Opinion ID: 2365347
Heading Depth: 1
Heading Rank: 4

Heading: Requirements of the Administrative Procedure Act

Text: Although, as noted, some question was raised in Case No. 8747 as to whether the provisions in the Commission's order should be in the form of regulations, it does not appear that anyone formally raised that issue in this case, at least while the matter was pending before the Commission. It was formally raised for the first time in the judicial review action. The utilities urge that the PSC has but two ways of declaring policythrough regulations adopted in conformance with the requirements of the APA or through contested case adjudicationand they complain that the policy declared in Order No. 76292 followed neither of those procedures. It emanated from a generic proceeding, which, they now assert for the first time ever, is a third method that is not authorized by any statute and is therefore unlawful. The PSC seems to take the position that policy directives that emanate from generic proceedings need not comply with APA requirements for the adoption of regulations. In so arguing, the PSC misconstrues the reach of a generic proceeding. When the PSC was first created in 1910, there was no APA. The APA was first enacted in Maryland in 1957. See 1957 Md. Laws, ch. 94, codified at Maryland Code (1957), Art. 41, §§ 244-256. It required each agency to adopt regulations [4] governing the formal and informal procedures prescribed in the Act but contained relatively minimal requirements regarding the adoption process. Prior to the adoption or amendment of a regulation, the agency was required to (1) publish or otherwise circulate notice of its intended action and afford interested persons an opportunity for input ( id. § 245(c)), (2) submit the proposed regulation to the Attorney General for approval as to legality, and (3) file copies of adopted regulations with the Clerk of the Court of Appeals, the Secretary of State, and the Department of Legislative Reference ( id. §§ 9 and 246). The Secretary of State was required to compile, index, and publish all regulations adopted by the various agencies. The only other provision dealing with the adoption process was an authorization for any interested person to file a petition with an agency for the adoption of regulations and a requirement that the agency adopt regulations governing that process. Aside from the requirement in § 9 regarding the submission of proposed regulations to the Attorney General, none of these requirements applied to the PSC, which was expressly excluded from the definition of agency ( id. § 244). In 1974, the General Assembly enacted the State Documents Law, the principal purpose of which was to create the Maryland Register (Register) as a mechanism for giving public notice of certain agency actions, including the proposed and final adoption of regulations, and COMAR, to serve as a permanent repository of agency regulations. 1974 Md. Laws, ch. 600. In conformance with those purposes, the law required each agency, at least 60 days prior to the adoption of any regulation, to submit three copies of it to the Administrator of the Division of State Documents, who was responsible for publishing the Register and COMAR. One copy was for publication in the Register, and one copy was sent to the Legislative Committee on Administrative, Executive and Legislative Review (AELR Committee). Unless authorized by the AELR Committee, the regulation could not take effect until the expiration of the 60 day period, and it was of no effect unless submitted in accordance with the law. Because the State Documents Law used the APA definition of agency, that filing and publication requirement did not apply to the PSC. Until 1978, the only provisions dealing with regulations adopted by the PSC were the requirement in Article 41, § 9, requiring submission of a proposed regulation to the Attorney General, the broad authorization in former Maryland Code (1957, 1975 Supp.), Article 78A, § 64 for the PSC to make reasonable rules and regulations as it deems necessary to carry out the provisions of this article and any other law relating to the Commission, and § 89 of Article 78A, authorizing an action for declaratory judgment to determine the validity of any regulation adopted by the Commission. In 1978, the Legislature expanded the definition of agency for purposes of the State Documents Law in a way that brought the PSC within its ambit. 1978 Md. Laws, ch. 858. In 1984, as part of the enactment of the State Government Article (SG), the State Documents Law provisions were consolidated with the provisions of the APA dealing with regulations, thereby producing a comprehensive subtitle under the APA dealing with regulations, to which, with some limited exceptions, the PSC was made subject. 1984 Md. Laws, ch. 284. Subsequent amendments, in particular 1985 Md. Laws, ch. 783, greatly expanded those requirements. The State Government Article, title 10, subtitle 1 (§§ 10-101 through 10-139) is the part of the APA dealing with agency regulations. Section 10-101(g) defines a regulation, for purposes of the Act, as follows: (1) Regulation means a statement or an amendment or repeal of a statement that: (i) has general application; (ii) has future effect; (iii) is adopted by a unit to: 1. detail or carry out a law that the unit administers; 2. govern organization of the unit; or 3. govern the procedure of the unit; and (iv) is in any form, including: 1. a guideline; 2. a rule; 3. a standard; 4. a statement or interpretation; or 5. a statement of policy. (2) `Regulation' does not include: (i) a statement that: 1. concerns only internal management of the unit; and 2. does not affect directly the rights of the public or the procedures available to the public; (ii) a response of the unit to a petition for adoption of a regulation, under § 10-123 of this subtitle; or (iii) a declaratory ruling of the unit as to a regulation, order, or statute, under Subtitle 3 of this title. (3) `Regulation,' as used in §§ 10-110 and 10-111.1, means all or any portion of a regulation. There can be little doubt that many, if not all, of the directives in Order No. 76292 fall within the ambit of that definition. With limited exception, they have general application to all electric and gas utilities and their various affiliates; they have future effect; they were adopted by a unitthe PSCto carry out laws that the PSC administers; they were in the form of statements of policy; and they fall within none of the exceptions stated in SG § 10-101(g)(2). Indeed, as noted, one provision effectively amends an existing COMAR regulation by exempting affiliates from its scope, thereby, on its face, belying the PSC's assertion that its order did not change existing law. We reject the PSC's unsupported assertion that those directives do not constitute regulations because they address but one narrow subject matter, utility-affiliate transactions and are applicable only to non-municipal gas and electric utilities, or because they do not affect directly the rights of the public. With the exception of the few and relatively small municipal operations, the directives apply to the entire gas and electric industry that the Commission regulates. They have general applicability and are not narrow in scope. Our response to the PSC's suggestion that the directives do not directly affect the rights of the public is two-fold. First, that is not a basis, on its own, for concluding that the directives do not constitute regulations. The exception in § 10-101(g)(2) is for a statement that concerns only internal management of the agency and does not affect directly the rights of the public. These directives do not concern only the internal management of the PSC. Even if that were not the case, it is disingenuous even to suggest that the directives do not affect directly the rights of the public. The stated purpose of the order was to protect the rights of the publicto assure both effective competition in the new diversified ventures and that the rate-paying public does not end up subsidizing those profit-making ventures; every limitation placed on the utilities or their affiliates was for that purpose. As noted, the current law imposes some significant requirements and conditions on the adoption of regulations by Executive Branch units. [5] See Dept. of Health v. Chimes, 343 Md. 336, 339-40, 681 A.2d 484, 485-86 (1996). Section 10-107 requires that the PSC, in particular, submit proposed regulations to its general counsel for approval as to legality and makes clear that any regulation adopted without such submission is not effective. Although general counsel to the Commission may well have been consulted before and during the generic proceeding that led to Order No. 76292, the record does not indicate whether that order was ever submitted to counsel for an opinion as to legality or that such an opinion was ever rendered. Section 10-111(a) provides that, except for emergency regulations adopted under § 10-111(b), a unit may not adopt a proposed regulation until (1) after it submits the proposed regulation to the AELR Committee for preliminary review, and (2) at least 45 days after the regulation is first published in the Register. The unit must submit the proposed regulation to the AELR Committee at least 15 days prior to submission to the Register. The Committee may not veto the proposed regulation but may oppose its adoption. In that event, the unit has three options: it may withdraw the proposed regulation, amend it in accordance with § 10-113 (which essentially requires starting the process anew), or submit the regulation to the Governor with an explanatory statement. In considering whether to oppose a regulation, the AELR Committee must consider whether the regulation (1) is in conformity with the statutory authority of the unit, and (2) reasonably complies with the legislative intent of the statute under which the regulation was promulgated. SG § 10-111.1(b). Section 10-111.1(c) provides that, upon notice of opposition by the AELR Committee, the Governor may instruct the unit to withdraw the regulation, instruct the unit to modify the regulation, or may approve the regulation. Section 10-111.1(d) specifies that a proposed regulation opposed by the AELR Committee may not be adopted and is not effective unless approved by the Governor. It is undisputed that the PSC did not submit Order No. 76292, or any part of it, to either the Register for publication or the AELR Committee for its consideration. With an exception not applicable here, § 10-117 provides that the effective date of a regulation is the 10th calendar day after notice of adoption is published in the Register or in COMAR. Neither has yet occurred. The main arguments of the PSC, aside from its contention that Order No. 76292 does not constitute a regulation, are that (1) by not raising this issue before the Commission, the utilities have waived their right to raise it in a judicial review action, and (2) even if the directives at issue technically constitute regulations under SG § 10-101(g), our jurisprudence is to the effect that the Commission is not necessarily obliged to proceed by way of formal regulation-makingthat we have approved of the adoption of such policy statements through other means, and that a generic proceeding is a proper alternative method. Both of these responses either focus on or emanate from the device of the generic proceeding. The Court of Special Appeals commented on this kind of proceeding in GMC v. Public Service Comm'n, supra, 87 Md. App. 321, 589 A.2d 982, in which validity of a policy directive adopted in an order terminating a generic proceeding was challenged. The court noted that the jurisdiction of the PSC over public utilities was very broadthat the PSC was authorized to supervise and regulate the utilities to assure their operation in the interest of the public, and that, in implementing that responsibility, it could institute and conduct any proceedings reasonably necessary and proper to the exercise of any of its powers and could initiate and conduct any investigation necessary to the execution of its powers or the performance if its duties.... Id. at 336, 589 A.2d at 989. See PUC §§ 2-112, 2-113, and 2-115. GMC involved the rate-setting authority of the Commission, and the court observed that, like its counterparts in the Federal system and in other States, the PSC exercised that authority in several ways through company-specific proceedings, through the adoption of regulations dealing with such things as accounting systems and billing practices, and through what the PSC has often referred to as a generic proceeding. The court characterized such a proceeding as [s]omewhat midway between promulgating regulations and entering orders in case-specific proceedings and noted that it was often used to institute and conduct an investigation into general areas of concern that may affect more than one public service company. 87 Md.App. at 336, 589 A.2d at 990. The court observed: These proceedings are inaugurated by an Order of the Commission which describes the purpose of the proceeding and the procedure to be followed and are terminated by another Order which sets forth the decisions or conclusions reached by the Commission. These may be in the form of recommended legislation... regulations ... or policy statements or determinations that will be routinely applied thenceforth in all specific proceedings to which they are applicable. Id. at 337, 589 A.2d at 990 (citations omitted). The GMC court noted that the authority of the PSC to conduct generic proceedings had not been challenged in that case and was, in any event, fairly clear. The nature and effect of the order emanating from them, however, was not always so clear. In a subsequent passage, the court observed that the kinds of decisions enunciated in those orders may have a greater kinship to rules or regulations than to orders entered in company-specific proceedings, and, in that regard, noted, with a touch of warning, that the order at issue arguably constituted a regulation under the APA, in that it had general application and future effect and was adopted by a unit to carry out a law that the unit administered. The court declined in that case to hold that the order was a regulation because (1) no one has claimed that it is and (2) the record does not establish compliance with a number of the procedural requirements in the Act for the adoption of a valid regulation. Id. at 340 n. 3, 589 A.2d at 991 n. 3. GMC accurately identifies the nature of a generic proceeding, which is, and long has been, commonly used by regulatory agencies like the PSC either to investigate some general matter subject to its jurisdiction or to gather facts and opinion in furtherance of its policy-setting function. That function could, in some instances, be carried out through adjudicatory proceedings involving a single utility, but when the matter involves the rights or interests of several utilities, the generic proceeding can be more efficient, in that it allows all interested groups to participate in the policy development at the same time. The generic proceeding is predominantly quasi-legislative, rather than quasi-judicial, in nature. Interested persons, often including persons who may not be directly subject to the jurisdiction of the Commission or to any policy directive that emanates from the proceeding, are invited to participate and to offer data, opinion, and argument. The information is usually provided in the form of either documents or written or oral statements rather than sworn testimony subject to cross-examination. The parties do not ordinarily have the right of discovery. Such a proceeding would most likely run afoul of some of the procedural requirements applicable to a contested-case proceeding under the APA (which do not apply to the PSC in any event), but it does not, of itself, contradict any of the requirements for the adoption of regulations or for the adoption of policy directives that, for whatever reason, need not be in the form of regulations. The issue, therefore, is not the validity of a generic proceeding to gather information for the purpose of developing policy but what, if any, conditions are imposed on the adoption and implementation of that policy. Until 1978, when the PSC first became subject to the requirements of the State Documents Law, it did not need to be concerned about any such conditions, other than submitting proposed regulations to the Attorney General for review as to legality, because it was exempt from the APA requirements. With minimal limitations, it could implement policy directives emanating from generic proceedings as it saw fit. That is no longer the case. Because the PSC is now subject to the enlarged and extended regulation-adoption requirements of the APA, it does need to be concerned about whether its directives fall within the APA definition of regulation. As we have indicated, most of the directives included in Order No. 76292 were immediately effective and self-executing, did not depend on further case-specific proceedings, and fall squarely within the APA definition of regulation. They are not immune from the APA requirements simply because they emanated from a generic proceeding. We turn, then, to the last two defenses raised by the PSC.