Karen M. Stemland

Karen M. Stemland
Of Counsel

In July 2020, the Virginia Supreme Court affirmed the State Corporation Commission’s broad discretion pertaining to energy regulation. In Walmart Stores East, LP et al. v. State Corporation Commission et al., Walmart sought to combine the electric energy demand of multiple locations to qualify to buy electricity from sources other than the established public utilities regulated by the State Corporation Commission (SCC). The SCC denied Walmart’s petition, primarily on the basis that granting the petition could increase the monthly bills of remaining customers. Walmart appealed on the grounds that the SCC “erred as a matter of law” and acted “arbitrarily and capriciously.”

History Of Virginia Energy Regulation

Prior to 1999, Virginia operated a state-regulated monopoly over the generation, transmission, and distribution of electrical power within Virginia. Virginia consumers had to purchase electricity from one of the incumbent public utility companies regulated by the SCC. In 1999, Virginia’s General Assembly enacted the Virginia Electric Utility Restructuring Act to deregulate parts of the electric utility industry and introduce competition among electricity providers.

In 2007, the General Assembly ended the deregulation and set up a new regulatory regime. This regime required the SCC to approve retailers’ choice in two categories:

  • Large customers with a demand exceeding five megawatts; and
  • All customers seeking 100% renewable energy if the customer’s incumbent utility did not offer the same.

The regime also gave the SCC discretion to approve retailers’ choice in a third category, codified at Virginia Code 56-577 (A)(4), which provides in pertinent part as follows:

    1. Two or more individual nonresidential retail customers of electric energy .., whose individual demand during the most recent calendar year did not exceed five megawatts, may petition the [SCC] for permission to aggregate or combine their demands, for the purpose of meeting the demand limitations .., so as to become qualified to purchase electric energy from any supplier of electric energy… The [SCC] may, after notice and opportunity for hearing, approve such petition if it finds that
      1. Neither such customers’ incumbent electric utility nor retail customers of such utility that do not choose to obtain electric energy from alternate suppliers will be adversely affected in a manner contrary to the public interest by granting such petition…
      2. Approval of such petition is consistent with the public interest.

Va. Code Ann. § 56-577 (A)(4)(emphasis added)

This Code section grants the SCC discretion to approve or deny the choice of nonresidential customers to aggregate their demand to exceed five megawatts. See Va. Code 56-577(A)(4). The discretion is meant to further the statutory goal of allowing retail customers to aggregate their electrical load to obtain more competitive pricing through participation in the wholesale market for electricity.

Administrative Hearing

At the administrative hearing, the hearing examiner found that Walmart’s petition, if granted, likely would “increase the monthly bills of remaining, non-shopping customers” in the amount of approximately between $0.05 and $0.13 per monthly bill. Though Walmart argued such an increase would be “de minimis,” the SCC held that any increase would adversely affect remaining customers and therefore conflict with the public interest. Given historical rising rates and projections of future rate increases, the SCC worried small businesses would suffer from the resulting cost-shifting if large-demand customers aggregated their demand and sought power supply elsewhere.

Holdings

  1. The SCC could deny Walmart’s petition because granting it would have increased costs for the utilities’ remaining customers.
  2. Evidence supported SCC’s finding that granting Walmart’s petition would adversely affect remaining customers; and
  3. The SCC did not abuse its discretion by denying Walmart’s motion for reconsideration.

Supreme Court Reasoning

The Virginia Supreme Court rejected Walmart’s contention that the SCC failed adequately to assess the “public interest,” on the basis that the General Assembly granted broad decision-making discretion to the SCC under the applicable statute. The statute gave the SCC full discretion to determine what constitutes the “public interest,” and what factors should shape the determination. The Virginia Supreme Court will not re-write statutes by changing the word “may” to “shall.” Rather, the Supreme Court will uphold the legislature’s carefully-chosen discretionary language.

The Supreme Court rejected the argument that the SCC’s evidence was insufficient to prove the remaining customers would in fact suffer adverse impacts. The SCC could not be faulted with insufficient evidence because it did not have the burden of proof. Rather, it was Walmart’s burden to persuade the SCC to exercise its discretionary authority. Disagreement regarding whether the SCC should have exercised its discretion did not render the SCC’s findings contrary to the evidence. Rather, the SCC can interpret conflicting evidence and decide what weight to afford it.

Significance

Where the General Assembly grants discretion to the SCC in energy regulation, that discretion is broad. A statute’s use of “may,” rather than “shall,” gives the SCC plenty of room to weigh what it believes to be important, and the scale need not be objective. The SCC’s wide discretion may limit retailers’ ability to aggregate energy demands, in hopes of reaching the wholesale energy market.


If you have questions about the SCC and energy regulation in Virginia:
Contact Karen Stemland at kstemland@woodsrogers.com.