SPARROWS POINT v. PSC

On June 24, 2008, Sparrows Point filed its petition for judicial review. The cases were consolidated by order of the circuit court. On April 2, 2009, after briefing and argument, the circuit court affirmed the PSC's ruling.

The circuit court issued an opinion with its order, entitled "Discussion." It was not served on any of the parties, however, and they only became aware of its existence while preparing for the instant appeal. The opinion states that the PSC acted properly to set SOS rates that were "just and reasonable" and that the process employed at the hearing was adequate to address the parties' objections.

In this Court, the appellants present two questions for review, which we have rephrased:

I. Did the PSC exceed its statutory authority or act arbitrarily by temporarily capping electricity supply rates for New Type II Customers and increasing distribution service rates for all non-residential customers to recoup the shortfall?

II. Was the procedure employed by the PSC prior to issuing the Order inadequate and unlawful?

For the reasons we shall explain, we answer the first question in the affirmative and on that basis reverse the judgment of the circuit court. Our disposition of Question I makes it unnecessary to address Question II.

STANDARD OF REVIEW

Section 3-203 governs our review of decisions of the PSC: Every final decision, order, or regulation of the [PSC] is prima facie correct and shall be affirmed unless clearly shown to be:

(1) unconstitutional;

(2) outside the statutory authority or jurisdiction of the [PSC];

(3) made on unlawful procedure;

(4) arbitrary or capricious;

(5) affected by other error of law; or

(6) if the subject of review is an order entered in a contested proceeding after a hearing, unsupported by substantial evidence on the record considered as a whole.

In addition, as the Court of Appeals has explained:

[W]hile this Court has made clear that a decision of the [PSC] is subject to judicial review, it will not be disturbed on the basis of a factual question except upon clear and satisfactory evidence that it was unlawful and unreasonable. Such a decision is accorded the respect due an informed agency that is aided by a competent and experienced staff. Questions of law, however, are completely subject to review by the courts. This is consistent with the standard of review applicable to administrative agencies generally.

Town of Boston v. Public Serv. Comm'n, 379 Md. 21, 31-32, 838 A.2d 1225 (2003) (internal citations and quotations omitted).

The Court of Appeals has recognized, however, that a certain amount of deference is owed to an agency's interpretation of the statute it is empowered to administer. See People's Counsel v. Public Serv. Comm'n, 355 Md. 1, 16-17, 733 A.2d 996 (1999) (citing Baltimore Bldg. Construction Trades Council v. Barnes, 290 Md. 9, 427 A.2d 979 (1981)). This is especially so when the agency's interpretation has "`been applied consistently and for a long period of time'" and when the agency engaged in "`a process of reasoned elaboration in formulating its interpretation of the statute.'" Id. at 17, 733 A.2d 996 (quoting Baltimore Gas Elec. Co. v. Public Serv. Comm'n, 305 Md. 145, 161, 501 A.2d 1307 (1986)).

DISCUSSION I.

A. Legal Framework

Before turning to the parties' contentions, we first shall review the statutory and regulatory scheme by which the PSC obtains and exercises its authority. Title 2, Subtitle 1 of the PUC Article establishes the structure and general powers of the PSC. Section 2-112(b), titled "Jurisdiction; general powers," states:

(b) General powers. — (1) The [PSC] has the powers specifically conferred by law.

(2) The [PSC] has the implied and incidental powers needed or proper to carry out its functions under this article.

Title 4 governs the PSC's ratemaking authority. Section 4-102(a) provides that the PSC "shall have the power to set a just and reasonable rate of a [utility.]" Related Section 4-201 mandates that a utility "shall charge just and reasonable rates" for the services it renders. A "just and reasonable rate" is one that

(1) does not violate any provision of this article;

(2) fully considers and is consistent with the public good; and

(3) . . . will result in an operating income to the [utility] that yields, after reasonable deduction for depreciation and other necessary and proper expenses and reserves, a reasonable return on the fair value of the [utility]'s property used and useful in providing service to the public.

PUC § 4-101.

Section 4-204(a) authorizes the PSC to suspend — without prior proceedings or notice — "any new rate or change in rate proposed by a [utility]." If the PSC exercises its authority under this subsection, it "promptly shall institute proceedings to consider whether the suspended rate is a just and reasonable rate." PUC § 4-204(b).

The 1999 Act added to the PUC Article Title 7, Subtitle 5, captioned, "Electric Industry Restructuring." This subtitle governs SOS and numerous other aspects of the deregulation of the electricity supply in Maryland. The stated purposes of Subtitle 5 are 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.

PUC § 7-504. The general limitation on regulation of electric utilities is set forth in Section 7-509(a). As pertinent here, it provides that, on and after the implementation date of deregulation, "the generation, supply, and sale of electricity, including all related facilities and assets, may not be regulated as an electric company service or function except to: (i) establish the price for standard offer service under § 7-510(c) of this subtitle."

The electricity company rendering distribution services in each distribution territory is responsible for providing SOS in that territory. PUC § 7-506(e). Under Section 7-505(b)(8), the PSC "shall determine the terms, conditions, and rates of [SOS] in accordance with: (i) Title 4 of this article; or (ii) as applicable, § 7-510(c)(4) of this subtitle."

As originally enacted, Section 7-505(b)(8) stated that the PSC "shall determine the terms, conditions, and rates of [SOS] in accordance with: (i) Title 4 of this article; or (ii) as applicable, § 7-510(c)(3)(H) of this subtitle." (Emphasis added.) We will discuss this change further, infra.

Section 7-510, captioned "Phased implementation of customer choice," sets forth the intended schedule for deregulation of the electricity supply. Subsection (c) obligates electricity companies to provide SOS to certain customers, including those not yet eligible to choose a supplier under the phased implementation plan; those unable to obtain a supplier; and those opting to use SOS. As originally codified, the obligation to provide SOS was to cease on July 1, 2003, unless the PSC determined that "no acceptable competitive proposal had been received to supply electricity" to the eligible customers. Ch. 3 of the Acts of 1999, § 1. If the PSC so found, electricity companies would remain obligated to provide SOS to "residential and small commercial customers at a market price that permits recovery of verifiable, prudently incurred costs to procure or produce the electricity plus a reasonable rate of return." PUC § 7-510(c)(3)(ii).

In an order dated April 29, 2003, the PSC made such a finding, extending the utilities' obligation to provide SOS. See In the Matter of the Commission's Inquiry into the Competitive Selection of Electricity Suppliers Standard Offer Service, Case No. 8908, Order No. 78400, 2003 WL 21051678, *37-38, 2003 Md. PSC LEXIS 5, *137 (April 29, 2003).

With the passage of Senate Bill 1 ("SB 1"), Chapter 5, 2006 Laws of Maryland, 1st Sp. Session, Section 7-510(c) was amended to provide that electricity companies would continue to be obligated to provide SOS to residential and small commercial customers under the "market price" standard discussed above and that every five years the PSC would report to the Governor and the General Assembly on the status of SOS and the development of the competitive market. SB 1 also added a requirement that SOS supply be procured by a "competitive process" "designed to obtain the best price for residential and small commercial customers in light of market conditions at the time of procurement and the need to protect these customers from excessive price increases." PUC § 7-510(c)(4)(ii).

B. Contentions of the Parties

The appellants make several related arguments about the power vel non of the PSC to temporarily cap the SOS supply price for the New Type II Customers and then recoup the loss that BGE would incur from the price cap by increasing the distribution rate for large commercial customers. First, they assert that, while with the advent of deregulation in 1999, the PSC retained its wide discretion to set "just and reasonable" rates for distribution of electricity, it lost that expansive authority for the supply of electricity, including SOS. Therefore, the legal precedents approving allocation of bundled rate increases among classes of customers do not apply and cannot justify increasing the distribution cost for one type of customer (large commercial) in order to pay for the SOS supply cost of another type of customer (New Type II small commercial).

Second, the appellants argue that the power to suspend a new rate or change in rate, under Section 4-204, was not implicated here because the PSC did not suspend BGE's price for electricity for New Type II Customers in Summer 2008. Rather, it allowed the new price to take effect but allocated it partly to the New Type II Customers, by a 15% increase in their SOS price, and partly to large commercial customers, by a temporary increase in their distribution rate. Moreover, the PSC never instituted proceedings in accordance with Section 4-204(b) to determine if the "suspended rate is a just and reasonable rate."

Finally, MEG asserts that the proceedings below were insufficient to protect the due process rights of the parties who, like itself, opposed the mitigation plan. Specifically, the PSC's May 16 Order was issued without any prior proceeding or notice; and thereafter the PSC considered the revised rates submitted by BGE, in keeping with the May 16 Order, as part of a regularly scheduled administrative meeting, without holding an evidentiary hearing.

The PSC responds that it has broad discretion to set "just and reasonable rates" for SOS supply and for electricity distribution service. It maintains that the mitigation plan implemented for Summer 2008 was necessary to protect the New Type II Customers from an unanticipated price spike and was in keeping with the public good. It also argues that allocation of the recapture costs to commercial customers by a temporary increase in their distribution rate was fully in keeping with legal precedent regarding its authority and with the statutory scheme. Finally, with respect to process, it maintains that a customer in the position of the appellants has no right to a quasi-judicial evidentiary hearing; and that, given the brief time frame allotted for approval of SOS tariff rates, it is not possible to provide such a process.

C. Analysis

The central issue in this case is the extent to which the PSC retained authority to regulate the electricity supply after the 1999 Act. The PSC is of the position that, with respect to SOS, its ratemaking authority was largely unchanged in that it retained broad discretion to set just and reasonable rates, including the power to allocate costs among rate classes. For the reasons that follow, we conclude that the PSC's retained authority extends to the oversight of the SOS procurement process but did not allow it to cap SOS rates for New Type II Customers and allocate the recapture costs to other commercial customers.

Our task here is one of statutory construction. As the Court of Appeals recently explained:

The cardinal rule of statutory interpretation is to ascertain and effectuate the real and actual intent of the Legislature. Bd. of Educ. v. Zimmer-Rubert, 409 Md. 200, 214, 973 A.2d 233, 241 (2009); In re Najasha B., 409 Md. 20, 27, 972 A.2d 845, 849 (2009). A court's primary goal in interpreting statutory language is to discern the legislative purpose, the ends to be accomplished, or the evils to be remedied by the statutory provision under scrutiny. Anderson v. Council of Unit Owners, 404 Md. 560, 571, 948 A.2d 11, 18 (2008); People's Ins. Counsel Div. v. Allstate Ins. Co., 408 Md. 336, 351, 969 A.2d 971, 979-80 (2009); Barbre v. Pope, 402 Md. 157, 172, 935 A.2d 699, 708 (2007); Dep't of Health Mental Hygiene v. Kelly, 397 Md. 399, 419-20, 918 A.2d 470, 482 (2007); Gen. Motors Corp. v. Seay, 388 Md. 341, 352, 879 A.2d 1049, 1055 (2005).

To ascertain the intent of the General Assembly, we begin with the normal, plain meaning of the language of the statute. Zimmer-Rubert, 409 Md. at 214, 973 A.2d at 241; Allstate, 408 Md. at 351, 969 A.2d at 980; Anderson, 404 Md. at 571, 948 A.2d at 18; Allen v. State, 402 Md. 59, 76, 935 A.2d 421, 431 (2007); Barbre, 402 Md. at 172, 935 A.2d at 708; Kelly, 397 Md. at 420, 918 A.2d at 482. If the language of the statute is unambiguous and clearly consistent with the statute's apparent purpose, our inquiry as to legislative intent ends ordinarily and we apply the statute as written, without resort to other rules of construction. Zimmer-Rubert, 409 Md. at 214-15, 973 A.2d at 241-42; In re Najasha B., 409 Md. at 27, 972 A.2d at 849; Allstate, 408 Md. at 351, 969 A.2d at 980; Anderson, 404 Md. at 572, 948 A.2d at 19; Barbre, 402 Md. at 174, 935 A.2d at 708-09; Kelly, 397 Md. at 419, 918 A.2d at 482. We neither add nor delete language so as to reflect an intent not evidenced in the plain and unambiguous language of the statute, and we do not construe a statute with "forced or subtle interpretations" that limit or extend its application. Lonaconing Trap Club, Inc. v. Dep't of Env't, 410 Md. 326, 339, 978 A.2d 702, 709 (2009); Liverpool, 369 Md. [304] at 316-17, 799 A.2d [1264] at 1271 (2002); Curran v. Price, 334 Md. 149, 172, 638 A.2d 93, 105 (1994); Amal. Cas. Ins. Co. v. Helms, 239 Md. 529, 535, 212 A.2d 311, 316 (1965).

We, however, do not read statutory language in a vacuum, nor do we confine strictly our interpretation of a statute's plain language to the isolated section alone. Anderson, 404 Md. at 572, 948 A.2d at 19; Drew v. First Guar. Mori Corp., 379 Md. 318, 327, 842 A.2d 1, 6 (2003); Blondell v. Bolt. City Police Dep't, 341 Md. 680, 691, 672 A.2d 639, 645 (1996); Comptroller v. John C Louis Co., 285 Md. 527, 538, 404 A.2d 1045, 1052-53 (1979). Rather, the plain language must be viewed within the context of the statutory scheme to which it belongs, considering the purpose, aim, or policy of the Legislature in enacting the statute. Anderson, 404 Md. at 572, 948 A.2d at 19; Comptroller v. Phillips, 384 Md. 583, 591, 865 A.2d 590, 594 (2005); Harvey, 389 Md. at 290, 884 A.2d at 1199; Blondell, 341 Md. at 691, 672 A.2d at 645. We presume that the Legislature intends its enactments to operate together as a consistent and harmonious body of law, and, thus, we seek to reconcile and harmonize the parts of a statute, to the extent possible consistent with the statute's object and scope. Harvey, 389 Md. at 290, 884 A.2d at 1199; Liverpool, 369 Md. at 316-17, 799 A.2d at 1271; Curran, 334 Md. at 172, 638 A.2d at 104; John C. Louis Co., 285 Md. at 538-39, 404 A.2d at 1053.

Lockshin v. Semsker, 412 Md. 257, 274-76, 987 A.2d 18 (2010).

With these principles in mind, we turn to the pertinent provisions of the PUC Article. The PSC argues that the price spike the New Type II Customers would have experienced for SOS in Summer 2008, due to the SOS auction results reflected in BGE's Supplement 414 to its tariff, would not have been consistent with the public good under Section 4-101; therefore, it was authorized to suspend the new price, under Section 4-204, and institute a proceeding to determine a just and reasonable rate. We reject this argument for several reasons.

First, as defined by Section 4-101, a "just and reasonable rate" includes three criteria: 1) the rate does not violate any provision of Title 4; 2) the rate "fully considers and is consistent with the public good"; and 3) the rate "will result in an operating income to the [utility] that yields, after reasonable deduction for depreciation and other necessary and proper expenses and reserves, a reasonable return on the fair value of the [utility]'s property used and useful in providing service to the public." These criteria are phrased in the conjunctive, meaning that all three must be met for a rate to be "just and reasonable." In the instant case, however, the PSC relied only on the first and second criteria, judging the proposed tariff inconsistent with the public good and the mitigation plan consistent with the public good and finding that the revised rates do not violate any provision of the PUC Article.

The PSC stated in its June 6, Order that the new tariff would "result in the same operating income and return to the utilities as their original tariff filings." While this appears to be an attempt to satisfy the third criterion, it is incomplete. As we will discuss infra, it is apparent that the third criterion could not be applied in this case.

More important, however, the differences between SOS regulation and traditional ratemaking make plain that the definition codified at Section 4-101 cannot apply in the unique context of SOS. In Office of People's Counsel, supra, 355 Md. at 6, 733 A.2d 996, the Court of Appeals considered whether rates set for telephone company services pursuant to "an `alternative' form of regulation" provided for in the PUC Article also "must meet the `just and reasonable rates' requirement of the traditional rate of return regulatory scheme." In anticipation of a transition to a competitive, market-based telecommunications system, the General Assembly had amended then Article 78 (now the PUC Article) to allow the PSC greater flexibility in regulating telecommunication rates. Specifically, in 1995 it added Article 78, Section 69(e), which provided, in pertinent part:

Notwithstanding the provisions of subsection (a) of this section or any other provision of law to the contrary, the [PSC] may regulate a telephone company by means of alternative forms of regulation . . . if it finds, after notice and hearing that the alternative form of regulation protects consumers by, at a minimum, 'producing affordable and reasonably priced basic local exchange service. . . .

(Emphasis added.) At that time, Art. 78, Section 69(a) set forth the definition of a "just and reasonable rate" that now appears without substantive modification at Section 4-101 of the PUC.

Pursuant to this statutory change, the PSC issued an order adopting a price cap regulatory plan for telecommunication rates. People's Counsel appealed the PSC's order, arguing, in part, that a finding that the plan produced "affordable and reasonably priced" rates was not equivalent to a finding that the rates were just and reasonable. The PSC responded that Art. 78, Section 69(e) obviated the requirement that it set a "just and reasonable rate," instead requiring that it set a rate that met the standard in that section.

The Court of Appeals held that, when the PSC was using an "alternative form of regulation" as contemplated by Art. 78, Section 69(e), it was not bound by the definition of "just and reasonable rate" in Art. 78, Section 69(a). The Court reasoned that the definition of a "just and reasonable rate" required, as it still does, "a traditional rate analysis to be made from a specified comparison of costs, rates and profits to determine just and reasonable rates." 355 Md. at 23, 733 A.2d 996. Those criteria could not apply outside the traditional ratemaking process. The Court concluded, however, that the overarching requirement that the PSC set, and public utilities charge, just and reasonable rates remained applicable, even when an alternative form of regulation was employed. It decided that, in enacting Art. 78, Section 69(e), the legislature had intended a "just and reasonable rate," in the context of alternative forms of regulation, to mean a rate "producing affordable and reasonably priced basic local exchange service," not to mean a "just and reasonable rate" as defined in Art. 78, Section 69(a). Id. at 24, 733 A.2d 996. The PSC was free to further define the phrase "producing affordable and reasonably priced basic local exchange service" and to apply it to the price cap regulatory scheme permitted by Art. 78, Section 69(e). Id.

Returning to the instant case, we similarly conclude that the definition of a "just and reasonable rate" in Section 4-101 of the PUC cannot apply in the context of SOS because its relevance lies outside the realm of traditional rate-of-return ratemaking. We explain.

As discussed, supra, in a traditional electricity ratemaking case, the PSC would analyze the electricity utility's income and expenses for a "test year" and then would calculate the test year's rate base, i.e., "the fair value of the company's property used and useful" in rendering the service. Public Serv. Comm'n v. Balto. Gas Elect Co., 273 Md. 357, 363, 329 A.2d 691 (1974); see also PUC § 4-206(a) (defining rate base). Only after the rate base was valued could the PSC determine the utility's reasonable rate of return, i.e., "a return which will result in as much net operating income as will yield a reasonable return on the rate base fixed." Public Serv. Comm'n, supra, 273 Md. at 363, 329 A.2d 691. The rate of return would be multiplied against the rate base to produce the income to which the utility was entitled. BOMA, supra, 93 Md.App. at 753, 614 A.2d 1006. If this income differed significantly from income for the test year, the PSC would authorize an increase or decrease to the utility's rates. Id.

The rate base either was calculated as of the last day of the test year (terminal rate base) or averaged over the entire twelve months of the test year (average rate base). Various factors affected which calculation was more accurate, including the pace of the utility company's growth and inflation. Public Serv. Comm'n, supra, 273 Md. at 364, 329 A.2d 691.

Once the increase or decrease in rates was authorized, the PSC then could allocate the change among the rate classes. See id. ("The last phase of [the ratemaking] process is to allocate any increase or decrease among the various classes of customers, for only then can the actual rates necessary to produce the approved level of income be calculated.") The various rate classes — i.e., residential, commercial, industrial — did not pay the same rate per kWh for their electricity. In determining whether price differentials among classes were "just and reasonable," the PSC would rely on two standards: cost of service and value of service. Id. at 754, 614 A.2d 1006 (citing C. Phillips, The Regulation of Public Utilities, ch. 10 (1988)). Cost of service was based on "the acknowledged fact that it is more expensive to serve some customers than to serve others." Id. Thus, to the extent that the differential in cost could be calculated, price differentials were justified. The value of service standard, on the other hand, was based on differences in demand among the classes of customers. It focused on need for the service, ability to pay for the service, and the availability of alternatives. It was acknowledged to produce discriminatory pricing. Id.

Although the PSC never explicitly adopted the cost of service method of setting prices, it did actively seek to narrow the differentials between classes by comparing the rate of return for each rate class to the average system-wide rate of return and determining a "zone of reasonableness." Id. at 755, 614 A.2d 1006. The zone was a "band that straddle[d] the systemwide rate of return." Id. The PSC attempted to "nudge the various class rates of return close to or within that band." Id. The rate of return for residential rate classes fell below the systemwide average, while the rate of return for commercial and industrial customers was higher than the average. As such, the PSC tried to allocate rate increases and decreases so as to move both groups closer to the average, without entirely eliminating price differentials.

In traditional ratemaking cases, there were extensive evidentiary hearings. See, e.g., Publ. Serv. Comm'n, supra, 273 Md. at 359, 329 A.2d 691 (3000 pages of testimony and numerous exhibits submitted); BOMA, supra, 93 Md.App. at 746, 614 A.2d 1006 ("extensive hearings" held prior to PSC order); In the matter of BGE, 75 Md.P.S.C. 171, *3 (May 29, 1984) (nine evidentiary hearings and six evening hearings for public comment held before PSC order entered). In addition to the utility and PSC staff, various industry groups and People's Counsel typically intervened and also presented evidence.

The PSC does not dispute that its role in regulating SOS prices is markedly different from its role in traditional rate-making. In its brief, the PSC contrasts its role in the instant case with its role in a traditional ratemaking case as follows:

[T]he issues before the [PSC] in this matter are far less involved than those presented in a full rate case. . . . The tariff[] [BGE] filed t[ook] the results of the April 2008 SOS auction and translat[ed] them into rates that permit [BGE] to recover the cost of purchasing the power for the different SOS loads. The [PSC] [did] not need to establish the reasonableness of the costs (it already has done so by establishing and supervising the auction process), the extent to which BGE is entitled to recover those costs (because it is entitled to recover them in full), or a resulting rate of return. The only issue [was] how to distribute those costs across the different customer classes, and the [PSC] need[ed] only [to] devise a procedure that allow[ed] it to vet and answer that question.

This excerpt from the PSC's brief was intended to support its argument that the procedures utilized in the instant case were sufficient to protect the appellants' due process rights.

Thus, in the instant case, the PSC grafted the final phase of a traditional ratemaking case — allocation — on to the much more abbreviated SOS oversight process. The mismatch between these processes is readily apparent. In a traditional ratemaking case, the utility's permissible rate of return, its allowed income by extension, and the distribution of that income via rate schedules were determined in a comprehensive proceeding in which all interested parties appeared and presented evidence. In the instant case, the April 21, 2008 auction results determined the cost of the electricity supply for each subset of SOS customers and, in approving the auction results, the PSC found that BGE was entitled to recover the entirety of that cost. The appellants were not involved in the auction approval phase of this process because they were not entitled to participate in SOS and, thus, had no interest in the auction results.

Moreover, the PSC identified no operative standard beyond the nebulous "consistent with the public good" benchmark in exercising its purported authority to allocate part of the SOS supply price, as determined by the auction results, to non-residential customers' distribution rate. In its June 6 Order approving the mitigation plan, the PSC quoted from this Court's decision in BOMA:

Maryland courts have long acknowledged the [PSC's] authority to base rates on the public good "allows the [PSC] to consider and use factors other than pure cost of service. It does not require uniformity and does not require any specific formula or band of reasonableness." [ BOMA, 93 Md. App. 741, 762, 614 A.2d 1006 (1992).]

Yet, this excerpt reveals a central flaw in any analogy between the allocation the PSC effected here and the allocation permitted in a traditional ratemaking case. In BOMA, as in all traditional ratemaking cases, the allocation was guided, generally, by the cost of service standard. The systemwide rate of return was the starting point for the PSC's analysis of how to achieve a just and reasonable allocation of the shared costs of supplying and distributing the electric supply. Here the costs being allocated already accounted for the cost of service because the supply was procured in an auction limited to the Type II load. The appellants were not being asked to pay a larger share of the cost of a common service. Rather, they were being asked to subsidize the cost of service to another class of customers for a service they were not eligible to receive. Thus, the SOS costs were not being "allocated" among members of a customer base but were being shifted from one customer base to another, unrelated customer base.

It is clear from the above discussion that, as in People's Counsel, supra, we must look elsewhere in the statute to determine the standard guiding the PSC's regulatory authority in the context of SOS. Of course, in People's Counsel, the telecommunications industry remained fully monopolized, and the Court of Appeals assumed that the PSC retained authority to regulate its rates. In the instant case, that presumption may not be justified.

Pursuant to PUC Section 7-509(a), "[o]n and after the initial implementation date [of deregulation of the electricity supply], the generation, supply, and sale of electricity . . . may not be regulated as an electric company service or function except to [] establish the price for standard offer service under § 7-510(c) of this subtitle [.]" (Emphasis added.) Section 7-505, captioned "Transition to a restructured electric industry," further provides that the PSC "shall determine the terms, conditions, and rates of standard offer service in accordance with: (i) Title 4 of this article; or (ii) as applicable, § 7-510(c)(4) of this subtitle." PUC § 7-505(b)(8).

Section 7-510(c) provides, in pertinent part, that electricity companies, including BGE, are obligated to provide SOS to residential and small commercial customers "at a market price that permits recovery of the verifiable, prudently incurred costs to procure or produce the electricity plus a reasonable return." PUC § 7-510(c)(3)(ii). Moreover, it empowers the PSC, "by regulation or order[] and in a manner that is designed to obtain the best price for residential and small commercial customers in light of market conditions at the time of procurement and the need to protect these customers from excessive price increases," to require the electricity companies, including BGE, to employ certain procurement procedures outlined in the section. PUC § 7-510(c)(4)(ii).

The various alternatives presented are designed to give the PSC flexibility in managing the procurement process in terms of when the auctions occur; the amount of load bid out at any one time; and, at times, to allow utilities to purchase SOS supply via a bilateral contract outside of the competitive process if it deems that to be in the interest of the SOS customers.

The PSC maintains that, because Section 7-505(b)(8) references Title 4, it is meant to bring SOS under the umbrella of traditional "just and reasonable" ratemaking. This reading of the statutory language is untenable. Section 7-505(b)(8) is phrased in the disjunctive. Thus, it must be read to mean that either Title 4 or, "as applicable," Section 7-510(c)(4) governs the "terms, conditions, and rates" for SOS. A review of the history of this section and Section 7-510 makes clear why both options were included.

As discussed above, when Title 7, Subtitle 5 was added to the PUC Article, in 1999, the obligation to provide SOS was meant to cease on July 1, 2003, absent a finding by the PSC that the electricity supply market had not fully developed to provide service to residential and small commercial customers. See Ch. 3, 1999 Laws of Maryland. As enacted, Section 7-505(b)(8) provided that SOS rates would be determined pursuant to Title 4 or, "as applicable," Section 7-510(c)(3)(ii) — the subsection governing SOS — if, and only if, it were to continue beyond July 1, 2003. Thus, Section 7-510(c)(3)(ii) only could be "applicable" if the PSC made a finding that SOS should continue beyond that date. Prior to that date, under the plain language of the statute, only Title 4 could apply. Had the legislature intended both Title 4 and Section 7-510(c)(3)(ii) to apply simultaneously, however, it could have stated that the PSC shall determine the terms, rates and conditions of SOS pursuant to Title 4 and, as applicable, Section 7-510(c)(3)(ii). It did not do so. The only sensible reading of the plain language of Section 7-505(b)(8) is that Title 4 governed the PSC's regulatory authority over SOS rates prior to July 1, 2003, and Section 7-510(c)(3)(ii) governed after that date.

As originally enacted, Section 7-510(c)(3)(ii) stated that, if the SOS obligation were continued, it would have to be provided "at a market price that permits recovery of the verifiable, prudently incurred costs to procure or produce the electricity, plus a reasonable return." Thus, after July 1, 2003, this standard became operative. In 2006, when the legislature enacted SB 1, Section 7-510(c)(3) was modified to state that the electricity companies had a continuing obligation to provide SOS to residential and small commercial customers under the same standard from the prior version. As discussed, supra, SB 1 also added a provision that, as part of the obligation to provide SOS under Section 7-510(c)(3), the PSC should require electric companies to obtain the SOS supply through a "competitive process" "designed to obtain the best price . . . in light of market conditions at the time of procurement and the need to protect these customers from excessive price increases." PUC § 7-510(c)(4)(ii). Finally, Section 7-505(b)(8) was amended to cross-reference this new subsection, which internally cross-referenced Section 7 — 510(c)(3)(ii).

In this context, we construe Section 7-505(b)(8) to mean that, before July 1, 2003, the PSC retained its Title 4 powers with respect to SOS and, after that date, its powers to regulate SOS were limited to those set forth in Section 7-510. This reading is consistent with Section 7-509's dictate that the electricity supply could not be regulated except to "establish the price for [SOS] under § 7-510(c) of this subtitle." (Emphasis added.) No reference to traditional Title 4 powers appears in this section. It follows that the scope of the PSC's authority to regulate SOS is confined to the standards set forth in Section 7-510(c): 1) that the price is a "market price that permits recovery of the verifiable, prudently incurred costs to procure or produce the electricity plus a reasonable return" and 2) that it was procured "in a manner that is designed to obtain the best price for residential and small commercial customers in light of market conditions at the time of procurement and the need to protect these customers from excessive price increases."

We find further support for our conclusion in a PSC order issued shortly before the orders at issue in the instant case. In 2007, the PSC conducted extensive evidentiary proceedings to determine its options for responding to an impending price spike for residential SOS customers. The below-market rate caps on BGE SOS incident to the 1999 Act originally were set to expire on July 1, 2004. Pursuant to settlements reached by the PSC, the caps were extended another two years, until July 1, 2006. As a result of market conditions during the six year freeze on rates, when the rates were to return to market price on July 1, 2006, residential SOS customers were facing a 72% rate increase.

It was in response to the public outcry over this price spike that the General Assembly enacted SB 1, which capped the residential SOS rates at 15% of the increase for another year (until July 1, 2007) and permitted the PSC to implement a voluntary Rate Stabilization Plan ("RSP") for an additional six months to allow customers who opted-in to defer some of the increase. SB 1 expressly provided, however, that residential SOS prices be "at market" by January 1, 2008 and that BGE be permitted to recoup any monies deferred by the mandatory rate cap and a voluntary RSP in the years that followed by adding surcharges onto residential customers' bills.

As a result of SB 1, residential SOS rates were set to return to market rates as of July 1, 2007, absent action by the PSC to implement an opt-in RSP for another year. The market rate amounted to a total annual increase of 50%. BGE proposed an opt-in RSP to be effective from July 1, 2007 through December 31, 2007. The PSC conducted eight days of hearings, heard testimony, and cross-examined 23 witnesses before reaching the conclusion that 1) the BGE residential SOS rates set to take effect were in compliance with the law; 2) a slightly modified version of the RSP should be adopted; and 3) it was without legal authority to cap the rates.

Subsequent residential SOS procurements had lessened the amount of the increase.

With respect to the propriety of the SOS rates themselves, the PSC identified the standard to be applied as "whether BGE's residential SOS rates are at a market price that permits recovery of the verifiable, prudently incurred costs to procure or produce the electricity commodity plus a reasonable return." RSP Order, supra, 2007 WL 1536549 at *10, 2007 Md. PSC LEXIS 11 at *29 (citing PUC § 7-510(c)(3)(ii)). In light of SB l's amendm ent of PUC Section 7-510, the PSC also viewed its role as ensuring that the SOS procurement process "will obtain the best price in light of market conditions at the time of procurement, and also prevent large rate increases." Id. at *19, 2007 Md. PSC LEXIS 11 at *54 (summarizing PUC § 7-510(c)(4)(ii)). Citing to Section 7-505(b)(8), the PSC concluded that if SOS procurements complied with applicable statutory standards and regulations, the resulting rates would be "just and reasonable [] in the absence of other factors which could impact the integrity of the results of the procurements." Id. at *19, 2007 Md. PSC LEXIS 11 at *54-*55.

In the RSP Order, the PSC erroneously cited to the non-existent Section 7-508(b)(8) in support of its conclusion, but clearly intended to cite to Section 7-505(b)(8).

Applying these principles, the PSC concluded that BGE's proposed residential rates were procured in compliance with the applicable statutory and regulatory regime and that, accordingly, there was no legal basis to invalidate them. Id. at *33-*34, 2007 Md. PSC LEXIS 11 at *101. There was no discussion in the RSP Order of suspending the rate increase and allocating it to other classes of SOS customers or to non-SOS customers via distribution rate increases as in the case at bar. Thus, in the RSP Order, the PSC viewed its role in regulating SOS rates to be confined to regulating and overseeing the procurement process, i.e., the wholesale auctions, to ensure it was sufficiently competitive to produce a market price that, in light of market conditions, was fair. If the process was fair and met with the PSC's approval, the resulting rates would be de facto "just and reasonable" according to the PSC's own interpretation of the statutory scheme.

Finally, we consider the PSC's contention, raised for the first time on appeal, that Section 2-112(b)(2) authorizes its actions generally, including the action it took in this case, when there otherwise is no precedent or established practice justifying it. That section provides that the PSC has the "implied and incidental powers needed or proper to carry out its functions" under this article. We agree with the appellants that it would be contrary to the spirit of statutory interpretation to read such a "gap-filling" provision as granting powers otherwise not granted in the PUC Article.

Accordingly, for the reasons already discussed, we conclude that, by enacting the 1999 Act, as modified by SB 1, the General Assembly limited the PSC's role in regulating the electricity supply, including SOS, in Maryland. In the instant case, the PSC, after approving the results of the April 21, 2008 auction, was without the authority to cap the SOS price for the New Type II Customers that resulted from that auction and shift a portion of that SOS price to large commercial customers by increasing their distribution rate.

JUDGMENT REVERSED. CASE REMANDED TO THE CIRCUIT COURT FOR BALTIMORE CITY WITH INSTRUCTIONS TO VACATE THE PSC'S LETTER ORDERS OF MAY 16, 2008, AND JUNE 6, 2008, AND TO REMAND THE MATTER TO THE PSC FOR FURTHER PROCEEDINGS NOT INCONSISTENT WITH THIS OPINION. COSTS TO BE PAID BY THE APPELLEE.