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REPORTED IN THE COURT OF SPECIAL APPEALS OF MARYLAND No. 418 September Term, 2009

SEVERSTAL SPARROWS POINT, LLC, ET AL. v. PUBLIC SERVICE COMMISSION OF MARYLAND

Eyler, Deborah S., Meredith, Matricciani, JJ.

Opinion by Eyler, Deborah S., J.

Filed:

September 17, 2010

This appeal challenges orders of the Maryland Public Service Commission ("PSC"), the appellee, capping for three months the electricity supply price for certain small commercial customers and allowing Baltimore Gas and Electric Company ("BGE") to recoup the shortfall caused by the price cap by increasing the electricity distribution rate for large commercial customers. Severstal Sparrows Point, LLC ("Sparrow's Point") and Maryland Energy Group and W.R. Grace & Co. (collectively "MEG"), the appellants, are large commercial customers or associations of large commercial customers whose electricity distribution rates were increased temporarily by the PSC's action. Sparrows Point, for example, incurred during the three-month period approximately $400,000 in charges for electricity distribution over what it otherwise would have paid. We hold that the PSC's action exceeded its authority and therefore was unlawful.

FACTS AND PROCEEDINGS
In Maryland, the electricity utility industry is comprised of two primary components: electric energy supply (power), which is a commodity, and electric energy distribution (power lines), which is a service.1 Historically, these components were "bundled" together and provided to customers exclusively by one utility company in each distribution territory.2 BGE controlled one such distribution area. Because it operated as a monopoly, BGE's rates for its bundled services were set by the PSC pursuant to Title 4, Subtitle 2 of the Public Utility Companies Article of the Maryland Code. The appropriate rate was determined by
1

A third component, transmission, is not regulated and is not relevant to this case.

In the Matter of Baltimore Gas and Electric Company's Proposal to Implement a Rate Stabilization Plan Pursuant to Section 7-548 of the Public Utility Companies Article and the Commission's Inquiry Into Factors Impacting Wholesale Energy Prices, Order No. 81423, 2007 Md. PSC LEXIS 11, *53-*55 (May 23, 2007) ("RSP Order"), provides a helpful background.

2

examining the utility's income and expenses during a test year, calculating the rate base (the fair value of the property used and useful in rendering service) during that year, determining the utility's cost of capital (its required rate of return), and then multiplying that rate of return against the rate base. The result is the amount of income to which the utility is entitled. Bldg. Owners and Mngrs. Ass'n v. Pub. Serv. Comm'n, 93 Md. App. 741, 753 (1992) ("BOMA"). Depending on whether the net income was significantly higher or lower than the test year income, the PSC was empowered to make increases or decreases to rates. Id. Finally, the PSC was authorized to allocate any increase or decrease among the classes of customers. Id. In 1999, the General Assembly enacted the Electric Customer Choice Act ("1999 Act"), codified at Md. Code (2008 Repl. Vol., 2009 Supp.), section 7-501 et. seq., of the Public Utility Companies Article ("PUC"), with, among its goals, those of establishing "customer choice of electricity supply" and creating "competitive retail electricity supply and electricity supply services markets."3 PUC

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Maryland Law