Delmarva Power & Light Co. v. Morrison
| Decision Date | 23 July 2007 |
| Docket Number | Civil Action No. 3:07cv392. |
| Court | U.S. District Court — Eastern District of Virginia |
| Parties | DELMARVA POWER & LIGHT COMPANY, Plaintiff, v. Commissioner Theodore v. MORRISON, Jr., et al., Defendants. |
Cassandra Carol Collins, Edward P. Noonan, Richard David Gary, Hunton & Williams LLP, Richmond, VA, for Plaintiff.
This matter is before the Court on Delmarva Power & Light Company's Motion For Temporary Restraining Order And Preliminary Injunction (Docket Nos. 2 and 3). For the reasons set forth below, the action will be dismissed without prejudice and the motion for injunctive relief will be denied.
In this case, Delmarva Power & Light Company ("Delmarva") complains that certain decisions by the Defendants Theodore V. Morrison, Commissioner, Mark C. Christie, and Judith Williams Jagdmann, Commissioners, in their official capacities as Commissioners of the Virginia State Corporation Commission ("SCC") made in the course of a rate setting will cause it to lose approximately $500,000 per month for the next year, an injury which Delmarva asserts to be irreparable.1 The decisions that are alleged to be the cause of Delmarva's allegedly irreparable loss are grounded in the interpretation of a memorandum agreement, Virginia's contract laws, the Virginia Utility Restructuring Act ("Restructuring Act" or the "Act"), as originally enacted and as amended in 2004, a federal doctrine known as the "filed rate" doctrine, and the Takings Clause of the United States Constitution.
Delmarva buys wholesale electricity from third parties, and sells it to retail customers in Delaware, Maryland and Virginia's Eastern Shore. The company has around 22,330 customers in Virginia.2 The Federal Energy Regulatory Commission ("FERC") regulates the price that Delmarva pays for the wholesale electricity it buys from third parties, see 16 U.S.C. § 824(b), while the SCC regulates the price that Delmarva charges when it sells that electricity to its Virginia retail customers. See Va.Code Ann. §§ 56-232 et seq. (1999).
In 1999, the General Assembly of Virginia passed the Restructuring Act, which was designed in part to deregulate the generation, transmission, and supply of electricity in Virginia. To allow for a transition period between the existing regulated system and a future, deregulated system, the Restructuring Act provided that the SCC was to establish rate caps for electricity supply, "effective January 1, 2001, and expiring on July 1, 2007...." Va.Code § 56-582(A) (1999). The Act also provided that the SCC could set rates, apparently indefinitely, for those customers who received "default service." Va. Code § 56-585 (1999). Default service customers are those who either do not or cannot choose a reliable, economically competitive supplier of electricity. See Va. Code Ann. § 56-585(A).
The Act anticipated that, under deregulation, electrical utilities might want to divest assets or restructure themselves in order to specialize in the generation, transmission, or distribution of electricity. The Act, therefore, permitted such divestitures, but provided that the SCC would "direct" them. Va.Code § 56-590(B)(1) (1999). The concept of divestiture, along with the SCC's direction of the divestiture process, was fully integrated into the Act's structure, especially its rate cap system. The Act empowered the SCC to "adjust" capped rates over time, including rate adjustments based on the changing cost of fuel.3 Va.Code § 56-582(B) (1999). Although the Act set forth a schedule to adjust rates to account for fuel, it also provided that any such adjustments would be made "in accordance with the terms of any [SCC] Order approving the divestiture of generation assets pursuant to § 56-590" — in other words, aside from whatever rate adjustments the Act might permit for changing fuel costs, those utilities that had been allowed to divest under the SCC's "direct[ion]" would have their rate adjustments for fuel costs governed by the SCC's order that had permitted their divestiture. Va.Code § 56-582(B)(i) (1999).
Before 2000, Delmarva was a vertically integrated electrical utility company which both generated electricity and sold it to retail customers. After the Restructuring Act was passed, however, Delmarva decided to divest its generating assets. Pursuant to the Act, Delmarva asked the SCC to approve its divestiture plan. The SCC evaluated the plan, and became concerned that the proposed divestiture would expose Delmarva's retail customers to the vagaries of the wholesale electricity markets, which could result in higher prices or less reliable service. (See Compl. Ex. B ("2000 Final Order") at 10.) To address the SCC's concerns, Delmarva proposed to enter into a Memorandum of Agreement ("MOA"). Delmarva and the SCC staff executed the MOA, and the SCC approved and memorialized it in an Order dated June 29, 2000, as part of its order permitting divestiture. (Id.).
Much of the MOA dealt with how Delmarva would adjust its retail prices to account for the changing price of wholesale power. The MOA followed Va.Code §§ 56-582 and 56-585 by providing that Delmarva's "fuel factor"4 would be calculated pursuant to a "Rate Case Protocol." The Rate Case Protocol was to be based on (1) Delmarva's "generation mix" in as it stood in 1999, and (2) a "Fuel Index Procedure." (Id. at 6). The resulting electricity rate, according to the MOA, would be Delmarva's "capped rate" pursuant to Va. Code § 56-582, and would also be the "default rate" pursuant to Va.Code § 56-585. (Id. at 6-7). The MOA further provided that Delmarva could apply to the SCC to change its rates to adjust to changes in the cost of wholesale power by submitting an application pursuant to Va.Code § 56-249.6.5 (Id. at 6). The eventual rate, however, was to be calculated within the framework of the MOA's Rate Case Protocol and its Fuel Index Procedure. (Id.).
The MOA provided that the use of the Fuel Index Procedure to calculate capped rates would begin on January 1, 2004, but it did not provide an end date. Additionally, the MOA stated the capped rate set by the SCC for Delmarva under Va.Code § 56-582 and the MOA was to "be deemed its default rate pursuant to Va.Code § 56-585 whenever Delmarva is a provider of default service during any period in which capped rates are in effect...." (Id. at 6-7).
It is clear from the record that the divestiture was approved only because the SCC considered the MOA to afford protection against non-competitive electricity prices and unreliable service. Thereafter, Delmarva divested its assets and began selling power at rates calculated under the Restructuring Act and the MOA.
That was not the end of the story, however. In 2004, the General Assembly of Virginia amended the Restructuring Act. Va.Code § 56-582, which originally had empowered the SCC to set rate caps "effective January 1, 2001, and expiring July 1, 2007," was changed to read simply that the SCC was empowered to set "capped rates, effective January 1, 2001 ..." Va. Code § 56-582(A) (Supp.2006). In the place of a fixed expiration date, the 2004 amendment to Va.Code § 56-582 provided that utilities could petition the SCC to end the capped rates, and that the SCC could eliminate capped rates for the utility upon a finding that "an effectively competitive market" existed in the service territory of the utility. Va.Code § 56-582(C) (Supp. 2006). Additionally, Va.Code § 56-249.6, which previously had not mentioned any specific dates for rate adjustments for fuel costs, was changed to provide that adjustments for fuel costs would operate through 2010. Va.Code § 56-249.6(C).6
On April 2, 2007, apparently pursuant to Va.Code § 56-582(B)(i) and Va.Code § 56-249.6, Delmarva filed an application to modify its power rates. (See Compl. Ex. C ("Order and Notice of Hearing") at 1.) Though it submitted fuel expense predictions that would allow the SCC to calculate its "fuel factor" pursuant to the Rate Case Protocol in the MOA, Delmarva also argued that it was not bound by the MOA, for several reasons.
First, Delmarva argued that the MOA expired on June 30, 2007, and therefore did not control the rates thereafter. The allegations of the Complaint and the briefing on the motion for preliminary injunction disclose that Delmarva grounded that argument on the interplay among the text of the original Restructuring Act, the text of the MOA, and the text of the 2004 and 2007 amendments to the Restructuring Act. .7 Delmarva also argued that requiring it to charge a rate capped under the Fuel Index Protocol in the MOA would violate the federal "filed rate" doctrine, and also would effect an unconstitutional taking of property without just compensation.
The SCC Order directed Delmarva and the SCC's staff to submit legal memoranda addressed to the above described issues, and ordered that a public hearing be held regarding Delmarva's rate on July 9, 2007. Delmarva and the SCC staff submitted legal memoranda, testimony and exhibits. On June 8, the SCC issued an Order in which it held that the MOA was still in effect, and that keeping rates at the MOA's levels neither violated the federal filed rate doctrine nor effected an unconstitutional taking. Delmarva then moved the SCC to reconsider its ruling. On June 25, the SCC denied Delmarva's motion.
On June 29, Delmarva filed both the Complaint initiating this action (Docket No. 1), and the Motion For Temporary Restraining Order And Preliminary Injunction (Docket Nos. 2 and 3), along with a supporting memorandum and exhibits (Docket No. 4). The Complaint has two counts. Count I alleges that the June 8 and June 25 Orders of the SCC violated the federal filed rate doctrine. Count II alleges that those Orders effected an unconstitutional taking of Delmarva's property without just compensation.
On July 9, the SCC...
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