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Will Virginia’s “Rate Freeze Law” Stand? The $280 million (Per Year) Question.

The Supreme Court of Virginia Building, adjace...

The Supreme Court of Virginia Building, adjacent to Capitol Square in Richmond, Virginia (Photo credit: Wikipedia)

A group of industrial customers of Dominion Virginia Power (“Dominion”) recently asked the Supreme Court of Virginia to strike a controversial portion of the Virginia Electric Utility Regulation Act (“Regulation Act”). The group, the Virginia Committee for Fair Utility Rates (“Committee”), is challenging a 2015 amendment to the Regulation Act, Senate Bill 1349, which limits the state’s ability to regulate the electric rates of monopoly public utilities. The so-called “rate freeze law” prevents the State Corporation Commission (“SCC” or “Commission”) from reviewing or reducing the base rates of Dominion and Appalachian Power Company through at least 2022. If the Supreme Court strikes the law, it could mean a significant rate reduction for Dominion’s customers – to the tune of approximately $280 million per year. See our previous information about this topic here.

The rate freeze law is controversial because it prevents the Commission from reducing Dominion’s rates, even though the SCC has previously found that the monopoly utility’s rates are too high and are producing excess profits for Dominion’s shareholders. In its 2013 review of Dominion’s rates, the Commission found that Dominion’s current base rates are set at a level that will produce excess profits of approximately $280 million each year. The Committee’s appeal seeks to overturn the rate freeze law, which would presumably allow the SCC to lower Dominion’s rates substantially. The Committee has argued that if Dominion’s rates remain unchanged through 2022, Dominion’s shareholders will reap excess profits of “well over a billion dollars.”

The challenge was triggered by an SCC order late last year that applied the rate freeze law for the first time. In its Final Order in Dominion’s 2015 Biennial Review rate case, SCC Case No. PUE-2015-00027, a 2-1 majority of the Commission applied SB 1349 as written and declined to adjust Dominion’s base rates or set a new rate of return on equity for the company. Commissioner Dimitri, however, filed a dissenting opinion, stating that the rate freeze law violates Article IX of the Constitution of Virginia because it limits the SCC’s authority to regulate monopoly electric utilities such as Dominion.

The legal arguments advanced by the Committee are also based on Article IX of the Constitution of Virginia, which establishes the powers and duties of the SCC. Article IX, Section 2 provides that “Subject to such criteria and other requirements as may be prescribed by law, the Commission shall have the power and be charged with the duty of regulating the rates, charges, and services … of electric companies.” According to the Committee, therefore, the Commission’s authority to regulate electric rates is subject only to “criteria” and “other requirements” that may established by the General Assembly. By taking the authority to regulate electric rates away from the SCC, the Committee has argued, the rate freeze law runs afoul of Article IX.

Opening briefs in this case (Supreme Court Record No. 160453) are due June 3, and oral arguments are likely to be held during the Supreme Court’s fall term.

If you have any questions about any of the legal aspects of this case or its potential to affect the electric rates paid by Dominion’s customers, do not hesitate to contact one of GreeneHurlocker’s Virginia energy and regulatory attorneys.