Public Service Commission of Maryland v. Baltimore Gas & Elec. Co.

Decision Date19 December 1974
Docket NumberNo. 152,152
Citation329 A.2d 691,273 Md. 357
PartiesPUBLIC SERVICE COMMISSION OF MARYLAND et al. v. BALTIMORE GAS AND ELECTRIC COMPANY.
CourtMaryland Court of Appeals

Edward F. Shea, Jr., and Joseph Sherbow, Baltimore (Sherbow, Shea & Doyle, Baltimore, on the brief), for Public Service Commission of Maryland, appellants.

Gary R. Alexander, Oxon Hill (Donald F. Rogers, Baltimore, on the brief), for People's Counsel to the Maryland Public Service Commission, appellants.

Charles Freeland and William Hughes, Asst. City Sol. (Benjamin L. Brown, City Sol., and Ambrose T. Hartman, Deputy City Sol., Baltimore, on the brief), for Maryor and City Council of Baltimore, appellants.

James A. Biddison, Jr., Baltimore, and Cameron F. MacRae, New York City (Samuel M. Sugden, New York City, Paul W. Davis, Baltimore, and Larry D. Lamson, Prince Frederick, on the brief), for appellee.

Argued before MURPHY, C. J., and SMITH, DIGGES, LEVINE, ELDRIDGE and O'DONNELL, JJ.

MURPHY, Chief Judge.

On September 10, 1973, the Baltimore Gas and Electric Company (the Company) filed revised schedules of electric and steam rates with the Public Service Commission (the Commission) designed to produce an additional $32,400,000 (a 10% increase) in gross annual revenues. The Company's application was predicated upon the use of an end of the test year period or 'terminal' rate base in valuing its utility property for rate making purposes, a rate of return of 8.35% and an increase from 3.0% to 3.2% in the composite rate of annual depreciation for the Company's electric properties. The Commission suspended the Company's proposed rates for the maximum period authorized by Maryland Code (1969 Repl.Vol.) Art. 78, § 70 and held extensive hearings involving 3,000 pages of testimony and numerous exhibits (Commission's Case No. 6700). 1 By its Order No. 60684 and Opinion dated, respectively, March 8 and 26, 1974, the Commission concluded that the appropriate test year for rate making purposes was the twelve-month period ending October 31, 1973; that the 'use of this recent test period gives almost current recognition to the level of expenses as affected by inflation and minimizes the impact of regulatory lag'; that it was appropriate in the circumstances to utilize an average, rather than a terminal rate base, and that the average fair value of the Company's total utility property for rate making purposes for the test period was $1,656,625,000; that a fair and reasonable rate of return on the Company's rate base was 8.2%; and that the increased rate of annual depreciation sought by the Company for its electric properties would not be allowed. As a result, the Commission authorized the Company to increase its electric and steam rates by approximately $9,000,000.

The Company appealed to the Circuit Court for Calvert County; it claimed that the Commission's decision to employ an average, rather than a terminal rate base, constituted error since it failed to give due consideration to substantial evidence of inflation, attrition and regulatory lag, and was therefore unlawful, arbitrary, capricious and not supported by substantial evidence. The Company contended that the Commission also erred in finding that 8.2% constituted a fair rate of return on its rate base and that the Commission's failure to authorize an increase in the composite depreciation rate on its electric properties from 3.0% to 3.2% completely ignored the uncontradicted evidence that such increase was justified and required.

On the record made before the Commission, the lower court (Bowen, J.), by decree dated August 29, 1974, reversed the Commission's decision to use an average rate base in valuing the Company's property for rate making purposes; the court directed instead that the Commission use an end of the test year or terminal rate base. It also reversed the Commission's finding with respect to depreciation of the Company's electric properties and ordered that the claimed depreciation rate of 3.2% be allowed. The court remanded the case to the Commission for redetermination of the proper rate of return in accordance with its opinion and 'in the context of the holdings herein on Depreciation and Rate Base.' From the court's decree, the Commission, People's Counsel, and the Mayor and City Council of Baltimore (an intervenor in the proceedings below) appealed; the Company filed a cross-appeal, claiming that the court's decree should be modified to require a rate of return not lower than 8.5%.

The Public Service Commission Law, Code, Article 78, § 68 (the Law) empowers the Commission 'to determine just and reasonable rates of public service companies.' Section 69 of the Law specifies that 'just and reasonable rates' mean 'rates which are not in violation of any of the provisions of this article, and which will result in an operating income to the public service company, . . . yielding, after reasonable deduction for depreciation and other necessary and proper expenses and reserves, a reasonable return upon the fair value of the company's property used and useful in rendering service to the public.' 2 Section 72 provides that all final valuations made by the Commission shall be prima facie evidence of value. Section 84(b) of the Law provides that '(i)n any proceeding involving a new rate, or change in any rate, whether temporary or permanent, the burden of proof shall be on the proponent of the new rate or change in rate.' Judicial review of final decisions or orders of the Commission is authorized by §§ 89-98, inclusive, of the Law. Section 91(a) provides that such review 'shall be instituted in the circuit court for any county within which operations are carried on by the public service company involved, or in any equity court in Baltimore City.' A 'further review' is authorized by appeal to the Court of Appeals. § 98. The scope of judicial review of orders of the Commission is set forth in § 97:

'Every final decision, order, rule or regulation of the Commission shall be prima facie correct and shall be affirmed unless clearly shown to be (1) in violation of constitutional provisions, or (2) not within the statutory authority or jurisdiction of the Commission, or (3) made upon unlawful procedure, or (4) arbitrary or capricious, or (5) affected by other error of law, or (6) if the subject of review is an order entered in a contested case after hearing, such order is unsupported by substantial evidence on the record considered as a whole.'

Consistent with these statutory provisions, we said in C. & P. Tel. Co. v. Public Service, 230 Md. 395, 401, 187 A.2d 475, 478 (1963), that 'every final decision of the Commission prima facie shall be correct and shall be affirmed on appeal to the courts unless shown to be unconstitutional, or without statutory authority or made upon unlawful procedure, or arbitrary or capricious, or unsupported by substantial evidence on the record considered as a whole, or is affected by other error of law.' (emphasis supplied) In Balto. Gas Co. v. McQuaid, 220 Md. 373, 382, 152 A.2d 825, 829-830 (1959), a case involving, as here, a determination of the rate base of a public service company, we said: 'Our inquiry is limited to finding whether there was illegality or unreasonableness in the Commission's action-when that inquiry is finished, judicial scrutiny ends and the judicial function in the rate making process is over.' Recognizing that rate making is a legislative function, Gregg v. Public Service Commission, 121 Md. 1, 87 A. 111 (1913), we have held repeatedly that a reviewing court will not substitute its judgment for that of the Commission, a body informed by experience and aided by a competent and experienced staff, and that consequently an order of the Commission will not be disturbed on appeal except upon clear and satisfactory evidence that it is unlawful or unreasonable. See Public Service Commission v. Balto. Trans. Co., 207 Md. 524, 114 A.2d 834 (1955); Balto. Trans. Co. v. Pub. Ser. Comm., 206 Md. 533, 112 A.2d 687 (1955); Montgomery Co. v. Public Serv. Comm., 203 Md. 79, 98 A.2d 15 (1953); Pub. Serv. Commn. v. United Rwys. Co., 155 Md. 572, 142 A. 870 (1928); Public Service Commn. v. Byron, 153 Md. 464, 138 A. 404 (1927). We do not, therefore, in considering the legality and reasonableness of the Commission's decision in this case, afford prima facie correctness to the decree of the court below; nor do we determine merely whether the court abused its discretion in reviewing the Commission's order, as suggested by the Company. We do not directly review the reasonableness of the determinations made by the lower court, but instead consider whether there was substantial evidence before the Commission on the record considered as a whole to support its use of an average rate base, a 3.0% composite rate of depreciation, and a 8.2% rate of return. In so determining, we are governed by principles of judicial review of decisions of administrative agencies so well articulated for the Court by Chief Judge Hammond in Insurance Comm'r v. Nat'l Bureau, 248 Md. 292, 309-310, 236 A.2d 282, 291-292 (1967):

'Whichever of the recognized tests the court uses-substantially of the evidence on the record as a whole, clearly erroneous, fairly debatable or against the weight or preponderance of the evidence on the entire record-its appraisal or evaluation must be of the agency's fact-finding results and not an independent original estimate of or decision on the evidence. The required process is difficult to precisely articulate but it is plain that it requires restrained and disciplined judicial judgment so as not to interfere with the agency's factual conclusions under any of the tests, all of which are similar. There are differences but they are slight and under any of the standards the judicial review essentially should be limited to whether a reasoning mind reasonably could have reached the factual conclusion the agency reached. This need not and...

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