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Old Dominion Committee for Fair Utility Rates v. State Corporation Commission

Supreme Court of Virginia

September 14, 2017



          PRESENT: Lemons, C.J., Mims, McClanahan, Powell, Kelsey, and McCullough, JJ., and Russell, S.J.



         Appellants, Old Dominion Committee For Fair Utility Rates ("Old Dominion"), VML/VACO APCO Steering Committee ("VML") and Karen E. Torrent ("Torrent"), challenge in these consolidated appeals of right the decision of the State Corporation Commission ("Commission") upholding the constitutionality of Code § 56-585.1:1. This statute suspended the Commission's biennial base rate reviews for Appalachian Power Company (APCO) and Virginia Electric and Power Company, d/b/a Dominion Virginia Power ("Dominion Power") under Code § 56-585.1 until the years 2020 and 2021, respectively. In reaching its decision, the Commission rejected appellants' argument that Code § 56-585.1:1 violates Article IX, § 2 of the Constitution of Virginia. We agree with the Commission and affirm.

         I. BACKGROUND

         A. Overview of Electric Rates Regulation in Virginia

         This constitutional challenge to Code § 56-585.1:1 arises in the context of the General Assembly's exercise of constitutional and legislative authority over the Commission's authority to regulate the rates electric utility companies charge their customers.

         1. Commission's Constitutional Ratemaking Authority

         The Commission, while created under the 1902 Constitution of Virginia, was not given constitutional authority to regulate electric rates until the passage of the 1971 Constitution of Virginia, under Article IX, § 2, clause 3, which provides: "Subject to such criteria and other requirements as may be prescribed by law, the Commission shall have power and be charged with the duty of regulating the rates . . . of . . . electric companies." (Emphasis added.) See Commonwealth v. Virginia Electric & Power Co. (VEPCO), 214 Va. 457, 463, 201 S.E.2d 771, 775 (1974); see also Elizabeth River Crossings OpCo, LLC v. Meeks, 286 Va. 286, 307-08, 749 S.E.2d 176, 186-87 (2013). This is the Commission's sole source of constitutional ratemaking authority.

         2. Commission's Statutory Ratemaking Authority

         Long before the Commission received the above-stated constitutional ratemaking authority, the General Assembly first conferred statutory authority upon the Commission to regulate the rates of electric companies in 1914. VEPCO, 214 Va. at 463, 201 S.E.2d at 775. Until 1999, the General Assembly continued to prescribe the Commission's manner of determining such rates under Chapter 10, Article 2 of Title 56 (former Code § 56-234 et seq.) and its predecessor statutes. Appalachian Power Company v. State Corp. Comm'n, 284 Va. 695, 699, 733 S.E.2d 250, 252 (2012). "Under this regulatory regime, the rates could be changed following a review initiated by the Commission or upon an application filed by an electric utility, " and the Commission was given "broad discretion in selecting the methodology for determining rates." Id.

         In 1999, approximately 28 years after the passage of Article IX, § 2, the General Assembly enacted the Virginia Electric Utility Restructuring Act (former Code § 56-576 et seq.), which deregulated parts of the electric utility industry and introduced competition among the providers of electric generation. 1999 Acts ch. 411; see Appalachian Power Company, 284 Va. at 699-70, 733 S.E.2-74d at 252; Potomac Edison Co. v. State Corp. Comm'n, 276 Va. 577, 580, 667 S.E.2d 772, 773 (2008). This legislation, as amended, established a transition period to a competitive market beginning in 2001 that "capped" base rates for electric utilities for seven years, during which the Commission had no authority to change base rates except in expressly limited circumstances. 1999 Acts ch. 411; 2004 Acts ch. 827; 2007 Acts chs. 888, 933; see also Appalachian Power Company, 284 Va. at 699-70, 733 S.E.2-74d at 252; Potomac Edison Co., 276 Va. at 580-82, 667 S.E.2d at 773-75.

         In 2007, the General Assembly ended the deregulation program effective December 2008, and enacted Code § 56-585.1, which established a new regulatory regime. 2007 Acts chs. 888, 933; see Appalachian Power Company, 284 Va. at 700, 733 S.E.2d at 252; Potomac Edison Co., 276 Va. at 582 n.4, 667 S.E.2d at 774-75 n.4. Code § 56-585.1 "reaffirmed the Commission's authority to regulate electric utility rates but prescribed certain procedures and methodologies which the Commission must follow in establishing such rates." Id. Under the statute, the performance of electric utility companies is reviewed every two years. During this biennial review, "the Commission considers the company's rates, terms, and conditions for the provision of generation, distribution and transmission services for the preceding two years." Id.

          (citing Code § 56-585.1(A)). Furthermore, "[w]hile the biennial review has some characteristics of the Chapter 10 base rate proceeding, the statute imposes significant limitations on the Commission's discretion in adjusting rates." Id. The central limitation is that the Commission may not order a base rate reduction unless it finds that the utility had excess earnings in two consecutive biennial reviews. Id. at 700, 733 S.E.2d at 253 (citing Code § 56-585.1(A)(8)(iii) (now Code § 56-585.1(A)(8)(iii)). Under this regulatory regime, the Commission reviewed and affirmed APCO's base rates in its 2014 biennial review.

         Then in 2015, the General Assembly enacted Code § 56-585.1:1, which suspended APCO's biennial reviews until 2020 (to review 2018-2019) and prohibited the Commission from adjusting APCO's base rates for any part of this interim period (the "Transitional Rate Period"), except for possible temporary, emergency increases requested by APCO.[1] 2015 Acts ch. 6. Code § 56-585.1:1 thus effected a four-year base rate freeze for APCO.[2]

         B. Old Dominion's Petition Challenging Code § 56-585.1:1

         Old Dominion, an association of large industrial customers of APCO, filed a petition asking the Commission for: (a) a declaratory judgment that Code § 56-585.1:1 violates Article IX, § 2 of the Constitution of Virginia and, accordingly, that APCO is required under Code § 56-585.1 to make biennial review filings in 2016 and 2018; and (b) an order directing APCO to make such filings.

         In the petition, Old Dominion asserted that even though the Commission's constitutional authority to regulate electric utility rates under Article IX, § 2 is expressly "[s]ubject to such criteria and other requirements as may be prescribed by law, " this provision does not grant to the General Assembly the power to transfer the Commission's ratemaking authority to itself. While giving the General Assembly "wide latitude to determine the standards that must be used by the Commission in regulating rates, " according to Old Dominion, "the Constitution reserves for the Commission-and the Commission alone-the power to set electric utility rates." (Citation and internal quotation marks in petition omitted.) "By suspending biennial reviews and prohibiting the Commission from changing base rates (except at the utility's request, on a temporary basis, in emergencies), " Old Dominion argued, Code § 56-585.1:1 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 other words, "[i]t leaves the Commission utterly powerless to protect customers from unfair and unreasonable base rates, even when the rates are designed to provide significant excess revenues for the utility and its shareholders." By doing so, the statute, in Old Dominion's view, unconstitutionally prohibits the Commission from discharging "its constitutional power and duty."

         After Old Dominion filed the petition, VML, comprised of representatives of local governments and other political subdivisions in Virginia located within APCO's service area, and Torrent, a Virginia residential customer of Dominion Power proceeding pro se, among others, filed responses with the Commission in support of Old Dominion, making the same argument that Code § 56-585.1:1 is unconstitutional under Article IX, § 2.

         The Attorney General of Virginia, APCO, and Dominion Power filed responses with the Commission opposing Old Dominion's petition, arguing that the statute is constitutional.[3] These respondents asserted that the plain language of Article IX, § 2 clearly and unambiguously subordinates the Commission's ratemaking authority to limitations established by the General Assembly. They argued that Code § 56-585.1:1 is, indeed, no different in effect than the limitations imposed upon the Commission's ratemaking authority under Code § 56-585.1's biannual regulatory regime-which Old Dominion was in fact seeking in its petition to enforce. They also pointed to other such legislation, emphasizing in particular the General Assembly's deregulation of certain electric utilities in 1999 that capped base rates for seven years. Furthermore, they asserted, this Court's decision in VEPCO controls. There, this Court held that the subject-to-such-requirements language in Article IX, § 2, clause 3, is "clear and unambiguous" in subordinating the authority of the Commission to regulate electric rates "to the power of the General Assembly to command otherwise." 214 Va. at 465, 201 S.E.2d at 777.

         C. Commission's Final Order

         Concluding that Code § 56-585.1:1 is constitutional under Article IX, § 2, the Commission issued a final order denying Old Dominion's petition, to which Commissioner Dimitri dissented. The dissent discussed extensively what it views as the statute's negative public policy outcomes. The Commission rejected the public policy arguments against the statute made by Old Dominion, the dissent and others, as immaterial. The Commission focused instead on the purely legal issue of whether Old Dominion had carried its burden of overcoming the presumption in favor of the statute's constitutionality-which the Commission acknowledged is among the strongest presumptions in Virginia law. Thus, its "duty in this case, " the Commission explained, "is to decide the legal question of constitutionality without regard to our public-policy preferences and not to conflate the two."[4]

         The Commission reasoned that the temporary base rate freeze under Code § 56-585.1:1 on the base rates it had previously set for APCO and Dominion is "not unprecedented and must be considered in light of [this] Court's unequivocal instruction that any alleged unconstitutionality must be clear and palpable and that any reasonable doubt renders the statute constitutionally valid." As such, the Commission determined, this temporary rate base freeze "can reasonably be considered [as falling] within the 'criteria and other requirements'" that may be prescribed by the General Assembly under Article IX, § 2.

         The Commission expressly rejected the theory implicit in the arguments made by Old Dominion, the dissent and other proponents of the petition challenging Code § 56-585.1:1 to the effect that Article IX, § 2 "grants to the Commission a plenary power to legislate that is both exclusive of, and superior to, that of the General Assembly. Under this theory, the General Assembly apparently can enact purely procedural, but not substantive, criteria and requirements, or it can enact some substantive criteria and requirements as long as they don't cross a line, which is neither clearly located or defined." (Emphases in original.) In any event, while under this theory the General Assembly "can 'prescribe' how the Commission regulates rates, " it "cannot 'remove' the rate-setting authority." Based on such a test, the Commission explained, numerous ratemaking related legislative enactments prior to Code § 56-585.1:1 would have been unconstitutional-with no limiting principle having been proposed. This would include the 1999 Virginia Electric Utility Restructuring Act's removal of the Commission's authority to set rates for electric utilities in favor of deregulation. That legislation would have been unconstitutional because "the General Assembly could never make the public policy decision to deregulate services of the types of companies listed in Article IX, § 2 [i.e., railroad, telephone, gas and electric companies] by removing the Commission's authority to set the rates for such services and thereby allowing prices to be set by the market." (Emphasis in original.)

         Eschewing this interpretation of Article IX, § 2, the Commission concluded "[t]here is no historical evidence that those who adopted the 1971 Constitution intended such a grant of plenary policy-making power to the Commission, " quoting as support for its conclusion VEPCO, 214 Va. at 465, 201 S.E.2d at 777 ("[T]he authority of the [Commission] . . . is subordinate to the power of the General Assembly to command otherwise."), and Potomac Elec. Power Co. v. State Corp. Comm'n, 221 Va. 632, 636, 272 S.E.2d 214, 216 (1980) ("The [Commission's] regulatory jurisdiction is not plenary."). (Emphasis in Commission's final order.)

         The Commission also recognized that under the logic of Old Dominion's petition many of the provisions of Code § 56-585.1 governing biennial reviews-which the proponents of the petition ultimately seek to enforce-may be unconstitutional. Thus, the Commission deduced, the proponents "would have us return to ground that [their] own argument, if accepted, would render infirm, " thereby undermining the logic of their challenge to Code § 56-585.1:1.

         II. ANALYSIS

         A. Standard of Review

         The constitutionality of Code § 56-585.1:1 presents an issue of law subject to de novo review. Appalachian Power Company, 284 Va. at 703, 733 S.E.2d at 254; Appalachian Voices v. State Corp. Comm'n, 277 Va. 509, 516, 675 S.E.2d 458, 461 (2009). We are guided in this review by the fundamental principle that "all actions of the General Assembly are presumed to be constitutional." Montgomery Cty. v. Virginia Dept. of Rail & Public Trans., 282 Va. 422, 435, 719 S.E.2d 294, 300 (2011) (quoting Copeland v. Todd, 282 Va. 183, 193, 715 S.E.2d 11, 16 (2011)). Indeed, there is "no stronger presumption known to the law, " id. (collecting cases), and therefore "a heavy burden of proof is thrust upon the party" challenging a statute's constitutionality, Harrison v. Day, 200 Va. 764, 770, 107 S.E.2d 594, 598 (1959).

         This strong presumption reflects the breadth of legislative power in Virginia. "Unlike the Congress of the United States, the General Assembly of Virginia functions under no grant of power." Carter v. City of Norfolk, 206 Va. 872, 874, 147 S.E.2d 139, 141 (1966). The General Assembly, in "represent[ing] the sovereign authority of the people, " is restricted only by the Constitution of Virginia "in express terms or by strong implication. We look to the Constitution of the State not for grants of power, but for limitations. . . . [I]t is a restraining instrument, and . . . the General Assembly of the State possesses all legislative power not prohibited by the Constitution." Gallagher v. Commonwealth, 284 Va. 444, 452, 732 S.E.2d 22, 25-26 (2012) (quoting Whitlock v. Hawkins, 105 Va. 242, 248, 53 S.E. 401, 403 (1906)). In ...

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