In NRG Energy v. Public Service Commission, the Court of Special Appeals Hints at an Intriguing Question of Administrative Deference, but Leaves it Unanswered for Now.

By John Grimm

About a month ago, the Court of Special Appeals handed down a reported opinion in NRG Energy v. Public Service Commission, Sept. Term, 2020, No. 1181, — Md. App. —, 2021 WL 4704825.[i] The case involved a dispute over the rates Baltimore Gas and Electric (“BGE”) can charge for electric service.

Without getting too far into the details—because they’re not relevant for the issues I find most interesting about this case—when the General Assembly de-regulated the electric market in the late 90s and early 2000s, it allowed BGE to keep a monopoly on the service of delivering electricity, but opened the market for competition on the product of electricity. For those consumers who cannot or do not select a provider, however, BGE must offer a fall-back service, whose rates are set in tariffs approved by the Public Service Commission (“PUC”). The formula for setting those rates is complicated, and it includes some open-ended factors such as an “administrative adjustment,” but the overall goal of the rate is to approximate reasonable market rates.

A lengthy series of administrative proceedings ensued, at which BGE, the Maryland People’s Counsel, and a number of providers—comprising an “Energy Service Coalition”—offered economic analyses, and the PUC ultimately set a new rate.  The private providers objected that the rate was too low, and filed a petition for judicial review, which ultimately made its way to the Court of Special Appeals. 

Applying arbitrary and capricious review, the court held that except for two small exceptions—the PUC relied on a piece of evidence it said was unsupported, and apparently made a minor mathematical error—the court affirmed the decision.  But what’s most interesting in this case is a question presented, but ultimately not answered, by the court: whether the PUC is “entitled to deference when addressing an issue of first impression on which it has yet to develop precedent, consistent rulings or expertise[.]”[ii]

Deference is an important topic in administrative law, that is often conflated with similar topics like the appropriate standard of review to apply to an agency’s decision. But, while arbitrary-and-capricious review, for example, focuses on the agency’s reasoning in reaching a decision, deference applies to an agency’s interpretation of its own statute.[iii] Deference is also an area where federal and Maryland administrative law differ somewhat.

Under federal law, there is no reason deference would not be afforded to an agency’s determination of a question of first impression arising out of the agency’s own statute. That is because the theoretical basis for deference in the first place is the notion that Congress wants agencies, not courts, to resolve ambiguities in agencies’ statutes. Denying agencies the opportunity to weigh in on their own statutes’ meaning in the first instance would defeat the purpose.

Under Maryland law, however, it’s a closer and more interesting question. Deference in Maryland functions a little more like a principle of comity rather than a rule of construction for interpreting agency statutes. Maryland courts are never bound by agency interpretations, and while courts accord them great weight, that weight varies according to several factors, and is particularly great “when the interpretation has been applied consistently and for a long period of time.”[iv]  This leaves room for the argument that new agency decisions are not entitled to deference, which would be an interesting question for courts to resolve.

If agency decisions on questions of first impression were entitled to less deference, agencies might never be able to develop a body of precedential decisions because the initial interpretation of their statutes would come from the judiciary. This result would be inimical to the federal theory of deference,[v] but under Maryland law, where judicial deference is never absolute, this may not be an undesirable result.

NRG might not have been the right vehicle to address this question of deference. The court held that the only real decision the agency had to make—what was an appropriate value for the “administrative adjustment” component of BGE’s rate—was a factual question reviewed for arbitrariness or capriciousness. But if a future case arose that presented the issue more squarely, it would be an interesting opportunity to continue to develop Maryland’s doctrine of administrative deference.

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[i] https://mdcourts.gov/data/opinions/cosa/2021/1181s20.pdf

[ii] 2021 WL 4704825, at *1 n.1.

[iii] See, e.g., Md. Dep’t of the Env’t v. Cnty. Comm’rs of Carroll Cnty., 465 Md. 169, 203 (2019).

[iv] Office of People’s Counsel v. Md. Pub. Serv. Com’n, 355 Md. 1, 17 (1999).

[v] Indeed, under so-called Brand X deference, federal courts must defer to agencies’ interpretations of their statutes even if they conflict with an earlier judicial interpretation. See National Cable & Telecommunications Association v. Brand X Internet Services, 545 U.S. 967 (2005).