 A.3d 773

supply rates. It filed a petition for judicial review of the order in the Circuit Court for Baltimore City, which denied the petition.

On appeal, appellants argue that the Commission erred, or was arbitrary or capricious, in setting the amount of the Administrative Adjustment Component of BGE's SOS rate.¹ Appellants ask us to remand the case "to the Commission to establish a market price for [BGE]’s SOS [rate] that reflects all of the costs that are incurred to provide this service in a manner that is required by the [statute]."

For the reasons set forth below, we shall vacate the judgment of the circuit court and remand for further proceedings.

FACTUAL AND PROCEDURAL BACKGROUND

I.

Statutory Scheme & Relevant History

Before addressing the specifics of this case, we address the background and statutory scheme regarding deregulation of

252 Md.App. 685

electric utilities in Maryland. In Severstal Sparrows Point, LLC v. Pub. Serv. Comm'n of Maryland , 194 Md. App. 601, 604, 5 A.3d 713 (2010), this Court explained that the electric utility industry in Maryland is comprised of two components: supply and distribution. Supply (electricity) is a commodity, whereas distribution (power lines) is a service. Id. "Historically, these components were ‘bundled’ together and provided to customers exclusively by one utility company in each distribution territory. BGE controlled one such distribution area." Id. (footnote omitted).

In 1999, the Maryland General Assembly enacted the Electric Customer Choice Act of 1999 (the "Competition Act"). See Md. Code Ann., Pub. Util. Article ("PU") §§ 7-501–517 (2020 Repl. Vol.). Severstal , 194 Md. App. at 604–05, 5 A.3d 713. The purpose of the Competition Act was to:

(1) establish customer choice of electricity supply and electricity supply services;

(2) create competitive retail electricity supply and electricity supply services markets;

(3) deregulate the generation, supply, and pricing of electricity;

(4) provide economic benefits for all customer classes; and

(5) ensure compliance with federal and State environmental standards.

PU § 7-504.

As this Court explained in Severstal , 194 Md. App. at 605, 5 A.3d 713 :

To further these goals, the component parts of electric service were to be unbundled. Distribution was to remain monopolized and, therefore, the rates charged were to remain closely regulated by the PSC. Supply was to be deregulated, however, with the rates charged to be largely established by the market. In other words, electricity customers would, for the first time, be permitted to

260 A.3d 774

shop on the open market for a third-party electrical energy supplier.

* * *

252 Md.App. 686

Although the [Competition] Act permitted consumers to shop for their supply of electricity, its drafters recognized that not all consumers could or would do so. For that reason, the law was written to obligate the electricity utilities such as BGE to continue to provide "backstop" electricity supply, known as Standard Offer Service ("SOS"), to consumers who chose not to shop for their electric supply or, for whatever reason, could not obtain electricity on the open market. The legislative goal was to phase out SOS over time as the competitive market more fully developed in Maryland. While most commercial electricity customers now shop for their energy supply, most residential customers and many small commercial customers do not. They continue to receive SOS electricity supply by default.

PU § 7-510(c)(2) explains SOS as follows:

(2) Electricity supply purchased from a customer's electric company is known as standard offer service. A customer is considered to have chosen the standard offer service if the customer:

(i) is not allowed to choose an electricity supplier under the phase in of customer choice in subsection (a) of this section;

(ii) contracts for electricity with an electricity supplier and it is not delivered;

(iii) cannot arrange for electricity from an electricity supplier;

(iv) does not choose an electricity supplier;

(v) chooses the standard offer service; or

(vi) has been denied service or referred to the standard offer service by an electricity supplier in accordance with § 7-507(e)(6) of this subtitle.

Thus, a customer receives SOS if the customer does not shop for electric supply or cannot obtain electricity from another source. BGE now has two roles: (1) it is the sole distribution company delivering electricity to customers through, as ESC asserts, BGE's "wires and poles"; and (2) for consumers who have not chosen a different supplier, it is also

252 Md.App. 687

the SOS provider supplying the electricity in competition with other suppliers.²

With respect to charges involving distribution, BGE may charge "just and reasonable" rates. PU § 4-102. In its role as SOS provider, however, PU § 7-510(c)(3)(ii)(2) requires that electricity companies such as BGE supply SOS at a "market price that permits recovery of the verifiable, prudently incurred costs to procure or produce the electricity plus a reasonable return." The Commission is tasked with determining "the terms, conditions, and rates of" SOS. PU § 7-505(b)(8).

Following the enactment of the Competition Act, the Commission began working with electric utility companies, including BGE, to implement the Competition Act and provide SOS in Maryland. In 2003, the

260 A.3d 775

Commission, BGE, and other electric utility companies entered into a settlement agreement establishing a methodology to implement the provision of SOS to Maryland's retail electric customers. See In re Competitive Selection of Elec. Supplier/Standard Offer Serv. , 94 Md. P.S.C. 113, 2003 WL 21051678, 224 P.U.R.4th 185 (2003) (" 2003 Order") (footnotes omitted). The 2003 Order provided that the retail price for SOS would consist of: (1) purchase power costs; (2) transmissions costs; (3) an Administrative Charge ; and (4) taxes. Id. at 3. The Administrative Charge would be composed "of a utility return component, an incremental costs component, uncollectibles, and an Administrative Adjustment component." Id. (emphasis added). The settlement provided that the Administrative Adjustment initially would be set at 0.9 mills per kilowatt hour ("kWh"). Id. at 4.³ This

252 Md.App. 688

reflected an offset of 1.1 mills for uncollectible costs in the SOS component. Id.

In 2009, BGE filed a request to increase the Administrative Charge to allow it to recover an increase in another requirement. A Public Utility Law Judge determined, in part, that the Administrative Adjustment component should be eliminated.

In 2016, after several appeals and remands with respect to the Public Utility Law Judge's decision, the Commission again addressed the Administrative Adjustment. See In the Matter of a Request by Baltimore Gas and Electric Co. for Recovery of Standard Offer Serv. Related Cash Working Cap. Revenue Requirement , No. 87891, 2016 WL 6873349, at *1 (Md. P.S.C. Nov. 17, 2016) (" 2016 Order"). Noting that the purpose of the Competition Act was "to establish customer choice of electricity supply and to create a competitive retail electricity supply and services," the Commission explained:

The Administrative Adjustment serves as a proxy for A&G [(administrative and general)] costs retail suppliers

...