Rules or Rulings: When Can an Agency Decide?
Regulatory agencies are often presented with the big issues of the day in different ways. A matter of policy — and controversy — may arise when an agency is requested to make a new regulation or rule, asked to award grants or funding, tasked with overseeing government projects, or resolving administrative complaints. Modern advocates see numerous potential paths to the desired outcome and employ multi-pronged strategies to try to get there.
Obviously, to those advocates, and the stakeholders and public affected, the policy that eventually results matters a lot. To the agencies — and the administrative lawyers who deal with them — how they consider the policy, and what procedures are used, also matter a lot. What power an agency has to pick the posture, forum, and mechanisms in which to consider disputed issues recently generated a split Appellate Court decision in In the Matter of Maryland Office of People’s Counsel, et al., that establishes some limitations on that discretion.
The dispute stemmed from the statement on Washington Gas’ consumer bill that “[n]atural gas is a clean, efficient, and reliable energy. Converting an all electric home to natural gas is the equivalent of planting 2.75 acres of trees or driving 26,520 fewer miles each year.” Later, the materials called natural gas “a smart decision for the environment.” (There is a dispute as to whether Washington Gas, its affiliate WGL Energy Services, or both were responsible for the content of the message, but, because that’s more of a factual dispute not as interesting as the rest of the case, I won’t get into it.)
The Public Service Commission Complaint
The Office of People’s Counsel didn’t agree with those statements, and filed a complaint with the Public Service Commission, alleging that they could “deceive and mislead utility customers about the emissions attributes of natural gas.” To the OPC, saying that natural gas is a clean energy falsely implies that it does not create significant greenhouse gas emissions. The complaint also objected that the comparison with planting trees and driving less was inaccurate, and it wasn’t adequately explained what an “all electric home” was. Lastly, the complaint argued that natural gas is not “generally environmentally friendly” and therefore not a smart decision for the environment.
The challenges stood on two provisions of the Public Utilities Article of the Maryland Code. First was PU § 2-113(a), which states that the Commission shall “supervise and regulate the public service companies … to ensure their operation in the interest of the public,” and, in doing so, consider “the preservation of environmental quality, including protection of the global climate from continued short-term and long-term warming based on the best available scientific information recognized by the Intergovernmental Panel on Climate Change” and “the achievement of the State’s climate commitments for reducing statewide greenhouse gas emissions.” The OPC argued that this provision required the Commission to decide whether Washington Gas’ statements were in the public interest.
The second relevant provision was PU § 5-303, which requires the provision of public services that are “safe, adequate, just, reasonable, economical, and efficient, considering the conservation of natural resources and the quality of the environment.” The complaint asserted that the messages failed to convey the true environmental cost of natural gas and therefore did not constitute “safe, adequate, just, reasonable, economical, and efficient service” that accounted for environmental quality.
Decisions of the Commission and Circuit Court
The Commission opened a docket for the complaint, and the Sierra Club submitted comments supporting the OPC’s positions. Washington Gas then moved to dismiss the complaint, citing studies, research, and arguments to support its claims, and the OPC and Sierra Club attacked those sources and responded with studies, authorities, and arguments of their own that it said refuted the claims.
After reviewing all this, the Commission issued an order dismissing the complaint, which it said failed “to adequately demonstrate a violation of state law or regulation in support of its broad allegations regarding the environmental attributes of natural gas.” Further, the Commission viewed the complaint as “an inappropriate forum to address the broader issues raised by natural gas and its role in greenhouse gas emissions. … Given that this was a utility-specific complaint that did not include the other natural gas companies in the State, it is clear that this complaint is not the proper forum in which to address such broader issues[.]”
The OPC and Sierra Club both appealed this dismissal to the Circuit Court for Montgomery County. (At some point around this time, Washington Gas removed the language at issue from its bills, but because the OPC and Sierra Club still sought fines the litigation continued.) The plaintiffs argued that the Commission was required to address the merits of the complaint and its decision didn’t do that. Declining to hear a complaint, the OPC objected, would render the complaint process meaningless. It also insisted that the Commission could decide whether the specific statements made by Washington Gas were not in the public interest without making broader decisions about natural gas policy.
The Commission’s defense was that it properly “abstained” from ruling on the deceptive marketing claims because it did not believe a single contested case was the proper way to address “general policy issues that would affect other gas companies,” instead of using a rulemaking or work group accessible to all stakeholders. Commission counsel asserted that it had discretion to decide whether or not to exercise jurisdiction in any particular case. Washington Gas similarly responded that it was not arbitrary or capricious for the Commission to decide that it did not want to encroach on the General Assembly’s authority by making rulings on whether natural gas can be called “clean” or not.
The Circuit Court affirmed the Commission’s dismissal, finding that it had properly exercised its discretion and deserved deference in doing so. That (presumably) prompted the OPC to then file a petition with the Commission to request rulemaking on adjusting State natural gas policies to align with greenhouse gas emission goals.
Circuit Court Affirmance and Appeal
The OPC nonetheless continued with its Washington Gas lawsuit and appealed the Circuit Court’s ruling. A big question before the Appellate Court was whether the Commission had discretion to dismiss a complaint on the basis that it wasn’t the preferred procedure for policy issues. Relevant to that point, the OPC insisted that, by dismissing the complaint because the broader issues involved were inappropriate for adjudication, the Commission violated its own procedural rules.
Two provisions are also relevant to this procedural argument: PU § 3-102 and COMAR 20.07.03.03A. (It’s unclear from the Appellate Court’s opinion whether these statutory grounds were specifically raised before the Circuit Court.) PU § 3-102(f) states that the Commission “shall” take final action by issuing an order that (1) dismisses the complaint; (2) directs full or partial satisfaction of the complaint; or (3) directs any action that the Commission considers to be warranted. Taking this a step further, COMAR 20.07.03.03A states that, after a complaint is received, the Commission “may”: (1) conduct an ex parte investigation; (2) issue a satisfy or answer order to the public service company complained of, in a manner prescribed by the Commission; or (3) dismiss the complaint if it fails to state a claim upon which relief can be granted.
The Commission and utility asserted that the agency had extensive authority to set its own docket, initiate investigations, and decide which issues were worthy of its time and resources. They argued that — pursuant to PU § 3-102(f)(1) and (3) — it is therefore acceptable for it to decline to entertain a complaint if it involves broad issues that are not appropriate for a complaint proceeding only involving one company. Whether or not natural gas is “clean energy,” they said, is a larger matter of State energy policy best considered in other administrative processes.
Reversal of the Commission’s Dismissal
The majority of the Appellate Court panel rejected those positions and reversed the Circuit Court. The majority’s reasoning relied on interpretation of the relevant procedural statute and regulation: Although PU § 3-102(f)(1) permitted the Commission to dismiss a claim without limitation, the majority held, the Commission’s enactment of COMAR 20.07.03.03A had restricted such dismissals to only complaints that fail to state a claim.
The majority applied the so-called Accardi doctrine (basically, that an agency has to follow the rules, regulations, and procedures that it adopts) to hold that the Commission could only dismiss a complaint for failure to state a claim, not because it is a question better suited for rulemaking than adjudication. As the majority saw it, questioning whether Washington Gas’ statements were misleading or deceptive stated claims for violations of PU §§ 2-113 and 5-303.
Those claims, the majority noted, only requested evaluation of specific marketing statements, and didn’t expressly request that the Commission make statewide conclusions about natural gas or climate change. The majority determined that “whether the three statements were deceptive because they were not substantiated, not qualified, or lacked context was a legal issue[.]”
The majority didn’t believe that a Commission decision would necessarily be creating a “policy rule of widespread application” — for example, if it forced Washington Gas to call natural gas “relatively clean” rather than just “clean.” The majority ultimately concluded that, because COMAR 20.07.03.03A only allows dismissal for failure to state a claim, and the complaint stated a claim for violation of the Public Utilities Article, the Commission’s action violated its own regulation and the Accardi doctrine.
A Dissent in Support of Agency Flexibility
Judge Getty didn’t agree. He was persuaded that whether “clean energy” means greenhouse gas emissions and whether natural gas can be described as “clean energy” were both policy calls rather than legal questions. (For this, he thought it particularly notable that OPC had subsequently filed a rulemaking petition with the Commission to change State natural-gas policies in light of greenhouse-gas reduction goals.) By having to decide the merits of the complaint, the Commission was being made responsible for adjudicating which of the competing studies were persuasive and what language could be used to describe natural gas — potentially far-reaching determinations that, to him, seemed especially unnecessary in the context of an individual adjudication given that Washington Gas had already gotten rid of the disputed language.
A ruling by the Commission on whether natural gas could be called “clean” would have an impact on how other natural gas companies operate without giving them an opportunity to provide input through the administrative process. Whether that process is rigid or adaptable — and particularly as to whether it develops as rulemaking or adjudication — was the primary split between the majority and dissent.
While the majority relied on the Commission’s regulations to keep the complaint within the adjudication process, Judge Getty looked to prior cases to determine that the Commission retained the ability to switch between the two: In Balt. Gas & Elec. Co. v. Pub. Serv. Comm’n of Md., 305 Md. 145, 168 (1986), the Court had called it “a well-settled principle of administrative law that the choice made between proceeding by general rule or by individual, ad hoc litigation is one that lies primarily in the informed discretion of the administrative agency,” and CBS, Inc. v. Comptroller of the Treasury, 319 Md. 687, 694 (1990), held that “the administrative process is enhanced when an agency is allowed substantial flexibility to decide between establishing policy by way of rule or by way of adjudication.”
CBS, in particular, touted the benefits of using rulemaking to promote “fairness” when an issue has broader implications, both because the outcome is prospective rather than punitive, and “the public notice, public hearing, and public comment processes that accompany rulemaking … are sometimes absent from administrative adjudication.” Judge Getty also cited Delmarva Power & Light Co. v. Pub. Serv. Comm’n of Md., 370 Md. 1, 28 (2002), as specifically disfavoring the Commission’s making policy changes that affect most gas companies through “case-specific adjudicatory proceedings.”
Judge Getty felt that the Commission’s action fell fairly within this jurisprudence, which permitted the agency to decide that individualized adjudication of these issues wasn’t fair to the other natural gas companies that weren’t parties to the case. He concluded that the Commission’s preference to route the issue through rulemaking — and its procedures for public notice, public hearing, and public comment — was proper grounds to dismiss the complaint on the basis that it was the improper forum, regardless of COMAR 20.07.03.03A.
(Based on legislative history, Judge Getty also rejected the OPC’s position that PU § 2-113(a)(2) — providing that the Commission’s regulation and supervision of utilities “shall consider” protection from global warming and reduction of greenhouse gas emissions — required the agency to adjudicate Washington Gas’ marketing language. As it’s not clear the majority rested its decision on that contention, I’ll just make note of it.)
Construction of the Commission’s Regulation
My analysis is slightly different from either of these approaches because I have a different read on COMAR 20.07.03.03A. I find the cases cited by Judge Getty to be compelling. On the other hand, I don’t see why an agency couldn’t, if it wanted to, forgo the flexibility those cases describe and enact regulations limiting its ability to move matters between the adjudicatory and rulemaking processes. If it so chose, the Accardi doctrine would apply to restrict that discretion, as the majority reasoned.
I’m just not sure that’s what the Commission did in COMAR 20.07.03.03A. For one, there’s an obvious difference between when an agency “shall” do something from a list of options, and when it “may” do something from a list of options. This difference is directly applicable here.
Scroll back up to compare the construction of the underlying statute and regulation. PU §§ 3-102(f) states that the Commission “shall” take action on a complaint by dismissing it, requiring satisfaction, “or” taking any other action that is warranted. COMAR 20.07.03.03A, however, states that the Commission “may” conduct an investigation, issue an order to the company, “or” dismiss the complaint for failure to state a claim.
The majority’s interpretation of these two provisions is the same — that the Commission has to do one of the listed things and nothing else. But they’re not the same. One uses “shall … or” and the other uses “may … or.” As I read it, COMAR 20.07.03.03A authorizes the Commission to do any of the three listed things. But authorizing things that “may” be done doesn’t mean that anything not listed can’t be done.
It also doesn’t mean the Commission can do whatever it feels like after getting a complaint. If that were the case, COMAR 20.07.03.03A would be completely meaningless, and statutes and regulations usually aren’t read to be meaningless. Rather, the way it is constructed, COMAR 20.07.03.03A authorizes the three stated actions, without limiting or restricting any other actions the Commission may be allowed to do pursuant to some other authority.
Here’s where Judge Getty’s cases come into play. Maryland administrative law approves and authorizes agencies to move matters between adjudication and rulemaking in certain circumstances when it is appropriate to do so. That power, separately developed in those decisions, isn’t constrained by COMAR 20.07.03.03A’s list of things the Commission “may” do.
Procedure, Public Interest, and Policy
The remaining question to complete the analysis is whether the issues in the case are truly the kind of policy matters that the Commission would be permitted to shift to rulemaking. On this one, I have a hard time seeing it the majority’s way. In fact, I have a hard time seeing how any such complaint alleging a violation of PU §§ 2-113 or 5-303 wouldn’t be subject to being moved to rulemaking if the Commission wanted to.
The alleged violation of PU § 2-113 was that the gas company’s operation was not “in the interest of the public.” No doubt that “public interest” is important, but usually figuring out what it is involves weighty policy considerations. Likewise, the alleged violation of PU § 5-303 is that the company’s services were not “safe, adequate, just, reasonable, economical, and efficient, considering the conservation of natural resources and the quality of the environment.”
These are not precise requirements that can be resolved with the simple application of a law. Rather, these are general authorities with general standards and a lot of room for debate about when and how they should apply to certain conduct. To me, even one of the majority’s examples — that the Commission could have avoided policy pronouncements by requiring the company to call natural gas “relatively clean” rather than just “clean” — doesn’t have an obvious legal result; unless there’s some reasonably exact legal definition of “clean” for it to rely on, a policymaker could consider lots of different factors in deciding when either label should be used.
Again, all this doesn’t mean the Commission necessarily couldn’t adjudicate those provisions if it felt it was the right way to go. Its adjudicatory rulings and decisions would shape the meaning and application of those standards like new rules would. I agree with Judge Getty, however, that nothing on the face of the relevant statutes or regulations takes away the Commission’s discretion to put the matter on the track it deems most appropriate.
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