Va.’s high court up­holds util­ity re­view freeze

Jus­tice writes force­ful dis­sent in case about SCC’s abil­ity to reg­u­late rates

Richmond Times-Dispatch - - FRONT PAGE - BY MICHAEL MARTZ AND ROBERT ZULLO

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.”

Mims

McClana­han

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