Virginia Court Affirms Law Suspending Biennial Earnings Review Requirements

The Virginia Supreme Court has declared constitutional a piece of legislation that had been enacted by the state's General Assembly in 2015, which law had the effect of temporarily rolling back for a five-year period the Virginia State Corporation Commission's authority to biannually scrutinize the rates and finances of the state's two largest electric utilities, Dominion Virginia Power (now Dominion Energy Virginia) and Appalachian Power Company.

Historically, the commission had conducted an earnings review of each utility every other year, allowing their rates to rise when a deficit was found but ordering refunds or rate credits when earnings were considered excessive. The two companies had long balked at the biennial review regimen, contending that commission directives to refund customers 60% of any excess over their authorized rates of return on equity (ROE) was a disincentive to capital investments.

The utilities' longtime lobbying efforts finally paid off with passage of the 2015 law, known as Senate Bill 1349. The statute in essence placed a five-year moratorium on any rate changes for the two companies, except where fuel or purchased power costs have increased or emergency circumstances necessitate a change.

Although the 2015 bill prevents customers from having to pay higher base rates before 2020 at the earliest, it simultaneously protects utilities from having to return to ratepayers any surplus revenues, regardless of how far above their respective approved ROEs those earnings are. It was that earnings retention component of the law that brought forth a number of challenges, with opponents claiming that the bill unlawfully stripped the commission of its constitutionally conferred powers to oversee the rate-making process for the state's public utilities.

More specifically, the parties protesting the law argued that the General Assembly was impermissibly trying to "transfer the Commission's ratemaking authority to itself." But the utilities, in support of the bill, had responded that the state constitution makes clear that the commission's powers are subject to whatever limits state lawmakers may choose to impose.

The two utilities also pointed out that the rate freeze aspects of Senate Bill 1349 actually would have worked in favor of consumers with respect to the costs of compliance with the Clean Power Plan (CPP), which was promulgated by the U.S. Environmental Protection Agency under the Obama administration. They explained that because the CPP would have required significant investments in carbon emission mitigation measures at many power plants, customers could not have been saddled with those additional costs for a prolonged period of time under the law.

According to Dominion and Appalachian, it is of no consequence that the Trump administration has now suspended enforcement of the CPP. The utilities elaborated that Virginia has moved to develop a CPP of its own, such that the rate moratorium still offers customers ongoing protection against rising costs. The companies expounded that Virginia Governor Terry McAuliffe, by executive directive, had instructed the state's Department of Environmental Quality to begin preparing a Virginia-specific CPP.

In considering the parties' positions, the court conceded that the commission was created in the state constitution. However, the court said, the mere fact that the commission was instituted therein did not give it any "inherent power" per se.

Indeed, the court related, Virginia's constitution explicitly states that the commission's authority to regulate rates is "[s]ubject to such criteria and other requirements as may be prescribed by law." That is, the court clarified, although the state constitution founded the commission, it also includes language demonstrating that the commission's powers are "subordinate to the power of the General Assembly."

Moreover, the court commented that its reading of the constitution revealed no provision that could be construed as displacing the General Assembly's overarching authority in favor of the commission. The court thus held that the General Assembly had been within its own constitutional rights to limit the commission's rate-making powers in the manner it did.

But one judge, Justice William C. Mims, dissented, positing that state lawmakers had overstepped their bounds in suspending the commission's rate-making authority. He asserted that Virginia's constitution is unambiguous in prescribing rate-making authority solely to the commission.

The justice stressed that it is important to separate what the constitution does say from what it does not. He alleged that while the constitution does specifically permit lawmakers to impose standards and prerequisites on the commission as the commission carries out its ratemaking duties, nowhere in the constitution does it authorize the General Assembly to actually suspend the commission's powers and duties. Old Dominion Committee for Fair Utility Rates et al. v. State Corporation Commission et al., Record Nos. 161519 et al., Sept. 14, 2017 (Va.).