Bacon's Rebellion

Democracy Thrives in Sunlight

Supremes Say General Assembly Can Order Electric Rate Freeze

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by

James A. Bacon
in ,

Virginia Supreme Court Justice Elizabeth A. McClanahan.

In a six to one ruling, the Virginia Supreme Court ruled that the General Assembly does possess the right under the state constitution to put limits on the State Corporation Commission’s ability to regulate electric utilities. As a practical matter, that means that the multi-year freeze in base electric rates for Appalachian Power Company and Dominion Energy Virginia will stay in effect.

The Old Dominion Committee for Fair Electric rates, representing major industrial customers, the VML/VACO APCO Steering Committee, representing local government, and Karen E. Torrent, a Dominion customer, had challenged the freeze, which they claim lock in electric rates at levels that otherwise would have required potentially hundreds of millions of dollars to customers.

While giving the General Assembly “wide latitude to determine the standards” that must be used in setting rates, argued the Old Dominion lawsuit, “The Constitution reserves for the Commission — and the Commission alone — the power to set electric utility rates.

By suspending biennial reviews and prohibiting the Commission from changing base rates (except at the utility’s request, on a temporary basis,” the plaintiffs argued, state code “unconstitutionally ‘fixes the base rates that a utility will charge its customers for a period well into the future, and deprives the Commission of any power to reduce or otherwise regulate those rates.”

In an opinion written by Justice Elizabeth A. McClanahan, however, the court majority upheld the General Assembly’s primacy over the SCC. Under the 1902 Constitution of Virginia, the SCC did not enjoy constitutional authority to set rates — authority was bequeathed by the General Assembly. The 1971 constitution did provide constitutional authority to the SCC, but “subject to such criteria and other requirements as may be prescribed by law.”

The General Assembly has limited the SCC rate-setting authority at least twice before the 2015 rate freeze. In 1999, in enacting the Virginia Electric Utility Restructuring Act to introduce competition among providers of electric generation, the legislature capped base rates for electric utilities for seven years. In 2007 when the General Assembly ended the deregulation program, lawmakers required a rate hearing every two years and prescribed that the SCC could not order a rate reduction unless it found that the utility had excess earnings in two consecutive biennial reviews.

“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 companies has been ‘delegated’ to it by the General Assembly under various legislative enactments,” McClanahan wrote.

Justice William C. Mims wrote a dissenting opinion: “I reject the premise that the rate-making authority granted to the Constitution is subordinate to the General Assembly.” The majority was wrong in this case, and it was wrong in previous cases when it upheld the same principle, he declared. “The General Assembly may impose standards and prerequisites the Commission must adhere to when exercising its power and duty to set rates. It does not mean that the General Assembly may suspend that power and duty.”

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14 responses to “Supremes Say General Assembly Can Order Electric Rate Freeze”

  1. vaconsumeradvocate Avatar
    vaconsumeradvocate

    No one will believe it but this time I agree completely with Justice Mims. Since our electricity legislation was rewritten in 2007, the stranglehold Dominion has had over elected officials has become even worse than it’s been forever. This court ruling will just lead to more critical decisions being made by non-expert part time legislators based upon lobbyist provided soundbites and fewer will be made by unbiased experts based upon a full record of applicable information. The Supreme Court just made the SCC even less powerful – and we’re turning our backs on the independence the SCC was originally granted because legislators realized then that they could not say no to the powerful railroad folks. Money will continue to matter more than fairness and the greater good. It is a real shame.

  2. Steve Haner Avatar
    Steve Haner

    The opinion does not surprise. There is a huge presumption in state case law that acts of the General Assembly are constitutional. There was also a clear 1974 precedent that supported the legislature’s supremacy over the SCC, the intent of the 1971 constitutional drafters notwithstanding. In his dissent Justice Mims was forced to simply hurdle that by arguing the 1974 decision was wrong. The gymnastics were too complex. But he is dead right that the outcome is that the intent of the constitutional drafters has been subverted and the protection of the people diminished.

    While the opinion did not surprise, the fact remains that the purpose of the 2015 law – its only purpose, despite every other red herring thrown up – was to prevent the SCC from either ordering refunds or a rate cut in 2017. It succeeded in that effort. As it now stands the SCC must stand down for more rate cases to come. In 2013, 2014, 2o15 and even again in 2017 the General Assembly passed bill after bill to dictate rates, to game the outcome of rate reviews, to bind the SCC to its will, and has become the one and only decider of all matters related to electric rates. If you want the refunds that the 2007 statute promised you, call your legislator……Trust me – real money is on the table. For every single ratepayer in either Dominion or APCO territory. Mucho dinero. Big Bucks. Serious smackers.

    1. TBill Avatar
      TBill

      “…its only purpose, despite every other red herring thrown up – was to prevent the SCC from either ordering refunds or a rate cut in 2017…”

      Well thank you! for giving us the most clear explanation yet of why we had the GA rate freeze legislation. At the time, Gov McAuliffe said the reason was Dominion top management pleaded on their knees to him that they had to have this legislation. The last remaining question would be why SCC is bringing Dominion to their knees all the time.

  3. LarrytheG Avatar
    LarrytheG

    While I do not agree with what the GA did and consider them to be a bunch of feckless and spineless lackey’s of Dominion.. it IS THEIR PURVIEW as the legislative function of the Constitution.

    I cannot imagine the Constitution delegates important decisions to …literally faceless, unelected bureaucrats… not subject to accountability from …anyone ..for their decisions.

    In this case – we agree with their view and in fact they are right but do you want their decisions in all cases not challengeable? That sounds pretty dangerous to me.

    I think ANY decision they make – is basically a recommendation – that has to be accepted – by the Executive or Legislative branch… and never a final decision.

  4. Steve Haner Avatar
    Steve Haner

    As is often the case, Larry, you could not be more wrong. The entire history of the SCC and similar regulatory bodies around the U.S. reflects an effort to remove rate making decisions from legislative bodies. The problem at the time was mainly the railroads, but the issues are the same with other public service corporations. The judges of the SCC take no campaign contributions, cannot eat a dinner bought by a party in a case, and take testimony given under oath. Under oath. The environment at the General Assembly is very different. In 30+ years I can count on one hand the number of times testimony has been sworn.

    Dominion and APCO are monopolies, with no effective competition, so the independent regulatory authority is a substitute for market forces.

    Now, when it works as intended it also protect legislators. They can let the SCC take the heat if there is heat. But not now. They have taken the full burden on their responsibility now. I am surprised they don’t fully understand the risk. So far there hasn’t been much. With the SCC now indicating that Dominion’s base rates may be excessive to the tune of $350-400 million per year, it is hard to imagine people are not going to catch on eventually.

    1. Mom Avatar
      Mom

      “Under oath”, the testimony generally given “under oath” by Dominion’s “experts” frequently isn’t worth the paper the oath is written on and largely goes unquestioned by the “Judges” or Hearing Examiner tasked with reviewing it.

  5. TooManyTaxes Avatar
    TooManyTaxes

    IMO, “The 1971 constitution did provide constitutional authority to the SCC, but ‘subject to such criteria and other requirements as may be prescribed by law,’” is the key phrase. This section clearly permits the General Assembly to exercise broad authority over the SCC in setting rates.

    Whether this is good policy is another matter. But it seems to me to be good law.

  6. TomH Avatar
    TomH

    Steve,

    You have made several excellent points. I have been involved with utility regulation in two other states. Never have I seen legislative interference with the rate-making process such as what occurs in Virginia. I would agree in principle that the legislature has “broad authority” over the regulatory body. But it is not for setting rates, but in establishing the principles that guide the process. The details of the process must be left to the objective, evidentiary process of rate-making. Otherwise, it is open to political influence by special interests, which is exactly what is occurring here in Virginia. If the legislature is concerned about our utilities’ ability to prosper in a rapidly changing energy scene, then they should specify new ways of regulating our utilities where shareholders can benefit when customers are better served, as other states have done.

    Without the purchase of votes that is legal here in Virginia, how can a legislator vote against the economic interests of the state as a whole and the constituents in particular, in order to favor a single organization. There are ways to make it so everyone wins. But currently, it is a complete abandonment of the public interest in favor of the private interest of a single organization. If you believe that what the GA is doing is in the public interest, then you have not researched the details.

    The SCC will be asked to rule soon on whether billions of dollars in excess costs (for the pipeline) can be passed through to families and businesses in Virginia in order to profit a private, non-regulated business. If done correctly, this should be examined in a evidentiary setting, with witnesses under oath, so that the facts can be illuminated as best we can in this day in age. Rulings such as that from the Supreme Court serve to make the SCC even more skittish about taking a proper look at these issues, for fear of having even more of their authority diminished by the legislature.

    As someone who grew up in another state, I always looked to Virginia as the birthplace of ideas about basic human rights, and the rights of individuals to shape their own destinies rather than be under the thumb of coercive rulers, beholden to special interests. Actions in today’s Virginia betray that heritage and serve only as a bad example. We can do much better.

    1. TooManyTaxes Avatar
      TooManyTaxes

      No one represents the ordinary citizen and ratepayer. Big business can and does protect its interests. Green groups work to foster their goals. But despite claiming they represent the public, the interests of those groups are not the same as those of ratepayers.

      Our generally liberal NoVA legislators are chiefly interested in social issues (guns and abortion), protecting illegal immigrants and towing the environmentalist line. With the likely exception of Senator Chap Petersen, they are really aren’t interested in protecting ratepayers. And voting for Dominion allows them to rebut GOP claims that they are anti-business. I’m not surprised by the results.

  7. Rowinguy1 Avatar
    Rowinguy1

    “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 companies has been ‘delegated’ to it by the General Assembly under various legislative enactments,” McClanahan wrote.

    Yes, the Court has repeatedly stated that the SCC’s ratemaking authority was delegated to it by the General Assembly. And this was true up to 1971, when in the new Constitution, the power was stripped by the people from the General Assembly and given directly to the SCC. Until 1971, the SCC’s power over electric utilities HAD been statutorily derived. Not since then. As Justice Mims painstakingly pointed out in his dissent, each case since 1971 where the Court invoked the “delegated by the General Assembly” language, rested on precedent established in a 1955 case, when, in fact, the Commission’s authority WAS delegated from the General Assembly.

    The Court’s unfortunate misstatement in the 1974 case, enshrined erroneously in Virginia dicta ever since, and re-affirmed here, also has the effect of undoing other Commission authority granted to it in the 1902 Constitution, such as authority over the railroads and transmission companies. Those are now subject to the whims of the General Assembly too. The SCC has effectively been written out of the Virginia Constitution.

    1. TooManyTaxes Avatar
      TooManyTaxes

      So where have our many state attorneys general been since 1974? One would think they would each have sufficient dedication to the law so as to point out the error.

      1. Acbar Avatar
        Acbar

        Here is the opinion: http://www.courts.state.va.us/opinions/opnscvwp/1161519.pdf

        I could see past AGs overlooking the presence of dicta in 1974 and subsequently. But the AG in this case supported the constitutionality of the rate freeze “despite having opposed the passage of [the rate freeze] on policy grounds” (as noted in the dissent). Why? This case was directly on point and was a clear opportunity to correct the past mistake. Justice Mims’ analysis is correct; I find his discussion at 24-26 particularly persuasive. But this was all pointed out to the Court, and aside from Mims, did not persuade them either. Perhaps the Court could not bring itself to admit that its 1974 decision was a logical quagmire. Perhaps this decision shows how politically deferential the Court is today to the GA, which elects the Court’s members (some of whom came from that body), and approves the Court’s budget.

      2. Rowinguy1 Avatar
        Rowinguy1

        The AG is obligated by law to argue in favor of the constitutionality of acts by the General Assembly.

        The earlier cases upon which this decision was founded did not challenge the constitutionality of any such act.

  8. Steve Haner Avatar
    Steve Haner

    I am not an attorney and I have been involved in this issue heavily since 2006. It never occurred to me that the 2015 statute was unconstitutional until I read Dimitri’s dissent. It seemed immediately obvious to me that if the 2015 bill violated the state constitution, so did the 2007 statute and most of the other intervening bills. Every time the GA inserts a phrase that something is “in the public interest” it is making rates. Directly.

    I found Mims’ argument compelling but the only real solution is a constitutional amendment to add some specificity to that “subject to” phrase inserted in 1971. Or to just take it out. But I’d rather take a bone away from a Doberman….That court case is a call to dinner for every single regulated public service corporation in VA, not just the power companies.

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