Md. Staff Treats Suppliers as Public Service Companies in Merger Review

Competitive suppliers are not "public service companies" under Maryland law and their combination should not be subject to the public interest standard, Direct Energy Services said in comments to the Maryland PSC.

Maryland PSC Staff have recommended that the Commission approve Direct's acquisition of Gateway Energy Services. However, Staff premised its recommendation on the belief that such approval is required under Public Utilities Article Sec. 6-101(c)(3), which requires that any merger be consistent with the public interest.

Direct argued that, while the Commission may review the transaction to ensure that Direct and Gateway continue to meet the supplier licensing standards post-transaction, the PSC may not apply the Sec. 6-101(c)(3) public interest test, as competitive suppliers are not public service companies subject to Sec. 6-101(c)(3).

Statute defines "public service companies" as including an "electric company" or "gas company." Direct noted that statute further defines electric company as a, "person who physically transmits or distributes electricity in the State to a retail electric consumer," which neither Direct nor Gateway does.

A "gas company" is a public service company that is:
(i) authorized to install or maintain facilities in, over, or under streets for furnishing or distributing gas, or
(ii) owns a gas plant and:
(1) transmits, sells, supplies, or distributes artificial or natural gas, or
(2) manufactures gas for distribution or sale.

"Gas plant" is further defined as, "the material, equipment, and property owned by a gas company and used or to be used for or in connection with gas service." However, the term "gas service" is not itself defined.

Direct argued that "gas service" likely was not intended to mean service of the type that an end user would expect to receive from a competitive supplier. "Rather, 'gas plant' is an important factor in the setting of a utility's base rates and its definition would appear to address and define the gas plant of a utility when seeking to modify its rates," Direct said.

Moreover, Direct said that it would not make sense for two non-rate regulated companies such as Direct and Gateway to be defined as "public service companies," because to do so would implicate Commission jurisdiction clearly aimed at utilities. For example, if suppliers were treated as public service companies, Title 4 of the Article would apply, granting the Commission the authority to approve rates charged by competitive suppliers. Furthermore, defining suppliers to be public service companies would grant them the right to disconnect service, a right they have not been granted.

Direct cited several prior acquisitions of competitive suppliers, including gas suppliers, which were simply "noted" by the PSC and not evaluated under Sec. 6-101(c)(3).

Direct said that the Commission does have authority to conduct a review of the transaction to determine that Direct and Gateway remain in compliance with applicable licensing standards under the Article and COMAR, and Direct affirmed that the companies would continue to meet such standards.