Va.’s high court upholds utility review freeze
Justice writes forceful dissent in case about SCC’s ability to regulate rates
The Supreme Court of Virginia has upheld a hotly disputed state law that suspends regulatory reviews of electric utility rates and, according to reports prepared by state regulators, will allow the state’s large utilities to pocket hundreds of millions in earnings they would otherwise have to return to customers.
Justice William C. Mims dissented from the majority’s 6-1 decision on Thursday in a lengthy opinion that says the ruling would allow the General Assembly to permanently block the State Corporation Commission from exercising regulatory authority enshrined in the state Constitution.
“That sobering outcome thwarts the purpose behind creating the commission in the first place,” said Mims, a former legislator who, as deputy attorney general
in 2007, played a critical role in the creation of the system of rate reviews that the General Assembly suspended in 2015 for seven years.
The majority opinion, written by Justice Elizabeth A. McClanahan, cites the presumption that legislative actions, such as the 2015 suspension of rate reviews, are constitutional unless “plainly repugnant” to the Virginia and U.S. constitutions.
“This strong presumption reflects the breadth of legislative power in Virginia,” McClanahan wrote.
Sen. Frank W. Wagner, R-Virginia Beach, who sponsored the legislation that led to the law, said he wasn’t surprised by the decision. “There was never a question of constitutionality,” Wagner said.
The ruling upholds a decision by the SCC that was appealed by the Old Dominion Committee for Fair Utility Rates, which represents large industrial customers of Appalachian Power Co., but Dominion Energy Virginia also was a party to the case.
“We are disappointed in today’s ruling and we disagree with the majority opinion,” said Edward L. Petrini, a lawyer for Old Dominion and the Virginia Committee for Fair Utility rates, which represents big Dominion customers.
The appeal had relied heavily on a dissenting opinion last year by SCC Judge James C. Dimitri that concluded the suspension of two-year rate reviews blocked the commission from exercising its constitutional duty to regulate electric rates that monopoly utilities charge.
Dimitri estimated that the law would cost customers of Dominion more than $1 billion over seven years by allowing the company to keep earnings in excess of its regulated rate of return.
Dominion welcomed Thursday’s ruling as affirming the need for utility rate relief in the face of potential regulatory restrictions on power plant emissions of carbon dioxide and other greenhouse gases under the stalled federal Clean Power Plan. Gov. Terry McAuliffe, who leaves office in January, has convened a state panel tasked with developing carbon regulations for Virginia’s power plants.
“We are pleased the court affirmed the constitutional and statutory authority of the General Assembly to make policy decisions for the commonwealth,” said Dominion spokesman David Botkins. “It looks as if Virginia is headed toward a state version of the Clean Power Plan, which makes (the law suspending rate reviews) all the more relevant and appropriate.”
Consumer advocates assailed the decision, citing a recent SCC report that concluded that Dominion Energy Virginia had overearned by at least $133 million.
“This ruling means that Dominion Energy Virginia will continue to pocket hundreds of millions of dollars owed to Virginia families who were overcharged for several years,” said Shannon BakerBranstetter, policy counsel for Consumers Union.
“The decision also means the Virginia State Corporation Commission, charged with protecting the consumer interest, will continue to be constrained in their ability to regulate the state’s largest utility monopoly,” Baker-Branstetter said.
GA or SCC?
McClanahan’s majority opinion relies on a court ruling in a 1974 case involving Virginia Electric & Power Co., which now operates as Dominion Energy Virginia. She said the court concluded then that the constitutional revision in 1971 “does indeed grant to the General Assembly such broad legislative power over the commission’s authority to regulate the rates charged by electric utility companies.”
“In light of this authority of the General Assembly, we have repeatedly stated in other cases since the passage of the 1971 Constitution of Virginia that the commission’s authority to regulate the rates of electric utility companies has been ‘delegated’ to it by the General Assembly under various legislative enactments,” she wrote.
Mims, a Republican former member of the Virginia Senate and House of Delegates, strongly disagreed and asserted that the Supreme Court ruled in error in the 1974 case. “I reject the premise that the rate-making authority granted to the commission by the Constitution is subordinate to the General Assembly,” he wrote.
The SCC was created as an independent body under the 1902 state Constitution to ensure regulatory oversight of rates charged by public service corporations, especially railroad companies, which then politically dominated the General Assembly.
The legislature expanded the commission’s power to regulate electric rates in 1914, but the 1971 constitutional revision enshrined its regulatory authority to set electric rates, subject to “such criteria and requirements as may be prescribed by law,” a phrase at the heart of the legal dispute.
Mims argued that the court misinterpreted the constitutional provision in the 1974 case and warned that the majority decision “restores the precise evil that led the people to create the commission in 1902; they did so to ensure that someone was exercising the power to set the rates of public service corporations.”
“The conclusion that the General Assembly has the power to suspend the commission’s authority indefinitely, which follows inexorably from the majority’s opinion, would thwart that will,” he wrote.
As deputy attorney general, Mims oversaw a complex series of negotiations in 2007 over a Dominionled attempt to re-regulate electric utilities on new terms after the failure of deregulation to produce retail competition that would effectively regulate rates.
The re-regulation law included a requirement for biennial reviews of monopoly electric rates, but with limits on the SCC’s ability to reduce rates when utilities earn more than the approved return on equity. The law adopted in 2015 suspends those reviews through 2022.
Dimitri, in his dissent on the commission’s ruling upholding the law, said, “The commission’s authority to set base rates, affecting millions of customers of the utilities, has been prohibited by the General Assembly.”
However, SCC Judges Mark C. Christie and Judith W. Jagdmann, in the 2-1 majority opinion, said that under Dimitri’s reasoning the legislature could not have approved electric deregulation in 1999 and the deregulation of local telephone service earlier in the decade.
“There is no historical evidence that those who adopted the 1971 Constitution intended such a grant of plenary policymaking power to the commission,” they said.
Back to the legislature
Sen. J. Chapman Petersen, D-Fairfax City, who fought unsuccessfully to overturn the 2015 rate freeze law in the last General Assembly session, said he was disappointed but not surprised by the ruling.
“To rule a statute unconstitutional is very unusual,” said Petersen, a lawyer. “Statutes are presumed to be constitutional. Judges will read anything that they can into them to find them constitutional, and that’s what happened here.”
He said Mims’ dissent hit the mark.
“Why have a State Corporation Commission and say they’re going to be in charge of regulating utilities if you’re going to let the General Assembly arbitrarily suspend that?” he said. “They could do it for 50 years; they could do it forever.
“They could say that ‘We find that world history is inherently unstable, North Korea has nuclear weapons ... the Cleveland Indians are winning 22 games in a row.”
Petersen said he will revive legislation during the next session seeking to bring back rate review and ban political contributions from regulated monopolies. Dominion is the top corporate donor to state legislative candidates, giving nearly $4.6 million since 1996, according to the Virginia Public Access Project.
“Dominion is sort of head and shoulders in terms of their influence in the General Assembly,” said Petersen, who has also taken the company’s campaign cash. “Some of it is money, but a lot of it is a lot of people in the Gen- eral Assembly don’t understand these issues.”
Ken Cuccinelli, the former GOP state senator, attorney general and gubernatorial candidate, said the court’s decision shifts the debate to the candidates running for governor and for seats in the House of Delegates. The court’s decision, he said, eviscerates the protections for consumers in the 1971 Constitution against overearning by monopoly utilities.
“Now it’s up to the legislature to fix this, and that’s a tall order since they did this in the first place,” said Cuccinelli, who filed a brief supporting the challenge to the rate freeze law on behalf of the Virginia Poverty Law Center. “There’s no difference between the legislature granting Dominion and (Appalachian Power) windfall profits and raising taxes.”
The General Assembly, Cuccinelli said, needs to hand over electric rate regulation to the SCC “100 percent.”
“They are stealing from poor people to give to these two companies,” he said.
The next General Assembly session, Cuccinelli said, will be a crucial test of the body.
“What we’re going to find out is: Is the General Assembly an independent entity or a wholly owned subsidiary of Dominion Power?”
“This ruling means that Dominion Energy Virginia will continue to pocket hundreds of millions of dollars owed to Virginia families who were overcharged for several years.”