McCloskey could represent a sea change in Pennsylvania administrative law or, alternatively, a reaffirmation of current law in an area of increasing uncertainty.

On April 7, 2020, the Pennsylvania Supreme Court granted allowance of appeal in McCloskey v. Pennsylvania Public Utility Commission.[1] The appeal presents the Court with an opportunity to address the much-disputed question of whether courts should defer to administrative agencies’ interpretation of legislative enactments. Depending upon the direction the Court takes, McCloskey could represent a sea change in Pennsylvania administrative law or, alternatively, a reaffirmation of current law in an area of increasing uncertainty.

In McCloskey, the Pennsylvania Office of Consumer Advocate (who represents the consumers of Pennsylvania in matters involving their utility service) sought review before the Pennsylvania Commonwealth Court of a ruling by the Public Utility Commission (PUC) concerning the calculation of Distribution System Improvement Charges (DSIC), which public utilities are permitted to include in charges to consumers in order to encourage utilities to plan and implement accelerated replacement of their aging infrastructure.[2]

In Act 40 of 2016, the General Assembly mandated that, “If an expense or investment is allowed to be included in a public utility’s rates for ratemaking purposes, the related income tax deductions and credits shall also be included in the computation of current or deferred income tax expense to reduce rates.”[3] Following the effective date of Act 40, the PUC referred consideration of several disputes with public utilities regarding their DSIC calculation to an administrative law judge, who determined that Act 40 applies to the DSIC calculation and, therefore, the DSIC charges must be reduced to take into account the beneficial tax treatment resulting from the investments captured by the DSIC. On review, the PUC rejected that conclusion, determining that Act 40 was ambiguous as to whether it applied to the DSIC calculation because the statute uses both the statutorily defined term “rate” and the technical term “rate base.” In light of that ambiguity, the PUC interpreted Act 40 as not applying to DSIC calculations.

The Office of Consumer Advocate then appealed to the Commonwealth Court, which ruled in July 2019 that Act 40 unambiguously applied to the DSIC calculation.[4] In reaching that determination, the court reiterated that it is required to defer to administrative agencies’ construction of statutes they are charged with interpreting, but only where the statute is ambiguous or unclear on the matter.[5] In this case, however, the Commonwealth Court concluded that the defined term “rate” contained in Act 40 was unambiguous and, therefore, no discretion was owed to the PUC’s construction.[6]

On April 7, 2020, the Pennsylvania Supreme Court granted review of this decision and included in its statement of issues both the statutory interpretation question and the question of whether the Commonwealth Court erred in not deferring to the PUC’s expertise in the area of public utility regulation.

This case presents several potential issues that could change or clarify existing Pennsylvania administrative law―issues that were explored, but not resolved, in the Pennsylvania Supreme Court’s 2019 decision in Harmon v. Unemployment Comp. Bd. of Review.[7]

The two principal questions are, first, to what extent should a court consider, or defer, to any agency’s determination as to whether a statute the agency is charged with interpreting is ambiguous? In other words, is the reviewing court free to completely ignore the agency’s considered judgment on the question of ambiguity? In his separate opinion in Harmon, Chief Justice Saylor suggested that at least some deference is due to agency interpretations, even absent ambiguity, where the interpretation heavily implicates agency expertise.[8] McCloskey gives the Court the chance to squarely address this issue.

Second, in the event that the PUC’s construction is considered, how will the Court address Pennsylvania’s adherence to Chevron, U.S.A., Inc. v. Nat. Resources Def. Council, Inc.?[9] Under Chevron, courts follow a two-step process of reviewing agency regulations. Step One asks whether the statute is either silent or ambiguous on the point in question. If so, the court proceeds to Step Two and asks whether the agency’s answer is based on a permissible construction of the statute.

The Pennsylvania Supreme Court has never expressly adopted Chevron.[10] While Pennsylvania’s view of deference has, to date, somewhat tracked federal precedent, the Harmon case demonstrated that a majority of the Court was unwilling to formalize this relationship to Chevron. Moreover, Justices Wecht and Donohue’s concurrences both put forward the view that Chevron deference is inconsistent with a court’s duty to interpret ambiguous statutes and with the Statutory Construction Act.[11] This view is in accord with a more recent wave of courts rejecting the concept of Chevron deference as unduly intruding upon the independence of the judiciary.[12] McCloskey provides the Court with another chance to review this issue and, perhaps, come to a clear consensus.

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