Title: Petition of the Off. Of People's Counsel

State: maryland

Issuer: Maryland Supreme Court

Document:

In the Matter of the Petition of the Maryland Office of People’s Counsel, No. 11, September 
Term, 2023, Opinion by Booth, J. 
 
 
PUBLIC UTILITIES – ADMINISTRATIVE LAW – AGENCY DEFERENCE.  
When undertaking judicial review of a decision of the Maryland Public Service 
Commission (“Commission”) approving a public service company’s application for a rate 
increase under Section 3-203 of the Public Utilities Article of the Maryland Code, a 
reviewing court is to apply an arbitrary or capricious standard of review to the 
Commission’s interpretation of its own order that it entered in connection with its approval 
of the acquisition of the public service company.   
 
The Supreme Court of Maryland held that the Commission’s interpretation of its own 
merger order in connection with a public service company’s application for a rate increase 
was not arbitrary or capricious.   
 
 
 
 
Circuit Court for Baltimore City 
Case No.:  24-C-21-003749 
Argued: December 4, 2023
IN THE SUPREME COURT 
OF MARYLAND 
 
 
 
 
 
 
 
 
No. 11 
September Term, 2023 
 
 
 
 
 
 
 
 
IN THE MATTER OF THE PETITION  
OF THE MARYLAND OFFICE OF 
PEOPLE’S COUNSEL 
 
 
 
 
 
 
 
 
 
 
Fader, C.J., 
Watts, 
Hotten, 
Booth, 
Biran, 
Gould, 
Eaves, 
 
JJ. 
 
 
 
 
 
 
 
 
 
Opinion by Booth, J. 
 
 
 
 
 
 
 
 
 
Filed: February 23, 2024 
 
 
 
Pursuant to the Maryland Uniform Electronic Legal 
Materials Act (§§ 10-1601 et seq. of the State 
Government Article) this document is authentic. 
 
Gregory Hilton, Clerk 
2024.03.21 
11:41:58 
-04'00'
 
The General Assembly has provided for judicial review 
of [decisions of the Public Service] Commission, but 
that review is to be deferential to the Commission’s 
expertise and findings.  The role of the courts is to 
ensure that the Commission has exercised its discretion 
in carrying out this important responsibility within the 
bounds prescribed by the General Assembly and the 
Constitution.   
 
Office of People’s Counsel v. Md. Public Service 
Commission, 461 Md. 380, 384 (2018)  
 
 
In Maryland, the General Assembly has determined that an acquisition of a public 
service company by another public service company should be reviewed by the Maryland 
Public Service Commission (“Commission”), an administrative body with specialized 
knowledge of utility markets.  The Commission must determine whether the proposed 
transaction is “consistent with the public interest, convenience, and necessity, including 
benefits and no harm to consumers.”1  The Legislature has identified certain factors for the 
Commission to consider and has also vested considerable discretion in the Commission to 
consider other matters that it may find pertinent when undertaking its assessment.  One 
factor that the Commission is required to consider is the potential impact that the 
acquisition will have on rates and charges paid by Maryland customers, and the services 
and conditions of operation of the public service company after the merger or acquisition.  
After it completes its analysis, the Commission must either approve or reject the 
transaction, or approve it with conditions.    
 
1 Md. Code Ann., Public Utilities Article (“PU”) § 6-105(g)(3)(i) (2020 Repl. Vol., 
2023 Supp).   
2 
 
 
The Legislature has also granted the Commission the authority to set rates charged 
by a public service company to Maryland customers.  In undertaking this duty, the 
Commission is required to utilize its expertise to establish a rate that enables a utility 
company to cover prudent expenses and earn a reasonable profit.    
When the Commission exercises any of the above-described powers or duties, it 
does so within the context of an administrative proceeding.  And, as we discuss in detail 
herein, the General Assembly has set forth specific parameters for judicial review of 
Commission decisions.  
This case concerns the Commission’s approval of an application for a base rate 
increase filed by Washington Gas and Light Company (“Washington Gas”)2 in August 
2020 (the “rate administrative proceeding”).  The rate administrative proceeding occurred 
approximately two and one-half years after the Commission concluded an administrative 
proceeding in which it approved the acquisition of Washington Gas by AltaGas Limited 
(“AltaGas”) (the “merger administrative proceeding”).3  The Office of People’s Counsel 
 
2 Washington Gas is a public service company that provides natural gas and delivery 
services to customers in the Maryland counties of Montgomery, Prince George’s, Charles, 
Calvert, St. Mary’s, and Frederick, as well as customers in Washington, D.C., and 
jurisdictions in Virginia.  To transport natural gas to its customers, Washington Gas 
operates a system of distribution pipelines spanning its geographic service area throughout 
Maryland, Virginia, and Washington, D.C. 
 
3 AltaGas is a North American diversified energy infrastructure business with 
operations in Canada and the United States.  Its headquarters is located in Calgary, and its 
business is focused on three business segments: utilities, gas, and power.  
3 
 
 
(“OPC”)4 participated in the merger administrative proceeding, as well as the rate 
administrative proceeding.   
This appeal centers on a determination that the Commission made in the rate 
administrative proceeding concerning the proper interpretation of a condition the 
Commission had included in its final order approving the merger.  That condition required 
that Washington Gas customer rates reflect “merger-related savings” of “not less than 
$800,000 per year over the five years” following the merger’s closing.  The Commission 
interpreted that requirement to mean that Washington Gas’s post-merger costs must be 
$800,000 per year less than they would have been but for the merger.  Washington Gas 
agrees.  OPC, by contrast, contends that the condition required Washington Gas’s post-
merger costs to be $800,000 per year less than they were the year before the merger.   
OPC did not file a petition for judicial review of the Commission’s final order 
approving the merger, but it did file a petition for judicial review of the Commission’s 
order approving Washington Gas’s request for a rate increase.  After the circuit court 
 
4 The People’s Counsel—a position created by the General Assembly—is an 
attorney licensed in Maryland who is appointed by the Attorney General with the advice 
and consent of the Senate.  PU § 2-202.  The duties of the Office of People’s Counsel 
(“OPC”) include evaluating “each matter pending before the Commission to determine if 
the interests of residential and noncommercial users are affected.”  Id. § 2-204(a)(1)(i).  If 
OPC “considers the interest of residential and noncommercial users to be affected, [it] shall 
appear before the Commission and courts on behalf of residential and noncommercial users 
in each matter or proceeding over which the Commission has original jurisdiction[.]”  Id. 
§ 2-204(a)(2). 
4 
 
 
affirmed the Commission’s rate increase decision, which was then affirmed by the 
Appellate Court of Maryland, OPC filed a petition for writ of certiorari, which we granted.  
OPC raises the question of whether the Commission erred in its interpretation of the 
condition in its merger order that provided the method by which Washington Gas was 
required to compute its “merger-related savings” when applying for a rate increase.  We 
are also asked to determine the standard of review that a court must apply when reviewing 
the Commission’s interpretation of its own prior decision or order.  For the reasons we set 
forth more fully herein, we hold that a court is to apply the “arbitrary or capricious” 
standard of review.  Applying that standard here, we conclude that the Commission’s 
interpretation of its own order was not arbitrary or capricious. 
I 
Statutory Framework 
The jurisdiction and powers of the Commission extend to all public service 
companies operating a utility business in Maryland, to the full extent permitted by the 
Constitution and the laws of the United States.  Md. Code Ann., Public Utilities Article 
(“PU”) § 2-112 (2020 Repl. Vol., 2023 Supp.).  Generally, the Commission has supervisory 
and regulatory authority over public service companies to “ensure their operation in the 
interest of the public[,]” and to “promote adequate, economical, and efficient delivery of 
utility services in the State without unjust discrimination[.]”  Id. § 2-113(a)(1)(i).  The 
Commission also has broad enforcement authority to ensure compliance with laws, 
5 
 
 
“including requirements with respect to financial condition, capitalization, franchises, 
plant, manner of operation, rates, and service.”  Id. § 2-113(a)(1)(ii).   
A. The Commission’s Authority Over Public Service Company Mergers  
 
In general, one may not acquire a public gas or electric company that operates in 
Maryland without prior authorization from the Commission.  Id. § 6-105(e)(1).  To obtain 
that authorization, the applicant must file an application with the Commission containing 
detailed information concerning the transaction and provide certain documentation.  Id. § 
6-105(f).   
 
The Commission is then required to “examine and investigate each application” and 
to conduct any necessary administrative proceedings for review of the application.  Id. § 6-
105(g)(1).  The applicant has the burden of persuading the Commission that the 
“acquisition is consistent with the public interest, convenience, and necessity, including 
benefits and no harm to consumers.”  Id. § 6-105(g)(3)(i), (5).  In connection with its 
review, the Commission is required to consider a list of 12 statutory factors.5  Id. § 6-
 
5 Those factors are:  
 
(i) the potential impact of the acquisition on rates and charges paid by 
customers and on the services and conditions of operation of the public 
service company; 
(ii) the potential impact of the acquisition on continuing investment needs 
for the maintenance of utility services, plant, and related infrastructure; 
(iii) the proposed capital structure that will result from the acquisition, 
including allocation of earnings from the public service company; 
(iv) the potential effects on employment by the public service company; 
 
6 
 
 
105(g)(2)(i)–(xii).  The Legislature has granted the Commission considerable discretion in 
connection with its decision to approve an acquisition.  Specifically, the Commission may 
consider “any other issues” that it “considers relevant to the assessment of acquisition in 
relation to the public interest, convenience, and necessity.”  Id. § 6-105(g)(2)(xii).   
At the conclusion of the proceeding, the Commission is to issue a written decision 
that is based on the record and that states the grounds for its conclusions.  Id. § 3-113(a).  
If the Commission is satisfied that the applicant has borne its burden, it is required to issue 
an order granting the application.  Id. § 6-105(g)(3)(i).  The Commission, however, has the 
discretion to “condition an order authorizing the acquisition on the applicant’s satisfactory 
performance or adherence to specific requirements.”  Id. § 6-105(g)(3)(ii).  If the 
Commission concludes that the applicant has failed to meet its burden, it shall issue an 
order denying the application.  Id. § 6-105(g)(4).  An interested party that is dissatisfied 
with the Commission’s final decision may file a petition for judicial review.  Id. § 3-202.    
 
(v) the projected allocation of any savings that are expected to the public 
service company between stockholders and rate payers; 
(vi) issues of reliability, quality of service, and quality of customer service; 
(vii) the potential impact of the acquisition on community investment; 
(viii) affiliate and cross-subsidization issues; 
(ix) the use or pledge of utility assets for the benefit of an affiliate; 
(x) jurisdictional and choice-of-law issues;  
(xi) whether it is necessary to revise the Commission’s ring fencing and code 
of conduct regulations in light of the acquisition; and 
(xii) any other issues the Commission considers relevant to the assessment 
of acquisition in relation to the public interest, convenience, and necessity. 
 
PU § 6-105(g)(2).   
7 
 
 
B. The Commission’s Rate-Making Authority 
 
Under PU § 4-201, a public service company has a duty to “charge just and 
reasonable rates for the regulated services that it renders,” and the Commission retains the 
power to set rates that comply with the statute.  Id. § 4-102(b).  A “just and reasonable rate” 
is a rate that, among other things, is “consistent with the public good” and “will result in 
an operating income to the public service company that yields, after reasonable deduction 
for depreciation and other necessary and proper expenses and reserves, a reasonable return 
on the fair value of the public service company’s property used and useful in providing 
service to the public.”  Id. § 4-101(2), (3).6  In undertaking its statutory duties, the 
“Commission’s role is to determine what rates the utility should be allowed to charge in 
future years to cover prudent expenses and earn a reasonable profit.”  Office of People’s 
Counsel v. Md. Public Service Comm’n, 355 Md. 1, 8 (1999).  The Commission is required 
 
6 In other cases involving this Court’s review of the Commission’s authority over 
public utility rate-making, this Court has cited to 1 A.J.G. Priest, Principles of Public Utility 
Regulation 45 (1969), which summarizes the factors that underlie the establishment of 
public utility rates as follows:  
 
The orthodox making of public utility rates requires four basic 
determinations: (1) what are the enterprise’s gross utility revenues under the 
rate structure examined; (2) what are its operating expenses, including 
maintenance, depreciation and all taxes, appropriately incurred to produce 
those gross revenues; (3) what utility property provides the service for which 
rates are charged and thus represents the base (rate base) on which a return 
should be earned and (4) what percentage figure (rate of return) should be 
applied to the rate base in order to establish the return to which investors in 
the utility enterprise are reasonably entitled. 
 
See Office of People’s Counsel v. Md. Public Service Comm’n, 355 Md. 1, 8 (1999); Public 
Service Comm’n v. Baltimore Gas & Electric Co., 273 Md. 357, 360 n.2 (1974).   
8 
 
 
to enter an order when setting a “just and reasonable rate,” PU § 4-102(c), which is subject 
to judicial review.  PU § 3-202(a).   
We turn to the Commission’s merger administrative proceeding that resulted in its 
decision to approve AltaGas’s acquisition of Washington Gas, as well as the Commission’s 
subsequent rate case administrative proceeding that resulted in its approval of a rate 
increase—the latter proceeding being the subject of OPC’s contentions in this matter.    
II 
Background and Procedural History 
A. The Commission Proceedings Related to the Merger 
In 2017, AltaGas, Washington Gas, and WGL Holdings, Inc. (“WGL”) (sometimes 
hereinafter collectively referred to as the “Applicants”) filed an application seeking 
authorization from the Commission, as required by PU § 6-105, for AltaGas to acquire 
Washington Gas.  Thereafter, the Commission initiated an administrative proceeding to 
evaluate whether the application was “consistent with the public interest, convenience, and 
necessity, including benefits and no harm to consumers[.]”  PU § 6-105(g)(3).  In addition 
to the entry of appearances for OPC and the Commission Staff, 11 parties filed petitions to 
intervene, which the Commission granted.  The administrative proceeding included direct, 
rebuttal and rejoinder testimony, as well as extensive evidentiary hearings and briefing.  
9 
 
 
During the pendency of the proceeding, several of the intervenors entered into a settlement 
agreement with the Applicants that was filed with the Commission.7   
In addition to the terms of the settlement agreement, the Applicants offered several 
commitments or conditions8 for the Commission’s consideration in connection with its 
approval of the merger.  Two conditions proposed by the Applicants—Conditions 44 and 
289—are at the center of this matter.  As will be discussed in more detail below: (1) 
Condition 44, among other things, required Washington Gas to provide at least $800,000 
in annual “merger-related savings” to its Maryland customers (net of transition costs) for 
five years after the merger; and (2) Condition 28 required Washington Gas to issue post-
merger reports providing a “side-by-side comparison by function” of its pre-merger and 
post-merger “corporate and shared-services costs.”  The parties in the instant case disagree 
on the manner in which “merger-related savings” required by Condition 44 would be 
 
7 The parties to the settlement agreement were the Applicants, and the intervenors: 
Maryland Energy Administration, Prince George’s County, Montgomery County, and the 
Baltimore Washington Laborers and Public Employees District Council, an affiliate of the 
Laborers International Union of North America.  
 
8 The Commission’s merger order and the parties use the terms “condition” and 
“commitment” interchangeably.  We will use the term “condition”—which is the term used 
in PU § 6-105(g)(3)(ii).  
 
9 When the conditions were initially submitted by the Applicants, Condition 28 was 
numbered “Condition 26” and Condition 44 was numbered “Condition 41.”  Because the 
substance of the conditions did not change from the time that they were submitted until the 
Commission approved them (except for one sentence in what would ultimately become 
Condition 28), we refer to these conditions by the numbers as set forth in the final merger 
order.   
10 
 
 
calculated in future base rate increase cases.  Specifically, the parties dispute whether the 
required savings were to be measured against what Washington Gas’s costs would have 
been but for the merger, as the Commission and Washington Gas contend, or whether they 
were to be measured against Washington Gas’s costs incurred in the year before the merger, 
as set forth in the comparison required by Condition 28, as OPC contends. 
Washington Gas and Commission Staff presented different methodologies to the 
Commission for how “merger-related savings” should be computed in future rate cases.  
Because the testimony concerning these competing methodologies is pertinent to OPC’s 
contentions here, we summarize some of the key testimony that was presented to the 
Commission, and the Commission’s consideration of the same in the merger order that it 
ultimately entered. 
1. Washington Gas’s Methodology for Computation of “Merger-Related 
Savings” 
Washington Gas presented a methodology for computing “merger-related savings” 
that centered around “synergy savings.”  Washington Gas submitted expert testimony by 
Todd J. Jirovec, a Principal in the power and utilities practice of a business named 
Strategy&.  Mr. Jirovec testified that “synergy savings” or “synergies” are “tangible 
financial benefits” that arise when two companies merge and “represent a general reduction 
in costs or improvement to performance” that would not be realized in the absence of the 
merger.  He explained that utility merger-related savings are typically achieved in three 
areas: (1) cost reduction, (2) cost avoidance, or (3) revenue enhancement.  Mr. Jirovec 
described the types of synergies that are generally available through a utilities merger 
11 
 
 
transaction, and also explained that, in his experience, “no two transactions are necessarily 
the same in enabling the realization of synergies.” 
After providing an overview of synergy savings that are typically available in a 
utility merger and factors that may influence synergy levels generally, Mr. Jirovec testified 
concerning the specific synergy savings that he computed in connection with the proposed 
merger of AltaGas and Washington Gas.  He explained how he developed his merger 
synergy computations, stating that “[w]e requested data from each company, interviewed 
AltaGas and Washington Gas staff, reviewed publicly available data and filings, and 
reviewed internal financial and other data.  Based on these sources of input, we constructed 
baselines of comparable spending levels where merger savings are typically available.”  
Mr. Jirovec testified that the Applicants were expected to realize merger-related 
savings in the following corporate and administrative support functions: (1) corporate 
programs (by eliminating overlapping annual expenditures that both companies incur 
related to business and support activities); (2) supply chain (by reducing annual amounts 
that each company spends in the areas of materials and supplies and contract services); (3) 
functional alignment (by consolidating corporate and administrative support functions); 
and (4) portfolio shift (arising from economies of scale gained from the merger, which 
would enable Washington Gas to provide corporate and administrative services on a more 
efficient basis). 
12 
 
 
 
Mr. Jirovec produced a chart entitled “Net Annual Merger-Related Benefit 
Commitment to Maryland Customers[,]”10 that reflected his prediction that the merger 
would provide Washington Gas’s Maryland customers with a net benefit of $4.1 million 
over five years after subtracting amortized transition costs11 associated with the merger.  
Notably, in arriving at his bottom-line prediction of the merger’s net benefit to Washington 
Gas’s customers, Mr. Jirovec’s projections included a component of post-merger corporate 
costs that AltaGas would allocate to Washington Gas as part of its overall combined 
operations.    
 
 
10 Mr. Jirovec’s chart computed the annualized net benefit that would be realized by 
Washington Gas’s Maryland customers as follows (expressed in millions of dollars):    
 
 
Maryland 
Allocable 
Share % 
Year 1 
Year 2 
Year 3 
Year 4 
Year 5 
TOTAL 
Corporate 
Allocations 
39.18% 
$ 5.0 
$ 5.1 
$ 5.2 
$ 5.3 
$ 5.5 
$ 26.0  
Synergies 
39.18% 
$ (2.8) 
$ (6.1) 
$ (7.3) 
$ (7.7) 
$ (8.3) 
$ (32.2) 
Amortized 
Transition 
Costs 
39.18% 
$ 0.4 
$ 0.4 
$ 0.4 
$ 0.4 
$ 0.4 
$ 2.1 
Net 
(Benefit) 
Cost 
 
$ 2.7 
$ (0.6) 
$ (1.7) 
$ (2.0) 
$ (2.4) 
$ (4.1) 
Annualized 
Net 
(Benefit) 
Cost 
 
$ (0.8) 
$ (0.8) 
$ (0.8) 
$ (0.8) 
$ (0.8) 
$ (4.1) 
 
11 “Transition costs” are non-recurring costs that are incurred to facilitate the 
integration of the merger.  As we will discuss more fully herein, Washington Gas proposed, 
and the Commission agreed, that Washington Gas’s transition costs could be amortized 
over five years.   
13 
 
 
2. Commission Staff’s Methodology for Computing “Merger-Related 
Savings”  
Commission Staff presented a different methodology for how “merger-related 
savings” should be computed in a post-merger rate increase case.  Commission Staff 
presented expert testimony by Robert Welchlin, a Director of Overland Consulting, a firm 
that specializes in consulting in the electric, gas, water, and telecommunications industries.  
Mr. Welchlin expressed the opinion that there were few opportunities for Washington Gas 
to realize synergy savings from the merger.   
In the event that the Commission approved the merger, Mr. Welchlin recommended 
that the Commission modify the Applicants’ proposed Condition 44, which addressed how 
Washington Gas would compute “merger-related savings” in connection with any 
application for a rate increase.  First, to prevent Washington Gas from “experiencing a 
potentially significant increase in corporate costs” following the merger, Mr. Welchlin 
recommended that the Commission prohibit the companies from allocating to Washington 
Gas any portion of AltaGas’s existing corporate costs unless Washington Gas could 
demonstrate that the chargeable costs were no higher than the costs that Washington Gas 
recorded on its books in the last full year prior to the merger.  To ensure compliance with 
this proposed condition, Mr. Welchlin recommended that the Commission require 
Washington Gas to track its pre- and post-merger costs, and certify that its comparison was 
“based solely on corporate-level expenses[.]”  Mr. Welchlin suggested that the prohibition 
on any post-merger allocation of AltaGas’s corporate costs to Washington Gas “should end 
as soon as Washington Gas demonstrates to the Commission that the merged company is 
14 
 
 
charging the utility no more, adjusted for inflation, than Washington Gas would have 
incurred had it not merged with AltaGas.”  In order to fairly compare pre- and post-merger 
corporate costs, Mr. Welchlin recognized that it would be “necessary to bring pre-merger 
dollar amounts to current price levels[,]” which he opined could “be done by applying an 
annual inflation factor, such as the consumer price index, to the annual pre-merger amount” 
or by using a 2.5% annual escalator.  
To ensure that Washington Gas’s computations followed the above framework, Mr. 
Welchlin recommended that the Commission revise Condition 44 to specifically define 
“merger-related savings” as the “reduction in pre-merger spending that occurred because 
of the merger that could not have been achieved but for the merger.”  He expressed his 
view that the condition should “explicitly adopt this definition, indicat[ing] that all pre[-] 
and post-merger costs identified for the purpose of calculating savings will be actual 
spending, and that each unique area of savings will be separately quantified and tracked by 
Washington Gas.”    
Mr. Welchlin opined that, without a specific definition of “merger-related savings” in 
the condition, “merger[-related] savings can be anything Washington Gas wants it to be.”  
He reiterated that the “net merger benefit” should be the “net merger savings from synergies, 
after subtracting transition costs to achieve the merger and, in this case, after subtracting 
additional corporate costs that will be allocated to Washington Gas from AltaGas[.]” 
15 
 
 
3. The Commission’s Approval of the Merger and Pertinent Merger 
Conditions Included in Its Order  
After considering the oral and written testimony, along with other evidence, the 
Commission approved the application, subject to conditions.  On April 4, 2018, the 
Commission issued a 64-page order explaining its decision, together with a 21-page 
appendix setting forth 52 conditions for approval of the transaction (“Merger Order”).  In 
the Matter of the Merger of AltaGas Ltd. & WGL Holdings, Inc., No. 9449, Order No. 
88631, 2018 WL 1705968 (Md. Pub. Serv. Comm’n April 4, 2018).   
The Merger Order included a description of the Applicants’ proposal, the procedural 
history, the specific positions of the Commission Staff, OPC, the intervenors, and the 
Commission’s analysis of the statutory factors enumerated in PU § 6-105(g)(2).  After 
reviewing the evidence, and the various positions of the participants, the Commission 
determined that the merger “satisfied the three-part test” set forth in PU § 6-105(g)(3)(i).  
That is, subject to the imposed conditions, “the acquisition [was] consistent with the public 
interest, convenience, and necessity, including benefits and no harm to consumers.”  
In approving the merger, the Commission stated that it “carefully applied” its own 
precedent and the statutory standards enumerated in PU § 6-105 to the “facts of this case,” 
pointing out that “every merger proposal is different.” The Commission evaluated and 
imposed certain requirements on the Applicants, including (1) a one-time direct payment 
to customers, (2) conditions designed to ensure “synergy savings,” (3) the establishment of 
a gas expansion fund, (4) safety programs, and (5) the payment of charitable contributions 
to provide benefits to Maryland consumers. 
16 
 
 
In connection with its approval, the Commission imposed 52 conditions, which 
covered a range of topics.  We focus on two of them—Conditions 44 and 28.  As the 
language and context of these conditions are pertinent to the present case, we discuss them 
in detail below.   
a. Condition 44 
Condition 44 addressed the manner in which Washington Gas would be required to 
demonstrate that it had achieved “merger-related savings” in post-merger base rate increase 
cases for a period after the merger closing.  It appeared in a section entitled “Cost, 
Accounting, Tax, and Rate Neutrality,” and required Washington Gas to “track and account 
for merger-related savings, and transition costs to enable those savings, in its next two base 
rate cases in which the test year in question includes transition costs.”12  “Merger-related 
 
12 In its entirety, Condition 44 stated:  
Washington Gas will track and account for Merger-related savings, and 
transition costs to enable those savings, in its next two base rate cases in 
which the test year in question includes transition costs.  Washington Gas 
will amortize the transition costs over five years, will not seek recovery in 
rate proceedings over those five years of any amortized transition costs or 
corporate costs allocated from AltaGas to Washington Gas in excess of 
Merger-related savings, and will ensure that customer rates reflect an annual 
net benefit to Washington Gas’s Maryland customers of not less than 
$800,000 per year over the five years following Merger Close commencing 
with the first post-Merger base rate case (i.e., $4 million over five years).  In 
the event that Washington Gas files a base rate case in Maryland in 2018, 
and the Merger Close occurs before or during the pendency of that rate case, 
then Washington Gas will consent to a ratemaking adjustment to reduce 
Washington Gas’s revenue requirements by $800,000 as a known and 
measurable reduction in Washington Gas’s cost of service during the new 
rate-effective period. ‘Transition costs’ as used in this [condition] are 
 
17 
 
 
savings” were defined as “the tangible financial benefits achieved as a result of the Merger 
for the five years after Merger Close that would not have been possible if the individual 
companies were to continue to operate separately.” “Transition costs” were defined as 
“incremental non-recurring costs to facilitate the integration of the companies.” 
Condition 44 also required that Washington Gas (1) “amortize the transition costs 
over five years,” (2) “not seek recovery in rate proceedings over those five years of any 
amortized transition costs or corporate costs allocated from AltaGas to Washington Gas in 
excess of merger-related savings,” and (3) “ensure that customer rates reflected an annual 
net benefit to Washington Gas’s customers of not less than $800,000 per year over the five 
years following Merger Close commencing with the first post-Merger base rate case.”  The 
phrases “corporate costs allocated from AltaGas” and “net benefit” were not defined. 
Notably, although the Commission required that other proposed conditions be 
revised, the Commission did not make any changes to the language of Condition 44 as 
proposed by the Applicants.  The Merger Order reflects that the Commission credited Mr. 
Jirovec’s testimony and specifically referenced the Applicants’ commitment in Condition 
44 to ensure that “customer rates reflect an annual net benefit to Washington Gas’s 
 
incremental non-recurring costs to facilitate the integration of the companies. 
‘Merger-related savings’ as used in this [condition] refers to the tangible 
financial benefits achieved as a result of the Merger for the five years after 
Merger Close that would not have been possible if the individual companies 
were to continue to operate separately. 
18 
 
 
Maryland customers of not less than $800,000 per year over five years following the 
Merger Close.”   
By contrast, the Commission did not adopt Mr. Welchlin’s recommendation that 
Condition 44 be amended to define “merger-related savings” as “a reduction in 
[Washington Gas’s] pre-merger spending” that “could not have been achieved but for the 
merger,” to be determined by computing Washington Gas’s cost-savings based on 
Washington Gas’s actual spending.  The Commission offered the following rationale:   
Although some parties have contended . . . that post-merger synergy savings 
are too vague to quantify, we conclude that [Condition 44] ensures that 
customer rates will decline or otherwise be lower than they would have been 
absent the merger and therefore complies with [the benefits] portion of our 
statute.  Also, as Applicants observe, unlike in most merger situations which 
do not realize synergy savings for years after closing, the Applicants are 
applying these savings to ratepayers beginning in the first year.  Therefore, 
we find that the synergy savings will result in direct ratepayer benefits. 
 
The Commission commented on “the difficulty of quantifying” merger-related savings in 
previous cases, and specifically mentioned the “Exelon/Constellation” merger, a 
transaction it approved in 2012.13  However, the Commission distinguished that merger 
from the Washington Gas merger, observing that Condition 44 would allow the 
Commission “to quantify these savings in the present case.” 
 
13 See In the Matter of the Merger of Exelon Corp. & Constellation Energy Group, 
Inc., No. 9271, Order No. 84698, 2012 WL 833884 (Md. Pub. Serv. Comm’n Feb. 17, 
2012).  In that proceeding, Exelon Corporation (“Exelon”), Constellation Energy Group 
(“CEG”), the Baltimore Gas and Electric Company (“BGE”) and Exelon Energy Delivery 
Company sought the Commission’s approval for a transaction in which Exelon would, by 
acquiring all of the stock of CEG, acquire the power to exercise substantial influence over 
the policies and actions of BGE.    
19 
 
 
b. Condition 28 
As we will discuss below, OPC contends that Condition 28 established the 
mechanism to measure the “merger-related savings” required by Condition 44.  Condition 
28 appeared in a section entitled “Affiliate Requirements” and required Washington Gas to 
provide the Commission with a “side-by-side comparison by function” of the pre-Merger 
and post-Merger “corporate and shared-services costs incurred by Washington Gas for the 
five years after Merger Close.”14  “For purposes of [Condition 28], pre-Merger mean[t] 
calendar year 2016.”  Additionally, “[i]n the event Washington Gas file[d] a base rate case 
prior to the receipt of the first year comparison,” it was required to “include as part of its 
 
14 In its entirety, Condition 28 stated:   
 
Washington Gas shall provide a side-by-side comparison by function of the 
pre-Merger corporate and shared-services costs incurred by Washington Gas 
as compared to the post-Merger corporate and shared-services costs incurred 
by Washington Gas for the five years after Merger Close[].  The comparisons 
shall be filed on an annual basis as a separate letter, and the first letter shall be 
filed no later than the end of the second quarter following the first full year 
after Merger Close.  The comparisons shall include information by account 
under the Federal Energy Regulatory Commission (“FERC”) Uniform System 
of Accounts.  In the event that Washington Gas files a base rate case prior to 
the receipt of the first year comparison, Washington Gas will include as part 
of its base rate application a side-by-side comparison, by function, of pre- and 
post-Merger corporate and shared-services costs available through the test 
year, to the extent applicable.  Additionally, in the second quarter after the first 
full calendar year following Merger Closing, and for every subsequent year 
for the next ten years, Washington Gas shall prepare and file with the 
Commission a report showing (i) AltaGas’s annual charges to Washington Gas 
and (ii) Washington Gas’s corporate and shared services costs.  For purposes 
of this paragraph, pre-Merger means calendar year 2016. 
20 
 
 
base rate application a side-by-side comparison, by function, of pre- and post-Merger 
corporate and shared-services costs available through the test year, to the extent applicable.” 
 
Given that the Merger Order deviated from the terms of the settlement agreement 
on matters that are not related to the instant dispute (in which the Applicants had reserved 
the right to reject the merger rather than proceeding to closing), the Commission directed 
the Applicants to advise the Commission in writing of their intentions to close on the 
merger transaction no later than April 16, 2018.  The Applicants agreed to the revised 
conditions, and the merger transaction closed as contemplated.  No party filed a petition 
for judicial review of the Merger Order. 
B.  
The Rate Administrative Proceeding 
On August 28, 2020, Washington Gas applied to the Commission for authorization 
to increase its base rates.  The Commission delegated the matter to a public utility law 
judge (“PULJ”) to conduct evidentiary proceedings.  See PU § 3-104(d)(1). 
1. Administrative Proceedings Before the PULJ    
In support of its application, Washington Gas provided voluminous exhibits and 
written testimony from several witnesses.  Likewise, OPC introduced numerous exhibits 
and written testimony.  Although there were other disputed issues presented to the PULJ, 
we focus below on the competing testimony presented by Washington Gas’s Chief 
Regulatory Accountant, Robert E. Tuoriniemi, and OPC’s witness, Sebastian Coppola, on 
the specific issue of compliance with Condition 44.  
21 
 
 
a. Mr. Tuoriniemi’s Testimony and Evidence Concerning Washington Gas’s 
Compliance with Condition 44  
Mr. Tuoriniemi explained that the purpose of his testimony was “to describe and 
support the test year amounts,[15] certain ratemaking and pro forma accounting adjustments, 
the ratemaking and pro forma amounts, and to show the calculation justifying the 
company’s request for a base rate increase.”   
With respect to Condition 44 specifically, Mr. Tuoriniemi explained his 
understanding that the condition “require[d] Washington Gas to ensure that customer rates 
reflect an annual net benefit to Washington Gas’s Maryland customers of not less than 
$800,000 per year over five years following [the merger close] commencing with the first 
post-Merger base rate case.”  Mr. Tuoriniemi described his methodology for computing 
“merger-related savings,” “transition costs,” “corporate costs allocated from AltaGas,” and 
“net benefit”—the terms used in Condition 44—to ensure that the request for a rate increase 
complied with that condition in the Merger Order.   
With respect to the “merger-related savings” arising from Washington Gas’s merger 
with AltaGas, Mr. Tuoriniemi testified that during the test year, Washington Gas 
eliminated $21,703,998 of actual costs that it no longer incurred post-merger, and the 
portion attributed to its Maryland operations totaled $9,135,835.  Mr. Tuoriniemi explained 
that the “primary savings identified” were labor-related expenses arising from positions 
 
15 As explained by Mr. Tuoriniemi, the “test year” represents the “actual amounts” 
of expenses and revenues Washington Gas accrued in the twelve months leading up to 
March 31, 2020.   
22 
 
 
that had been eliminated.16  Aside from labor, Mr. Tuoriniemi testified that the other 
savings that had been identified related to expenses associated with the board of directors, 
investor relations, external audits, director and officer insurance costs, as well as supply 
chain activities.  
Next, Mr. Tuoriniemi explained his methodology for computing “transition costs” 
and assessing them in the test year.17  He testified that the test year included $609,188 of 
amortization expense related to the transition costs, and that Maryland’s share of those 
costs totaled $255,439.  
 
16 Mr. Tuoriniemi provided the following explanation for the basis of his calculation 
of test year synergy savings:   
 
[Washington Gas] compiled cost savings by department and those were 
aggregated in total synergy savings.  These represent the synergies identified 
to date . . . .  [O]nly test year amounts are included in the calculation of the 
adjustment . . . .  The amounts in the adjustment start at different dates in the 
test year.  Therefore, the adjustment calculates the pro-rated savings included 
in the test year for these costs.  For positions that were eliminated, the cost 
savings include the position’s total compensation and an estimate of benefits.  
The exception is for pension and post-retirement benefits where a specific 
calculation was only available for the Chief Executive Officer position as it 
is publicly disclosed in the Company’s Form 10-K filings. 
17 Specifically, in assessing the impacts of merger-related costs on Washington Gas, 
Mr. Tuoriniemi explained that he categorized the costs into the following types: (1) costs 
incurred by Washington Gas to gain approval of the merger; (2) costs incurred by 
Washington Gas to close the merger; (3) costs incurred to integrate AltaGas, WGL 
Holdings, Inc., and Washington Gas, including any amortization thereof; (4) costs for 
services rendered to Washington Gas by AltaGas and its affiliates; and (5) costs incurred 
by Washington Gas that were eliminated by the merger. 
23 
 
 
With respect to “corporate costs allocated from AltaGas,” Mr. Tuoriniemi described 
those as “[c]osts for services rendered to Washington Gas by [AltaGas] and its affiliates” 
and costs that were “charged for services.”  Mr. Tuoriniemi computed Maryland’s share of 
these costs as $8,051,332. 
Finally, with respect to the “net benefit” to Maryland customers, Mr. Tuoriniemi 
presented direct testimony describing the difference between the $9,135,835 in “merger-
related savings,” and $8,051,332 in “corporate costs allocated from AltaGas,” which he 
computed to be $1,084,503.  Mr. Tuoriniemi described this figure as the “net synergy 
savings,” which, once reduced by the $255,439 in amortized transition costs, resulted in a 
“net benefit” to Maryland customers of $829,064, which he referred to as the “net change 
in costs post-merger.”  
In addition to his description of his methodology summarized above, Mr. Tuoriniemi 
presented the following chart demonstrating how he calculated the net benefit for the test 
year to be $829,064, thereby exceeding the $800,000 requirement set forth in Condition 44:   
 
 
 
 
 
Total Company[18]  
Maryland 
Test Year Charges from AltaGas  
$ 18,774,305  
 
$ 8,051,332 
Adjusted Test Year Synergy Savings 
 (21,703,998)  
 
  (9,135,835) 
Net Synergy Charge (Savings) 
 
 (2,929,693)  
 
  (1,084,503) 
Test Year Transition Cost Amortization  609,188 
 
 
   255,439 
Net Change in Costs Post Merger  
$ (2,320,505)  
 
  (829,064)  
 
18 Washington Gas’s service area includes Maryland, Virginia, and the District of 
Columbia.  Only Maryland’s data are relevant to this matter.   
24 
 
 
 
Mr. Tuoriniemi testified that the amounts in the table were based upon entries in the 
company’s books (with respect to costs) and an internal compilation of cost savings by 
department (with respect to synergy savings).  In addition to Mr. Tuoriniemi’s testimony, 
he presented documentary evidence consisting of 12 pages,19 which included detailed 
calculations of synergy savings, including merger-related savings, such as salary and 
benefits information for positions that had been eliminated as a result of the merger and 
corporate cost savings related to board of director expenses, insurance, and supply chain 
operations.   
Because Washington Gas had achieved the requisite net merger benefit for 
Maryland customers during the test year (i.e., the $800,000 required by Condition 44), Mr. 
Tuoriniemi did not make a ratemaking adjustment to the operating expense that 
Washington Gas sought to recover.  Therefore, Mr. Tuoriniemi explained, the entire 
$829,064 of savings remained in the test year as a reduction in operating expenses. 
b. Mr. Coppola’s Testimony and Evidence Offering an Alternative Analysis 
of Washington Gas’s Compliance with Condition 44  
In contrast to Washington Gas’s analysis of its compliance with Condition 44, OPC 
took the position that Condition 44 and Condition 28 were “inextricably linked.”  Namely, 
OPC contended that one could not undertake an analysis of Condition 44 without 
considering the annual filing required by Condition 28, which required that for a period of 
 
19 Mr. Tuoriniemi’s merger-related savings calculations were itemized in 
documentary evidence titled “Adjustment No. 20 – Merger Commitment-Synergy 
Savings” (“Adjustment 20”). 
25 
 
 
five years after the merger close, Washington Gas would provide a side-by-side 
comparison of pre-merger and post-merger corporate costs and shared-services costs.  In 
support of its position, OPC submitted direct testimony from its own expert witness, 
Sebastian Coppola, offering an alternative Condition 44 analysis.  
Mr. Coppola agreed that Condition 44 sought to “ensure that post-merger costs 
billed from [AltaGas] and transition costs [did] not exceed the cost savings from the 
merger,” and that it guaranteed that customers would realize “at least a net benefit of $4 
million over five years from the combined operations of Washington Gas and [AltaGas.]” 
However, in his view, by requiring that Washington Gas file an annual report comparing 
pre- and post-merger corporate and shared services costs for a period of five years, Mr. 
Coppola opined that it was “clear that the Commission wanted to ensure that corporate and 
shared-services costs would not increase significantly post-merger from pre-merger levels 
in 2016.”  
Notably, Mr. Coppola undertook an analysis of “merger-related savings,” utilizing 
the same methodology that Mr. Welchlin had recommended during his testimony before 
the Commission in the merger proceeding.  Specifically, Mr. Coppola approached the 
analysis from a vantage point of ensuring that Washington Gas’s corporate costs did not 
increase from the pre-merger 2016 baseline (aside from an adjustment for inflation).  In 
undertaking his analysis, Mr. Coppola identified “those corporate and shared-services 
functions where there had been a significant increase in post-merger costs that are contrary 
to reasonable expectations of cost synergies that would be generated from the merger and 
26 
 
 
the combined corporate functions and activities.”  Mr. Coppola then disallowed the 
allocation to Washington Gas of any AltaGas corporate costs and shared service costs 
associated with corporate functions, including accounting, tax, finance, human resources, 
information technology, legal compliance, and supply chain.  Mr. Coppola took 
Washington Gas’s 2016 pre-merger costs and increased them by 2% from 2016 to 2019 to 
account for inflation.  He then compared those inflation-adjusted pre-merger levels to the 
test year levels and calculated the difference.  He then summed those function-specific cost 
increases and determined the percentage that would be allocated to Maryland customers.  
After subtracting the amount of amortized transition costs, Mr. Coppola calculated a total 
proposed disallowance of $4,259,730.  
c. The PULJ’s Proposed Order 
On February 12, 2021, the PULJ issued her proposed order approving the rate 
increase, but at a lower rate than Washington Gas requested.20  On February 26, 2021, OPC 
appealed the PULJ’s decision to the Commission on several grounds, one of which 
involved Condition 44.21   
 
20 The PULJ approved increasing Washington Gas’s rates to generate an additional 
$11.9 million in revenue.  Washington Gas had requested $28.4 million.  
 
21 A proposed order of a PULJ becomes final unless a party notes an appeal to the 
Commission within the time period for appeal designated in the proposed order.  PU § 3-
113(d)(2)(i).    
27 
 
 
2. Commission’s Decision 
On April 9, 2021, the Commission issued Order No. 89799 (the “Rate Order”), 
which resolved all the parties’ contentions.  The Commission rejected OPC’s argument 
that Conditions 44 and 28 were “inextricably intertwined” and that Washington Gas was 
required to include a side-by-side comparison of pre- and post-merger corporate and shared 
costs to establish that the Company had experienced the annual $800,000 in synergy 
savings.  The Commission noted that Conditions 28 and 44 were “separate [conditions]” 
that were “contained in two separate sections” of the appendix to the Merger Order, and 
that “neither condition refer[red] to the other.”  The Commission further observed that 
Condition 28 “explicitly require[d] Washington Gas to provide the Company’s annual 
report in its next rate case if that case occurs before the first annual report is due.”  The 
Commission stated that “[t]his language strongly suggests that if Washington Gas does not 
file a base rate case before its first annual report is due, [Condition] 28’s report is not 
required in Washington Gas’s next rate case.”  The Commission observed that Washington 
Gas had complied with Condition 28 by filing the annual report in the second quarter of 
2020.   
The Commission agreed with Washington Gas that Condition 44 gave Washington 
Gas “more flexibility” in its computation of “merger-related savings” than the position 
advanced by OPC, so long as Washington Gas “established that Maryland ratepayers 
received over $800,000 in synergy-related savings during the test-year.”  The Commission 
credited Mr. Tuoriniemi’s testimony that, as described by the Commission, Washington 
28 
 
 
Gas “achieved test-year synergy-related savings in Maryland of $829,603, slightly in 
excess of the annual savings required by” Condition 44.  The Commission therefore 
concluded, “the PULJ had substantial evidence in the record upon which to conclude that 
no downward adjustment was necessary.”  The Commission found that Washington Gas 
satisfied Condition 44 and granted its request to recover amortized transition costs and 
corporate costs allocated from AltaGas during the test year.   
Thereafter, OPC filed a petition for a rehearing, which the Commission denied by 
Order No. 89893.  In rejecting OPC’s argument that the Commission was required to read 
Conditions 28 and 44 together, the Commission stated that it previously explained “the 
basis for its decision,” did not need to repeat it, and found “no reason to reconsider its 
conclusions.”  The Commission explained that “Mr. Tuoriniemi provided detailed 
testimony regarding the synergy savings required by [Condition] 44[,]” and that his 
“testimony was not contested in the record.” The Commission stated that, although “OPC 
stated it found the supporting documentation confusing and noted that post-merger costs 
had increased[,]” “the PULJ and the Commission concluded that [Mr.] Tuoriniemi’s 
testimony and exhibits sufficiently complied with the requirements of [Condition] 44.”  
The Commission reiterated its prior determination that Condition 44 “did not require costs 
to decrease so long as overall annual synergy savings exceeded $800,000.”  (Emphasis 
added).  The Commission stated that “[t]he record supported that conclusion,” and it 
therefore denied OPC’s petition.   
29 
 
 
3. Judicial Review of the Commission’s Decision 
On August 30, 2021, OPC filed a petition for judicial review in the Circuit Court 
for Baltimore City.  After the circuit court affirmed the Commission’s decision, OPC 
appealed to the Appellate Court of Maryland, which affirmed the circuit court’s judgment 
in an unreported opinion.  Matter of Maryland Office of People’s Counsel, No. 775, Sept. 
Term, 2022, 2023 WL 3316541 (App. Ct. Md. May 9, 2023).   
The Appellate Court noted that the Public Utilities Article sets forth a “particularly 
discretionary standard of review” for Commission decisions.  Id. at *3.  In upholding the 
Commission’s decision, the Appellate Court explained that the Commission was entitled 
to credit Mr. Tuoriniemi’s testimony regarding synergy savings over Mr. Coppola’s 
testimony and, based upon this testimony, conclude that Condition 44 was satisfied.  Id. at 
*5.  The court further noted that “[t]o overturn a Commission decision as arbitrary or 
capricious, a petitioner must overcome a very deferential standard to rebut the presumption 
that the Commission exercised its discretion properly.”  Id. (quoting Office of People’s 
Counsel, 461 Md. at 400).  The Appellate Court concluded that OPC failed to overcome 
that standard, that the Commission’s decision was based upon expert testimony that the 
Commission chose to credit, and that it was not within the province of the court to substitute 
its judgment for that of the Commission.  Id.   
Lastly, the Appellate Court addressed OPC’s contention that the parties to the 
merger had “promised the Commission” that the merger would result in “corporate cost 
savings for five years of at least $800,000 per year.”  Id. at *5.  The Appellate Court stated 
30 
 
 
that “[t]he Commission expressly determined” “that the merger required no such thing.”  
Id.  The court pointed out that in its order denying OPC’s petition for rehearing, the 
Commission stated that Condition 44 “did not require costs to decrease as long as overall 
annual synergy savings exceeded $800,000.”  Id.  The court concluded that the record 
before the Commission provided sufficient support for its determination that Condition 44 
was satisfied.  Id.   
Thereafter, OPC filed a petition for writ of certiorari, to consider the following 
questions, which we have rephrased for clarity:22 
1. 
When undertaking judicial review of a Commission’s decision approving a 
public service company’s application for a rate increase, does a reviewing 
court apply an arbitrary or capricious standard of review to the Commission’s 
interpretation of its own prior order approving the acquisition of the public 
service company? 
 
2. 
In connection with its approval of a public service company’s application for 
a rate increase, was the Commission’s interpretation of its own prior order 
arbitrary or capricious?   
 
 
 
22 The questions presented in OPC’s petition for writ of certiorari were:  
 
1. Should the Commission’s interpretation of the Merger Order be given the 
usual deference afforded Commission evidentiary findings, rather than 
reviewed in light of the parties’ reasonable understanding of the Merger 
Order at the time it was issued?   
 
2. Does an increase of $7.8 million in corporate costs post-merger comply 
with the Merger Order’s plain language, intent, and purpose that the 
merger produce “tangible financial benefits” in the form of a “reduction 
in distribution rates” for customers?   
31 
 
 
For the reasons set forth more fully herein, we answer yes to the first question and 
no to the second question and, therefore, affirm the judgment of the Appellate Court.  
III 
Discussion  
 
As noted above, the first issue we are asked to decide is what standard of review a 
court is to apply when a party seeks judicial review of the Commission’s decision to 
approve a public service company’s request for a rate increase and alleges that in 
connection therewith, the Commission erred in interpreting its own prior order.  Before we 
address OPC’s contentions, we describe the highly deferential standard that the General 
Assembly has enacted for judicial review of Commission decisions, and our case law 
discussing this standard.   
A. Standard of Review  
In an appeal from judicial review of an agency decision, we review the agency’s 
decision rather than the decision of the circuit court or the Appellate Court.  Office of 
People’s Counsel, 461 Md. at 391.  In many contested case proceedings involving judicial 
review of a final decision of various state agencies, a court’s standard of review is governed 
by the statutory standard in the Administrative Procedure Act (“APA”).23   
 
23 Maryland’s Administrative Procedure Act (“APA”) is codified at Maryland Code 
Ann., State Government Article (“SG”) § 10-201, et seq.   
32 
 
 
1. Review of a Commission Decision  
 
For Commission decisions or orders, the General Assembly has set forth a separate 
standard for judicial review in the Public Utilities Article, which states:   
Every decision, order, or regulation of the Commission is prima facie correct 
and shall be affirmed unless clearly shown to be:  
 
(1) unconstitutional; 
 
(2) outside the statutory authority or jurisdiction of the Commission;  
 
(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. 
PU § 3-203.  “Thus, the standard of review does not depend on whether we would reach 
the same conclusions as the Commission, but on whether the Commission’s decision or 
process is infected by specific defects.”  Office of People’s Counsel, 461 Md. at 391–92. 
 
With respect to factual matters, “[b]ecause the Commission is well informed by its 
own experience and specialized staff, a court reviewing a factual matter will not substitute 
its judgment on review of a fairly debatable matter.”  Communications Workers of Am. v. 
Public Service Comm’n, 424 Md. 418, 433 (2012) (citations omitted).  
 
Concerning our standard of review applicable to matters committed to an agency’s 
discretion, we have explained: 
33 
 
 
When an agency acts in its discretionary capacity, it is taking actions that are 
specific to its mandate and expertise and, unlike conclusions of law or 
findings of fact, have a non-judicial nature.  For this reason, we owe a higher 
level of deference to functions specifically committed to the agency’s 
discretion.  As long as an administrative agency’s exercise of discretion does 
not violate regulations, statutes, common law principles, due process and 
other constitutional requirements, it is ordinarily unreviewable by the courts.  
Courts thus generally only intervene when an agency exercises its discretion 
arbitrarily or capriciously.    
 
Id. at 434 (cleaned up).  
 
 
Moreover, “to the extent that the agency is expected to apply its expertise to carry 
out its decision-making responsibility, courts will accord it greater leeway before labelling 
its exercise of that responsibility as arbitrary or capricious.”  Office of People’s Counsel, 
461 Md. at 400.  “To overturn a Commission decision as arbitrary or capricious, a petitioner 
must overcome a very deferential standard to rebut the presumption that the Commission 
exercised its discretion properly.”  Id.   
 
As we have said on more than one occasion, the standard of review of Commission 
decisions under PU § 3-203 is consistent with the standard of review applicable to all 
administrative agencies, including review under the APA.  Office of People’s Counsel, 461 
Md. at 392; see also Office of People’s Counsel, 355 Md. at 15; Town of Easton v. Public 
Service Comm’n, 379 Md. 21, 31 (2003).  “In particular, the specific bases for reversing a 
Commission decision are the same as set forth for reversing an agency decision in the 
provision for judicial review in the APA.”  Office of People’s Counsel, 461 Md. at 392.   
However, although the statutory standards of review that govern Commission 
decisions and other types of administrative agencies are consistent, they are not identical.  
34 
 
 
In Office of People’s Counsel, we noted that “PU § 3-203 also appears to be a more 
deferential standard in some respects compared to the standard of review under the APA.” 
Id.  We pointed out that “the General Assembly has directed that the Commission’s 
decision is ‘prima facie correct’ and is to be affirmed unless the listed defects are ‘clearly 
shown.’”  Id.  Observing that this language is absent from the APA’s provision governing 
judicial review, we stated that the “distinction [did] not appear to be unintended.”  Id.  We 
pointed out that the “statute establishing the Commission preceded the APA” and that the 
“APA provision concerning judicial review was enacted just two years after the enactment 
of the . . . judicial review provision in the Commission’s statute.”  Id. (footnote omitted).  
And as we previously expressed, had the Legislature intended that the standard for judicial 
review of Commission proceedings be the same as the standard for judicial review under 
the APA, “it is inconceivable that it would have excluded the . . . Commission from the 
APA.”  Mid-Atlantic Power Supply Ass’n v. Public Service Comm’n, 361 Md. 196, 214 
(2000).    
Recognizing the textual differences between the two statutes—and “[i]n giving 
meaning” to the “language in PU § 3-203 without rendering it surplusage”—we have 
explained that a court should “be particularly mindful of the deference owed to the 
Commission on those issues on which courts typically accord some degree of deference to 
administrative agencies—i.e., findings of fact, mixed questions of law and fact, and the 
construction of particular statutes administered, and regulations adopted, by the agency.”  
Office of People’s Counsel, 461 Md. at 393–94 (footnotes omitted).  By contrast, we 
35 
 
 
observed that, on questions in which a court would not typically apply agency deference—
such as general questions of law, jurisdiction, or constitutional questions—“PU § 3-203 
requires no greater deference to the Commission than any other agency.”  Id. at 394.  These 
types of “legal questions are completely subject to review by courts.”  Id. (internal 
quotations omitted).  “In sum, with respect to the Commission, this Court has tended to 
accord particular deference (though not total deference) to [its] decisions.”  Id. (cleaned 
up).    
In this case, OPC alleges that because it is raising an “error of law”—namely, that 
the Commission erred in its interpretation of its Merger Order—we should consider the 
language of the Merger Order without deference to the Commission’s interpretation.  
Because not all allegations involving “errors of law” involve a monolithic application of 
agency deference principles, it is useful to describe when we may apply agency deference, 
and if so, how much.    
2. 
When, and to What Extent, We Apply Agency Deference to “Errors of 
Law”   
We recently summarized the standards of review that we apply when a court is 
undertaking judicial review of an agency decision that is based on an alleged “error of law.”  
Comptroller v. FC-GEN Operations Invs. LLC, 482 Md. 343, 360 (2022).  We explained 
that the phrase “‘errors of law’ encompasses a variety of legal challenges, including: (1) 
the constitutionality of an agency’s decision; (2) whether the agency had jurisdiction to 
consider the matter; (3) whether the agency correctly interpreted and applied applicable case 
law; (4) and whether the agency correctly interpreted an applicable statute or regulation.”  
36 
 
 
Id.  Here, we add a fifth category to our list of “errors of law”—judicial review of an agency’s 
interpretation of its own decision or order that it enters in connection with an administrative 
proceeding in which it is required to apply its technical expertise and discretion. 
As noted in our discussion above, “[a]lthough we do not apply any agency deference 
when undertaking a review of the first three types of legal challenges, we occasionally apply 
agency deference when reviewing errors of law related to the fourth category.”  Id.  In this 
case, we are asked to determine whether we apply agency deference to the fifth category.  
Before we turn to our discussion of what standard of review we apply to this newly identified 
category, it is useful to summarize our agency deference principles as they apply to the first 
four categories.  
With respect to an agency’s interpretation of a statute that it administers, this Court 
applies a “sliding-scale approach” in which the weight that we may give to an agency’s 
interpretation depends on a number of factors.  Md. Dep’t of the Environment v. Assateague 
Coastal Trust, 484 Md. 399, 451 (2023).  “We give more weight when the interpretation 
resulted from a process of reasoned elaboration by the agency, when the agency has applied 
that interpretation consistently over time, or when the interpretation is the product of 
contested adversarial proceedings or formal rule making.”  Id. at 451–52 (quoting FC-GEN, 
482 Md. at 363); see also Md. Dep’t of the Env’t v. County Comm’rs of Carroll County, 465 
Md. 169, 203–04 (2019); Baltimore Gas & Electric Co. v. Public Service Comm’n, 305 Md. 
145, 161 (1986). 
37 
 
 
When the “error of law” involves an administrative agency’s interpretation of its 
own rule or regulation, we have explained that even more deference is in order.  Assateague 
Coastal Trust, 484 Md. at 452–53 (citing Kor-Ko Ltd. v. Md. Dep’t of the Env’t, 451 Md. 
401, 424–25 (2017)).  “Because an agency is best able to discern its intent in promulgating 
a regulation, the agency’s expertise is more pertinent to the interpretation of an agency’s 
rule than to the interpretation of its governing statute.”  Kor-Ko Ltd., 451 Md. at 412–13 
(citations omitted).  “Put another way, the courts do not play the role of an über 
administrative agency in reviewing the actions of state or local administrative bodies, but, 
rather we exercise discipline in our review so as not to cross the separation of powers 
boundary.”  Id. at 413.   
When applying an arbitrary or capricious standard of review, this Court has 
analogized it to the standard under federal administrative law,24 in that one challenging the 
 
24 In Office of People’s Counsel, we characterized Maryland’s arbitrary or 
capricious standard as “similar to the standard under federal administrative law.”  461 Md. 
at 399.  We explained the federal standard as follows:   
 
The leading case defining the federal standard is Motor Vehicle Mfrs. Ass’n 
of U.S., Inc. v. State Farm Mut. Auto Ins. Co., 463 U.S. 29, 43 (1983).  There, 
the [United States] Supreme Court identified several factors that could render 
an agency action arbitrary or capricious, including whether: (1) there is a 
rational connection between the facts found and the choice made; (2) the 
decision was based on a consideration of the relevant factors; (3) there has 
been a clear error of judgment; (4) the agency relied on factors which 
Congress has not intended it to consider; (5) the agency has entirely failed to 
consider an important aspect of the problem; (6) there is an explanation for a 
decision that runs counter to the evidence; and (7) the decision is so 
implausible that it could not be ascribed to a difference in view or the product 
 
38 
 
 
agency’s decision “must show that the agency exercised its discretion unreasonably or 
without a rational basis.”  Office of People’s Counsel, 461 Md. at 399 (citing Harvey v. 
Marshall, 389 Md. 243, 297–304 (2005)).  “Whether an agency decision is arbitrary or 
capricious also depends, to some extent, on the degree of discretion that the Legislature has 
conferred on the particular agency with respect to the particular decision.”  Id.  The 
standard is not easily defined and is highly contextual.  Id. at 399–400.  “However, to the 
extent that the agency is expected to apply expertise to carry out its decision-making 
responsibility, courts will accord it greater leeway before labelling its exercise of that 
responsibility as arbitrary or capricious.”  Id. at 400. 
3. Application of the Above Standards to OPC’s Allegation of “Error of Law” 
Here 
Applying the above principles to OPC’s contentions in this case, OPC is not 
contending that the Commission’s decision was unconstitutional, outside of its statutory 
authority or jurisdiction, or was made as a result of an unlawful procedure—i.e., the types 
of legal questions in which the Court never applies deference.  Rather, OPC ascribes an 
“error of law” to the Commission’s interpretation of its own Merger Order—i.e., an “error 
of law” in which agency deference may be applied.   
 
of agency expertise.  This standard is not an invitation for a court to second-
guess an agency’s judgment: “a decision of less than ideal clarity” will be 
upheld “if the agency’s path may be reasonably discerned.”  Bowman 
Transp., Inc. v. Arkansas-Best Freight System, Inc., 419 U.S. 281, 285-86 
(1974). 
 
Id. at 399 n.16 (cleaned up).   
39 
 
 
OPC contends that our review of the Commission’s interpretation of its own Merger 
Order is analogous to the Commission’s interpretation of a statute.  From that premise, 
OPC points out that this Court does not always apply agency deference to an agency’s 
interpretation of a statute that it is charged with administering, and by analogy, we should 
apply no deference here.  For the following reasons, we determine that OPC’s argument is 
inconsistent with the highly deferential standard of review required by PU § 3-203, our 
case law describing the deference principles required by this statute, and our jurisprudence 
applying agency deference in other administrative contexts. 
First, in arguing that we should not apply agency deference with respect to this 
particular “error of law,” OPC omits any discussion or analysis of the highly deferential 
language contained in PU § 3-203.  Under the plain language of the statute, Commission 
decisions, orders, and regulations are “prima facie correct” and “shall be affirmed unless 
clearly shown to be” “affected by [an] error of law.”  PU § 3-203(5) (emphasis added).  
The standard of review advanced by OPC would be inconsistent with our prior 
interpretation of this language—namely that a reviewing court must be “particularly 
mindful of the deference owed to the Commission on those issues on which courts typically 
accord some degree” of agency deference, including “the construction of particular 
statutes” that the Commission administers, and the regulations adopted by the agency.  
Office of People’s Counsel, 461 Md. at 393–94 (emphasis added).  
Second, OPC’s argument fails to recognize that our standards of judicial review do 
not treat all “errors of law” the same when considering whether to apply agency 
40 
 
 
deference.25  As discussed above, there are types of “errors of law” for which we apply no 
deference, there are other types in which we may apply some degree of deference, and 
there are still other types in which we apply a higher degree of deference.     
Third, OPC’s analogy of the asserted “error of law” here to the Commission’s 
interpretation of a statute is inapt.  This case does not require that we consider the plain 
language of a statute or the Legislature’s purpose and intent in enacting it.  The “error of 
law” that we are being asked to consider here involves the Commission’s interpretation of 
its own decision or order that it entered in connection with an administrative proceeding 
in which it is required to apply its technical expertise and discretion.  As discussed above, 
in carrying out its statutory duties associated with the approval of an acquisition of a public 
service company, the Commission has broad discretion to consider “any other issues” that 
it “considers relevant to the assessment of acquisition in relation to the public interest, 
convenience, and necessity[,]” PU § 6-105(g)(2)(xii) (emphasis added), and to impose 
conditions as part of its order to ensure “the applicant’s satisfactory performance or 
adherence to specific requirements.”  PU § 6-105(g)(3).  As the Appellate Court has 
 
25 For example, to support its contention that this Court does not apply deference 
when an agency “has committed an error of law,” OPC cites to a case in which the Court 
refused to apply deference to a county zoning board of appeals’ application of this Court’s 
zoning opinions in three “recent cases.”  See Lewis v. Dep’t of Natural Resources, 377 Md. 
382, 437 (2003), superseded by statute on other grounds as recognized in Bereano v. State 
Ethics Comm’n, 403 Md. 716, 756 (2008).  This case does not lend support to OPC’s 
position.  It would be illogical for this Court to defer to a local zoning board’s interpretation 
of this Court’s case law.  It would, however, be appropriate for this Court to apply 
deference to the Commission’s interpretation of its own prior order involving the same 
public service company on matters within the Commission’s area of technical expertise.   
41 
 
 
observed, “[a] great deal of discretion is necessarily vested in the Commission in order that 
it may properly discharge its important and complex duties.”  Office of People’s Counsel 
v. Public Service Comm’n, 52 Md. App. 715, 722 (1982).  The Merger Order, including its 
attendant conditions, was approved in connection with the Commission’s exercise of its 
expertise and discretionary authority to impose conditions when approving an acquisition 
of a public service company.  It was approved as part of a contested administrative 
proceeding in which any party had the right to seek judicial review.  Thereafter, the Merger 
Order was interpreted and applied by the Commission in connection with an application 
for a utility rate increase—a subsequent administrative proceeding in which the 
Commission was also utilizing its technical expertise.   
We determine that where the allegation of an “error of law” involves the 
interpretation of the Commission’s own merger order under the circumstances presented 
here, it falls on the outermost deference spectrum, thereby commanding a more deferential 
review under the “arbitrary or capricious” standard.  The Commission is best able to discern 
its intent behind the conditions that it imposed in the exercise of its discretionary authority 
to impose merger conditions, as well as when applying those conditions in a subsequent 
rate case involving the same public service company.  Such a standard is consistent with 
the highly deferential standard required by PU § 3-203 and our case law applying agency 
deference principles involving an agency’s interpretation of its own regulations.  See Kor-
Ko Ltd., 451 Md. at 420–21 (deferring to the Maryland Department of the Environment’s 
“interpretation of its own regulations” because the Court was “especially mindful of that 
42 
 
 
agency’s expertise in its field[,]” and concluding that the interpretation was “permissible 
legally, and neither arbitrary nor capricious”).   
For these reasons, we hold that the “arbitrary or capricious” standard of review 
applies when a reviewing court is asked to consider an administrative agency’s 
interpretation of its own prior decision or order that it entered in connection with an 
administrative proceeding in which it was required to apply its technical expertise and 
discretion.  We shall apply this standard in assessing whether the Commission properly 
interpreted its own Merger Order in the subsequent rate administrative proceeding.    
B. The Parties’ Competing Interpretations of Condition 44  
OPC argues that under the language of the Merger Order, Condition 44 and 
Condition 28 are “inextricably intertwined.”  According to OPC, the text of Condition 44 
addressed only the requirement that Washington Gas “track and account for merger-related 
savings and transition costs to enable those savings, in its next two base rate cases” but did 
not specify how those savings are to be measured.  OPC points out that “merger-related 
savings” in Condition 44 is defined to include only “tangible financial benefits,” which, 
according to OPC, foreclosed Washington Gas’s ability to seek a rate increase based on 
“vague” and “inherently speculative” testimony about “hypothetical” costs that 
Washington Gas might have incurred absent the merger.   
OPC asserts that Condition 28, by its “plain terms,” was intended to serve a 
“ratemaking function” and to provide the mechanism by which Washington Gas was 
required to measure “merger-related savings” in post-merger rate cases by comparing its 
43 
 
 
post-merger corporate and shared-services costs to its pre-merger costs using 2016 as the 
baseline.  OPC contends that Condition 28 is the only condition in the Merger Order that 
provided the actual comparative cost data needed to make a calculation of “tangible 
financial benefits.”  Furthermore, OPC asserts that if Condition 28 does not serve a “rate-
making function,” it is simply an annual report that has no purpose.   
As explained by OPC’s expert witness, Mr. Coppola, by requiring in Condition 28 
that Washington Gas file an annual report comparing the pre- and post-merger corporate 
and shared services costs for a period of five years, it was “clear” that the Commission 
wanted to ensure that corporate and shared-services costs would not significantly increase 
from pre-merger costs.  According to OPC’s interpretation, reading Conditions 28 and 44 
together, the Commission’s Merger Order effectively prohibited Washington Gas from 
seeking any rate increase attributable to any post-merger increase in corporate costs for a 
period of five years.  In other words, OPC contends that, when one reads Conditions 44 
and 28 together, a five-year ceiling was established on Washington Gas’s post-merger 
corporate and shared costs, whereby the merger synergy savings to Washington Gas’s 
ratepayers would be determined by computing Washington Gas’s pre-merger costs less 
$800,000.  Under its reading, OPC contends that these conditions “guaranteed that the 
merger would reduce rates by at least $800,000 per year for five years after the merger.” 
OPC also contends that its interpretation of Condition 44 is consistent with 
Commission precedent involving other public service company mergers in which the 
Commission rejected public service companies’ attempts to quantify merger savings by 
44 
 
 
comparing post-merger costs to “hypothetical projections of what might have occurred 
absent the merger.”  OPC asserts that in those decisions, the Commission found such 
hypothetical savings “too vague to quantify,” “inherently speculative,” and “too intangible 
to qualify as a benefit” under PU § 6-105.   
OPC asserts that in approving the rate increase in the Rate Order, the Commission 
erred in accepting Washington Gas’s “merger-savings” analysis under Condition 44 
because Mr. Tuoriniemi’s computation reflected an increase of $7.8 million in post-merger 
corporate costs, which it contends violates the conditions in the Merger Order that 
prohibited the allocation of any increased post-merger costs.  Accordingly, OPC asserts 
that the Rate Order approving the rate increase that included the allocation of these 
corporate costs failed to produce “tangible financial benefits” to Maryland ratepayers in 
the form of a “reduction in distribution of rates.” 
Washington Gas and the Commission disagree with OPC’s interpretation of 
Condition 44.  They contend that Condition 44 was the mechanism that Washington Gas 
was required to follow to demonstrate “merger-related savings” in post-merger rate cases.  
They assert that the plain language of Condition 44 required that Washington Gas 
demonstrate that “merger-related savings” were at least $800,000 more than amortized 
merger transition costs plus corporate costs allocated from AltaGas to Washington Gas.  
The Commission and Washington Gas assert that nowhere—in either the Merger Order 
generally, or Condition 44 specifically—is there any blanket prohibition on increased 
45 
 
 
corporate costs (relative to 2016 or otherwise).26  Washington Gas and the Commission 
point out that Condition 44 makes no reference to Condition 28.  They contend that the 
“merger-related savings” provision in Condition 44 provided Washington Gas with greater 
flexibility to establish the net benefit to customers.   
The Commission and Washington Gas assert that Condition 28 is an annual 
informational reporting requirement, and that the Commission routinely requires annual 
filings such as the filing required by this condition.   
Finally, the Commission and Washington Gas argue that Mr. Tuoriniemi’s 
testimony and exhibits substantiated the calculation that Washington Gas had generated 
merger-related benefits of $829,064 and that it was within the Commission’s discretion to 
accept that testimony and evidence.  They contend that Mr. Tuoriniemi’s testimony and 
evidence comport with the methodology outlined by the plain language of Condition 44, 
and that it was within the Commission’s discretion to credit it.27   
 
26 Washington Gas points out that Conditions 23 and 24 expected increases in labor 
costs following the merger that would need to be recovered by a rate increase.  
 
27 Washington Gas also points out that OPC has not challenged the Commission’s 
decision on the basis that it was unsupported by substantial evidence.  Based upon the 
questions presented in its petition for writ of certiorari, and OPC’s arguments set forth in 
its briefs, we agree that OPC has not alleged that the Commission’s decision is unsupported 
by substantial evidence.  Rather, OPC argues more generally that the Commission acted 
arbitrarily and capriciously because it misinterpreted its own order approving the merger 
and conditions therein and by permitting Mr. Tuoriniemi to utilize the methodology or 
framework that he used to show that Washington Gas had demonstrated the requisite 
“merger-related savings.”     
46 
 
 
Concerning OPC’s assertion that the Commission “deviated from precedent” by 
permitting Washington Gas to compute “merger-related savings” on prospective savings 
occasioned by synergies, Washington Gas points out that the Commission expressly 
considered that argument and rejected it in its analysis of that point in the Merger Order, 
by distinguishing the merger-related savings proposed by the Applicants in those cases and 
finding that the proposed synergy savings presented by Washington Gas in the merger 
proceeding would result in “direct ratepayer benefits.”   
C. The Commission’s Interpretation of Its Merger Order Was Not Arbitrary or 
Capricious  
Based upon the record in this case, we determine that the Commission’s 
interpretation of its Merger Order, including Condition 44, was not arbitrary or capricious.  
In connection with the issuance of its Rate Order, the Commission considered and 
rejected OPC’s argument that Conditions 44 and 28 were “inextricably intertwined” and 
that Washington Gas was required to include a side-by-side comparison of pre- and post-
merger corporate and shared costs to establish that the Company experienced the annual 
$800,000 in synergy savings.  The Commission reasoned:  
The [conditions] are contained in two separate sections of Appendix A to the 
[Merger Order], and neither [condition] refers to the other.  
 
Additionally, [Condition] 28 explicitly requires Washington Gas to provide 
the Company’s annual report in its next rate case if that case occurs before 
the first annual report is due.  This language strongly suggests that if 
Washington Gas does not file a base rate case before its first annual report is 
due, [Condition] 28’s report is not required in Washington Gas’s next rate 
case.  Washington Gas did file the Company’s [Condition 28] report in the 
second quarter of 2020.  Therefore, the Commission agrees with Washington 
Gas that [Condition] 44 permits Washington Gas more flexibility than OPC 
47 
 
 
contends, so long as it establishes that Maryland ratepayers received over 
$800,000 in synergy-related savings during the test-year.   
 
Thereafter, in denying OPC’s motion for reconsideration, the Commission reiterated that 
Condition 44 “did not require costs to decrease so long as the overall annual synergy 
savings exceeded $800,000.”   
 
The Commission’s explanation was reasonable.  As the Commission correctly 
noted, neither condition refers to the other.  Nor is there any language in Condition 44 to 
suggest that the Commission intended that the method for calculating synergy savings must 
be derived from the pre-merger corporate and shared-services costs data that is required to 
be included in the annual reports under Condition 28.   
Under OPC’s interpretation of Condition 44, the Merger Order not only prohibits 
rate increases attributable to corporate costs but also requires rate decreases.  OPC asserts 
that when Conditions 44 and 28 are read together, Condition 44 “guaranteed that the merger 
would reduce rates by at least $800,000 per year for five years after the merger.”  The 
Commission’s conclusion that Condition 44 provided Washington Gas with more 
flexibility is consistent with its explanation in the Merger Order in which it stated that “we 
conclude that this Condition ensures that customer rates will decline or otherwise be lower 
than they would have been absent the merger and therefore complies with [the benefits] 
portion of our statute.”  (Emphasis added).  This language reflects that the Commission 
understood that the net benefit to Maryland customers could be achieved by synergy-
related savings that were not directly tied to a reduction in actual spending based on 
48 
 
 
Washington Gas’s pre-merger costs.  In other words, the language in the Merger Order is 
consistent with the Commission’s explanation in its Rate Order, which it reiterated in its 
order denying OPC’s petition for rehearing, that Condition 44 “did not require costs to 
decrease so long as overall annual synergy savings exceeded $800,000.”    
 
Moreover, we also observe that the Commission’s explanation of its interpretation 
of Condition 44 that it articulated in the rate administrative proceeding is also consistent 
with its analysis and consideration of that condition in the merger administrative 
proceeding.  As discussed above, during the merger administrative proceeding, Robert 
Welchlin, an expert for the Commission Staff, recommended that the Commission require 
that “merger-related savings” be computed using the same methodology that Mr. Coppola 
employed in the rate-making case.  That is, Mr. Welchlin suggested that the Commission 
should prohibit the companies from allocating to Washington Gas any portion of AltaGas’s 
existing corporate costs unless Washington Gas could demonstrate that the chargeable 
costs were no higher than the costs Washington Gas recorded on its books in the last full 
year prior to the merger.  Mr. Welchlin recommended that the Commission revise 
Condition 44 to specifically define “merger-related savings” as a “reduction in pre-merger 
spending that occurred because of the merger that could not have been achieved but for the 
merger.”  (Emphasis added).  The Commission considered and rejected suggestions to 
modify Condition 44 to require Washington Gas to compute “merger-related savings” 
based upon actual cost savings using the 2016 pre-merger baseline.  Based upon our review 
of the record of both proceedings, the Commission’s interpretation of Condition 44 in the 
49 
 
 
ratemaking administrative proceeding is consistent with its discussion and analysis of that 
condition in the merger administrative proceeding—in which it considered and rejected 
entreaties to modify the definition of “merger-related savings” in Condition 44 to mean 
actual cost savings.    
 
We turn next to OPC’s argument that, if Condition 28 is not intended to serve a 
ratemaking function—and is instead simply an informational filing, as asserted by the 
Commission and Washington Gas—it is meaningless.  The Commission and Washington 
Gas assert that the annual filings required by the Commission are not meaningless and 
serve important functions.  During oral argument, counsel for the Commission explained 
that the Commission regularly imposes annual filing conditions on public service 
companies that are reviewed by Commission Staff in its accounting division.28  We cannot 
determine, based upon this record, that the Commission’s explanation that Condition 28 is 
an annual informational filing29 and was not intended to ensure that Washington Gas’s 
corporate costs would not increase from its pre-merger levels in 2016, is arbitrary or 
capricious.  We observe that the General Assembly requires that public service companies 
 
28 In response to questions from the Court, counsel for the Commission explained 
the purpose of annual reports such as the report required by Condition 28.  He explained 
that the reports are reviewed by the Commission Staff’s accounting division, who have the 
authority to bring any concerns to the Commission’s attention.  
29 The record of the merger administrative proceeding supports this explanation.  
For example, in its post-merger-hearing brief, Commission Staff stated that, through 
Condition 28, “Washington Gas has committed to make an annual informational 
filing[.]”  Commission Staff also stated that “[t]he side-by-side comparison that would be 
filed annually [pursuant to Condition 28 is] intended to be informational only.”  
50 
 
 
file with the Commission annual reports that must conform to any similar federal regulatory 
requirements, and those reports must contain detailed information covering a variety of 
financial, operational, and regulatory matters.  See PU § 6-201, et seq.  In this case, 
Washington Gas filed an annual report in accordance with Condition 28.  Although the 
information in Condition 28 could have been used to compute “merger-related savings,” 
nothing in Condition 44 indicated that it was required.  As discussed in detail above, 
Commission decisions are prima facie correct and shall be affirmed unless clearly shown 
to be arbitrary or capricious.  The Commission has provided a rational explanation for 
including Condition 28 in the Merger Order, and we determine that OPC has not satisfied 
its high statutory burden by clearly showing that the explanation is arbitrary or capricious.  
 
Finally, we cannot say on this record that the Commission’s interpretation of its 
Merger Order in this case is inconsistent with its prior merger cases.  As discussed above, 
in the merger proceeding, the Commission specifically commented on the concerns 
expressed by some individuals that post-merger synergy savings would be “too vague to 
quantify” in future rate cases and rejected recommendations to add more restrictive 
language to the condition that would tie “merger-related savings” to an actual reduction in 
costs from the 2016 baseline.  The Commission made a specific reference to the 
“Exelon/Constellation” merger, and distinguished this merger based upon the information 
that Washington Gas had provided to demonstrate synergy savings.  The Commission 
explained that “unlike . . . most merger situations which do not realize synergy savings for 
years after closing, the Applicants are applying these savings to ratepayers beginning in 
51 
 
 
the first year.”  The Commission therefore found that “synergy savings will result in direct 
ratepayer benefits.”  
The record in the merger administrative proceeding reflects that the Commission 
considered arguments similar to those advanced by OPC here and rejected them.  No 
petition for judicial review was filed in connection with the Commission’s final decision 
in the merger administrative proceeding.  In the context of the rate administrative 
proceeding, OPC has not overcome the prima facie correctness of the Commission’s 
interpretation of its own Merger Order by clearly showing that the Commission interpreted 
Condition 44 in a manner that is arbitrary or capricious.   
IV 
Conclusion  
 
For the reasons set forth herein, we hold as follows:  
1. 
When undertaking judicial review of a Commission’s decision approving a 
public service company’s application for a rate increase, a reviewing court is to apply an 
arbitrary or capricious standard of review to the Commission’s interpretation of its own 
prior order approving the acquisition of the public service company.   
 
 
2. 
The Commission’s interpretation of its own Merger Order in connection with 
Washington Gas’s application for a rate increase was not arbitrary or capricious.   
JUDGMENT OF THE APPELLATE 
COURT AFFIRMED.  COSTS TO BE 
PAID BY THE PETITIONER.   
The correction notice(s) for this opinion(s) can be found here:  
https://mdcourts.gov/sites/default/files/import/appellate/correctionnotices/coa/11a23cn.pdf