On Petition for Review of Orders of the Public Service Commission of the District of Columbia (No. 945-E-541)
Before Steadman, Ruiz and Washington, Associate Judges.
The opinion of the court was delivered by: Steadman, Associate Judge
The District of Columbia has embarked upon the deregulation of its electricity market. Once the market is deregulated, customers will be able to purchase electricity from various suppliers, but they will receive their electricity through Potomac Electric Power Company's ("PEPCO") distribution system. As a result, the rates charged for electricity must be unbundled to reflect the separate costs of the electricity and its transmission and distribution. The Public Service Commission ("PSC") in Orders No. 11845 and 11926 approved a Non-Unanimous Agreement of Stipulation and Full Settlement Regarding Unbundled Rate Issues ("Settlement") that set these initial unbundled rates.
Petitioners District of Columbia Water and Sewer Authority ("WASA") and the District of Columbia government ("DCG") *fn1 have challenged these orders as unreasonable, arbitrary or capricious. *fn2 Although petitioners raise a number of claims, we focus primarily on their arguments that PSC failed to examine issues it promised to resolve during the unbundling proceeding, unreasonably struck from the record large portions of their joint testimony, and erred when it concluded that, as provided in the Settlement, the rates should be unbundled in a revenue neutral manner. *fn3 We affirm the PSC orders on all challenged grounds.
In 1999, the Council of the District of Columbia enacted legislation that allowed for the implementation of retail competition in the D.C. electricity market. See Retail Electric Competition and Consumer Protection Act of 1999, D.C. Law 13-107, 47 D.C. Reg. 1091 (2000) (codified at D.C. Code §§ 34-1501 et seq. (2001)). In Phase I of the proceedings related to initiating retail competition, PSC approved a Non-Unanimous Agreement of Stipulation and Full Settlement ("Phase I Settlement") that permitted PEPCO to sell its generation assets. See Moore Energy Resources, Inc. v. Pub. Serv. Comm'n, 785 A.2d 300, 302-03 (D.C. 2001). *fn4 As part of the Phase I Settlement, PSC called upon the parties involved to reach agreement on the unbundled rates that would be in effect following PEPCO's divestiture of its generation assets. Order No. 11576 at 63 (Dec. 30, 1999). However, the parties were unable to reach a settlement by the deadline of February 1, 2000. As a result, PSC initiated Phase II to determine PEPCO's post-divestiture unbundled rate structure. Order No. 11613 (Feb. 17, 2000). PEPCO filed its unbundled rate proposal on February 29, 2000. Subsequent to that filing, several parties filed comments, proposed issues and/or proposed procedural schedules regarding the proposal.
PSC then issued an order designating the Phase II issues and procedural schedule. Order No. 11673 (Apr. 26, 2000). However, when several of the parties to the Phase II proceeding notified PSC that a settlement was possible, PSC suspended the procedural schedule. Order No. 11713 (June 15, 2000). A proposed settlement was filed on June 30, 2000. *fn5
WASA and DCG soon thereafter filed comments opposing the proposed settlement. PSC directed that the parties submit testimony regarding the Settlement and set a hearing for September 11, 2000 to determine if the Settlement was in the public interest. Order No. 11746 (Aug. 9, 2000). A few days before the Settlement hearing, PEPCO and OPC each filed motions to strike a large part of the joint testimony submitted by WASA/DCG witness Raymond Petniunas, arguing that many portions dealt with issues that were irrelevant to the Settlement and/or already resolved by prior proceedings. After hearing arguments on the motions to strike on September 11, 2000, PSC agreed with PEPCO and OPC and struck most of Petniunas' testimony from the record. PSC then continued with the Settlement hearing, which involved cross-examination of various witnesses on previously submitted testimony.
On December 5, 2000, PSC issued an order approving the Settlement in which it found that the Settlement was in the public interest and that each article of the Settlement should be adopted. Order No. 11845. The day before, PSC had denied WASA and DCG's joint application for reconsideration of PSC's decision to strike most of Petniunas' testimony. Order No. 11851 (Dec. 4, 2000). WASA then applied for reconsideration of Order No. 11845. PSC rejected this application, reiterating that the Settlement was in the public interest. Order No. 11926 (Feb. 20, 2001). WASA and DCG filed petitions for review of Orders No. 11845 and 11926 with this court. *fn6
We recently had occasion to reprise the well-settled standards governing our review of PSC orders. See Office of the People's Counsel v. Pub. Serv. Comm'n, Nos. 00-AA-1581 & 00-AA-1582, slip op. at 5 (D.C. May 30, 2002). By statute, this court's review of a PSC order "shall be limited to questions of law, including constitutional questions; and the findings of fact by [PSC] shall be conclusive unless it shall appear that such findings . . . are unreasonable, arbitrary, or capricious." D.C. Code § 34-606. While "we . . . do not give the [PSC's legal] conclusion the same deference owed factual determinations, we nonetheless will sustain it if it is `reasonable [and] based upon factors within the Commission's expertise.'" Watergate East, Inc. v. Pub. Serv. Comm'n, 662 A.2d 881, 886-87 (D.C. 1995) (citation omitted). "[T]o ensure that judicial review can be meaningful," this court requires that the PSC "explain its actions fully and clearly." Potomac Elec. Power Co. v. Pub. Serv. Comm'n, 661 A.2d 131, 135 (D.C. 1995). If it has done so, "the petitioner challenging [a PSC] order assumes `the heavy burden of demonstrating clearly and convincingly a fatal flaw in the action taken.'" Watergate East, supra, 662 A.2d at 886 (citation omitted). Indeed, we have repeatedly characterized our review of PSC orders as "the narrowest judicial review in the field of administrative law." Potomac Elec. Power Co. v. Pub. Serv. Comm'n, 402 A.2d 14, 17 (D.C.) (en banc), cert. denied, 444 U.S. 926 (1979); Potomac Elec. Power Co., supra, 661 A.2d at 135. Utilizing these principles of appellate review applicable here, we turn to the challenged orders.
We first address petitioners' claim that PSC failed to address all the issues relevant to approval of the Settlement. Towards the beginning of Phase II, various parties submitted lists of issues they wished explored during the unbundling proceeding. See Order No. 11673 at 2-9. PSC then whittled the various submissions down to one list of 17 issues that it said needed to "be addressed to unbundle rates." Order No. 11673 at 11. However, once the settling parties notified PSC that they had a proposed settlement, PSC issued a new order directing interested parties to file testimony on whether the proposed settlement was in the public interest. Order No. 11746 at 5; see also 15 DCMR § 130.11 (2002) ("A full settlement presented in a . . . contested case . . . shall only be accepted after a hearing on whether the settlement is in the public interest."). In response, WASA filed ...