Petition for Review of a Decision of the District of Columbia Public Service Commission
Before Terry, Farrell, and Ruiz, Associate Judges.
The opinion of the court was delivered by: Farrell, Associate Judge
We review here, on petition of the Office of the People's Counsel (OPC), two rulings of the District of Columbia Public Service Commission (the Commission or the PSC) allowing intervenor Washington Gas Light Company (WGL) to keep fifty percent each of the revenues from two particular business operations. The first ruling concerns WGL's receipt of so-called asset management fees from companies with which it contracts to manage WGL's underutilized gas resources, including upstream pipeline capacity and storage contracts. The second ruling concerns ground-lease income and developers' fees that WGL expects to receive from the Maritime Plaza development project on the company's East Station property in Southeast Washington, D.C. The OPC argues in each instance that the PSC has failed adequately to explain its decision declining to order all, or substantially more than fifty percent, of these revenues to be credited to WGL's ratepayers in the District of Columbia. As to the asset management fees, it contends that these in essence are no different than fees for "capacity release" which WGL is required by its tariff to return to D.C. ratepayers as a credit against the cost of purchased gas. As to the ground-lease and development fees, OPC argues that because the ratepayers were assessed the full cost of remediating environmental pollution at the Maritime Plaza site -- remediation in turn making the commercial development possible -- they are entitled to reimbursement of more than half of the expected revenues from the development of the property.
Applying the established standards of judicial review of PSC orders, we hold that the Commission has fully and clearly explained its decision with respect to the asset management fees, but that a remand for further explanation of the 50/50 allocation of revenues from the Maritime Plaza development is necessary to permit this court to exercise its (admittedly limited) review function.
This petition arises from Formal Case No. 989, a consolidated investigation by the PSC of WGL's existing rates and charges for gas service, and adjudication of its application to increase the rates and charges. Only two of the Commission's rulings are presented for review. On the basis of testimony and documentary submissions before it, the Commission made findings of fact as to each issue that, in the main, are not disputed by the parties.
Regarding the so-called asset management fees, the Commission found that from 1997 on, WGL has entered into arrangements with companies -- "asset managers" -- that manage and utilize WGL's upstream pipeline and storage capacity in return for fees paid to WGL. In the "test year" of 2000, for example, the management fees applicable to the District of Columbia were approximately $1.3 million. By means of these management arrangements, pipeline and storage capacity rights owned by WGL but not presently used to service its customers are sold in other markets, often when "pooled" with other resources owned by or available to the manager, but in a manner that guarantees a supply of gas to WGL's customers as needed. *fn1
The dispute before the Commission revolved around whether the transfer of this idle capacity to asset managers is a traditional "capacity release" or something new and different. All agree that WGL's tariff, last reviewed by the Commission in 1994, requires *fn2 that the revenues received from conventional release of capacity to third parties be credited to WGL's ratepayers as an offset to the Purchase Gas Adjustment (PGA) originally charged to them. The OPC's expert witness told the Commission that the same rule should be applied to asset management fees:
Asset management fees are essentially offsets to gas supply costs; they are effectively a reduction in the costs of gas supply resources. As such, all asset management fees received since 1997 should be treated as an offset to gas costs through the PGA.
Otherwise, the expert maintained, WGL would be given a "double recovery" of its costs for providing gas service, all of which -- gas supply as well as pipeline and storage capacity --have been borne by the ratepayers through the PGA and other charges. WGL countered that, although asset management does include capacity release to a third party, it is an arrangement considerably more complex than that, "a departure from the way utilities have been traditionally managing resources." The "opportunity for the company to use an asset manager," it told the Commission, "is a recent phenomenon and a direct result of the significant changes in the gas supply market since open access" or partial deregulation. By combining (or bundling) idle pipeline and storage capacity with gas supply, the asset manager -- so WGL asserted -- creates a package that can be sold on the national wholesale market and achieve revenues well beyond those garnered from traditional, "passive" capacity release on bulletin boards or otherwise. WGL therefore proposed a 50/50 split going forward between shareholders and ratepayers of the fees it obtains from asset managers, reflecting the new value created by these transactions but also the fact that the ratepayers bore the cost of the gas resources originally.
The PSC accepted WGL's characterization of asset management fees and its proposed allocation. It determined that active utilization of WGL's pipeline and storage capacity by asset managers "has created new value different from the value of capacity release credits," value that "would not otherwise exist." WGL presented evidence that capacity release independent of the asset management process has little market value, in part because of restrictions that must be imposed on such release to guarantee service to the company's consumers on short notice. Besides the "cumbersome" nature of traditional capacity release credits, the Commission found, WGL's pipeline and storage capacity "have no value unless specially pooled with other similar assets from non-WGL entities" also managed by the asset manager. Because "outside third-party asset managers, unlike an internally developed WGL asset manager, may pool WGL's upstream capacity with similar assets of other non-WGL entities to achieve values for WGL assets that otherwise would not exist," the Commission ruled that "the company should be allowed to keep some share of these asset management fees, both to retain a good outside asset manager and to provide WGL with an incentive to engage in beneficial management of WGL's upstream capacity." The conclusion that WGL should be allowed to keep more than its "out-of-pocket expenses" to retain an outside asset manager was buttressed, in the Commission's view, by the company's "extensive unrebutted testimony about the complexity and evolving nature of the asset management marketplace, the increasing difficulties that WGL is experiencing in contracting with asset managers, the importance of the Company's role in developing methods to offset its declining revenue base, and WGL's need to retain a significant share of asset management fees to enter into an effective long-term arrangement with an asset manager at the present time."
Consistent with these findings, the Commission rejected the OPC's argument that WGL's existing tariff required the fees to be rebated to the ratepayers. Unlike WGL's Maryland tariffs, which specifically "provide for WGL sharing asset management fees with ratepayers," its District tariff is silent on such fees, which "first arose during the long period of years [since 1994] when there were no WGL rate cases before this Commission." The District's ratepayers, accordingly, possessed no "tariff entitlement" to past WGL asset management fees, although the 50/50 division would bind the company going forward. Moreover, the Commission ...