Maryland Public Service Commission does not monitor whether utilities adhere to merger orders, audit finds

The commission that oversees Maryland utilities failed to check whether companies going through mergers followed orders approving those transactions, a legislative audit found.

The Public Service Commission, which regulates the state’s gas, electric, water and telephone utilities, has no way to ensure that utility companies comply with merger approval orders, which could call for credits to customers, donations to charities or other conditions, the General Assembly’s Office of Legislative Audits said in a Jan. 15 report made public Thursday.


“PSC includes these requirements to ensure the merger transactions benefit utility customers in the State,” Legislative Auditor Gregory A. Hook said in a letter to members of the legislature’s joint audit and evaluation committee.

The audit, which covers the period from February 2016 to March 11, 2020, also found that the commission had not secured the required approvals for certain “sole source procurements,” and lacked adequate controls over cash receipts and accounts receivable functions.


The commission said in a response included in the report that it disagrees with the findings.

State law gives it broad authority to enforce merger orders, it said.

But the findings stemmed from a misunderstanding of the commission’s role in utility mergers, its chairman, Jason M. Stanek, said Thursday. He compared the commission’s role to that of a court that issues an order but does not follow up with parties to check on compliance.

“Our position is we don’t have the staff or resources to do that, and ... in our role as a quasi-judicial body, that’s not our purpose to continually police these conditions into perpetuity,” Stanek said. “We rely on parties with vested interest to alert us if the conditions are not honored.”

He said it’s not uncommon for companies to agree to dozens of conditions.

“Nowhere, however, does [state law] mandate that the Commission enforce its orders, including its merger conditions, in a particular manner,” the commission said in a response to the finding.

Conditions included in written PSC merger orders are based on extensive testimony from affected parties, including the Office of People’s Counsel, which represents utility customers, auditors said. Utilities that don’t adhere to conditions of a merger can face civil penalties or have their licenses suspended or revoked, the report said.

Auditors reviewed orders written for the mergers of Exelon Corp. and Constellation Energy, the parent of Baltimore Gas and Electric Co., in 2012; Exelon and PHI Holdings in 2015; and AltaGas and Washington Gas in 2018.


Of the 142 conditions required in those mergers, the commission did not ensure compliance with 64 requirements, the report found. The commission also failed to formally document that the remaining 78 conditions were met.

The commission “could have confirmed compliance with those conditions with information received from independent third parties in accordance with the monitoring provisions in the merger order(s) or information that was generally available to the public,” the report said.

In all three mergers, utility companies were required to fund a one-time rate credit for customers within the utilities’ respective service areas. Those credits ranged from $50 to $100 per customer totaling about $208.5 million.

Another condition required a utility company to provide an average of $7 million annually to charity.

Stanek said he felt “quite confident” that those conditions were met or the commission would have heard from customers or the People’s Counsel.

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Besides relying on consumer complaints, the commission relied on utility self-reporting to ensure compliance, the audit report said. In cases of self-reporting, the commission accepted utility companies’ reporting without corroboration, it said.


Auditors recommended that PSC establish a formal process to ensure that utilities comply with merger orders.

The report also found the commission hired three vendors for a combined cost of about $605,000 for consulting services using a “sole source” procurement method without first getting approval from the state Board of Public Works or the Department of Budget and Management.

The procurements were approved by the state Attorney General’s office, but not by one of the other two entities. The PSC responded, however, that only the attorney general’s approval was needed because of the confidential nature of the services.

Auditors recommended that the commission consult with the attorney general’s office and public works board, made up of the governor, state comptroller and treasurer, to resolve the contradictions on required approvals and that they possibly seek retroactive approval for the contracts.

Stanek said the commission followed proper procedures and is not obligated by law to discuss the past contracts with either agency.

“As a matter of principle, we said no,” he said.