Appalachian Voices v. State Corp. Comm'n

879 S.E.2d 35

APPALACHIAN VOICES

v.STATE CORPORATION COMMISSION, et al.

Record No. 220130

Supreme Court of Virginia.

October 27, 2022

William C. Cleveland (Nathaniel Benforado ; Claire Horan; Josephus M. Allmond; Southern Environmental Law Center, on briefs), for appellant.

John F. Dudley, Counsel to the Commission (Alisson P. Klaiber, Advisor to the Commission, on brief), for appellee Virginia State Corporation Commission.

Robert W. Loftin (Joseph K. Reid, III ; Elaine S. Ryan ; Sarah R. Bennett; Richmond, Paul E. Pfeffer ; David J. DePippo ; McGuireWoods, on brief), for appellee Virginia Electric and Power Company.

PRESENT: Powell, Kelsey, McCullough, Chafin, Russell, and Mann, JJ., and Mims, S.J.

OPINION BY JUSTICE D. ARTHUR KELSEY

Appalachian Voices, a nonprofit environmental organization, appeals an order of the State Corporation Commission ("SCC") that approved a petition by Virginia Electric and Power Company ("VEPCO") to obtain a rate-adjustment clause pursuant to Code § 56-585.1(A)(5)(e). VEPCO made the request to recover projected costs of purchasing allowances through the Regional Greenhouse Gas Initiative ("RGGI"), a cap-and-trade market regulating CO₂ emissions by electric utilities. Appalachian Voices argues that the SCC failed to apply the proper legal standard governing such requests. We disagree and affirm the Commission's judgment.

I.

In 2019, the Virginia Department of Environmental Quality ("DEQ") issued a series of regulations establishing a "CO₂ Budget Trading Program," which were subsequently amended and became effective in 2020. 9 VAC §§ 5-140-6010 to - 6440. The General Assembly authorized Virginia's participation in RGGI and implementation of the CO₂ Budget Trading Program regulations with the 2020 enactment of the Clean Energy and Community Flood Preparedness Act, Code §§ 10.1-1329 to -1331. The DEQ's final regulations directed that Virginia's participation in RGGI would begin on January 1, 2021. See 9 VAC § 5-140-6020.

Though highly complex in its details, the CO₂ Budget Trading Program relies on a basic economic thesis: CO₂ emissions can be reduced over time by making those responsible for them pay for the right to emit. Rather than directly ordering electric utilities to lower CO₂ emissions from their power plants, the regulations create an artificial market for the right to emit CO₂. In this market, electric utilities must purchase a fungible "allowance" for every short ton of CO₂ emissions their power plants emit. The market then progressively reduces the supply of allowances, see 9 VAC § 5-140-6190, which necessarily increases their price. The purchasing utility then passes on those costs — estimated to be approximately $2.95 billion through 2045, J.A. at 165, 178 — to Virginia ratepayers. The goal of this program is to reduce CO₂ emissions within a specified timeframe in a planned and predictable way.

RGGI, Inc., a multi-state consortium, operates the CO₂-allowance marketplace. The governing body of RGGI, Inc. consists of two representatives from each of the participating states.¹ After establishing a regional cap on CO₂ emissions, RGGI, Inc. sells CO₂ allowances at quarterly auctions and authorizes participating bidders to trade or resell allowances in a secondary market. See id. at 19-21. Each participating state starts off with a bank of allowances in proportion to its share of the regional cap. See id. at 20; 9 VAC § 5-140-6210(A). In Virginia, electric utilities with power plants having outputs of 25 megawatts or greater must purchase allowances for every short ton of CO₂ emissions the plants produce. 9 VAC §§ 5-140-6040(A), - 6050(C). Electric utilities may obtain the allowances at quarterly RGGI auctions or by later trading with or buying from other participating utilities. J.A. at 19-20.

In November 2020, pursuant to Code § 56-585.1(A)(5)(e), VEPCO filed a petition seeking the SCC's approval of a rate-adjustment clause ("RGGI Rider") that would amend the governing tariff for the rate year August 1, 2021, to July 31, 2022, to recover the utility's projected costs for purchasing CO₂ emission allowances from January 1, 2021, to July 31, 2022. VEPCO's plan estimated that it would need to purchase approximately 19 million CO₂ allowances per year or approximately 29 million CO₂ allowances by July 31, 2022, at the cost of approximately $168 million, to cover the estimated emissions from its Virginia-based power plants. An additional "bank of allowances" would be purchased to protect electricity customers from short-term volatility of the allowance prices. J.A. at 8. In November 2021, the SCC approved VEPCO's RGGI-Rider petition over the objection of Appalachian Voices.

II.

On appeal, Appalachian Voices argues that the SCC failed to apply the law when it approved VEPCO's RGGI-Rider petition. Though this high-stakes contest takes place in a factually complicated setting, the appellate argument ultimately turns on a single word: necessary. A regulated utility may seek a rate-adjustment clause to recover, among other things,

[p]rojected and actual costs that the Commission finds to be necessary ... to comply with state or federal environmental laws or regulations ... including the costs of all allowances purchased through a market-based trading program for carbon dioxide emissions. The Commission shall approve such a petition if it finds that such costs are necessary to comply with such environmental laws or regulations.

Code § 56-585.1(A)(5)(e) (emphases added).

Appalachian Voices claims that the SCC never specifically found that VEPCO's costs were necessary to comply with the DEQ's promulgated RGGI regulations. In response, the SCC points to multiple places in its final order stating that the challenged costs satisfy all applicable statutory requirements — necessity being one of them.² Maybe so, Appalachian Voices responds, but the SCC made no factual findings to demonstrate the necessity for the rate-adjustment clause sought by VEPCO. For this reason, Appalachian Voices contends that we should remand the case to the SCC to make factual findings using the necessity standard that Appalachian Voices believes the legislature intended.

Under the view of Appalachian Voices, only the lowest possible allowance costs are "necessary" costs. Put more simply, Appalachian Voices seems to ask, "Why is it necessary to pay more than you have to?" The whole point of the new statutory language and regulations, Appalachian Voices correctly observes, is to reduce CO₂ emissions by making it gradually more expensive to buy a shrinking supply of CO₂ allowances. Because the SCC did not press VEPCO to study and eventually execute a plan to throttle back its CO₂ emissions from existing power plants, Appalachian Voices concludes that the SCC did not apply the correct statutory standard of necessity for recovering the costs of the RGGI allowances.

While the argument has a persuasive tenor, there is no statutory or regulatory text supporting it. Too much of the argument has been baked into a single word considered in the abstract. It is true that Code § 56-585.1(A)(5)(e) requires the compliance costs to be "necessary" in addition to being "reasonable[ ] or pruden[t]" under Code § 56-585.1(D). And, in ordinary language, these subtly different benchmarks are related but not identical. Something can be reasonable and prudent yet unnecessary. But it is hard to imagine something being necessary and yet unreasonable and imprudent. This linguistic tangle is not new to the law. As Chief Justice John Marshall famously said:

The word "necessary" ... has not a fixed character, peculiar to itself. It admits of all degrees of comparison; and is often connected with other words, which increase or diminish the impression the mind receives of the urgency it imports. A thing may be necessary, very necessary, absolutely or indispensably necessary. To no mind would the same idea be conveyed by these several phrases.

McCulloch v. Maryland , 17 U.S. (4 Wheat.) 316, 414, 4 L.Ed. 579 (1819). Whatever the degree of essentiality the adjective "necessary" has, it must be related to "some purpose or reason." Black's Law Dictionary 1241 (11th ed. 2019). To understand the intended range of a modifier, therefore, we must consider the thing or idea being modified.

When applying these principles to statutory words with no "fixed character," McCulloch , 17 U.S. at 414, we test which of the competing interpretations best fits within the larger legislative context. In doing so, however, we do not ask "what the legislature intended to enact, but what is the meaning of that which it did enact. We must determine the legislative intent by what the statute says and not by what we think it should have said." Carter v. Nelms , 204 Va. 338, 346, 131 S.E.2d 401 (1963) ; see also Oliver Wendell Holmes, The Theory of Legal Interpretation , 12 Harv. L. Rev. 417, 419 (1899). The context we examine, therefore, does not involve speculations about extra-textual notions of public policy. We look instead at clear textual clues to the meaning of an otherwise unclear text — hence the maxim: "In legal codes, as in ordinary conversation, ‘a word is known by the company it keeps.’ " Tvardek v. Powhatan Vill. Homeowners Ass'n , 291 Va. 269, 278, 784 S.E.2d 280 (2016) (quoting Sprietsma v. Mercury Marine , 537 U.S. 51, 63, 123 S.Ct. 518, 154 L.Ed.2d 466 (2002) ).

In this case, the necessity standard keeps very close company. Code § 56-585.1(A)(5)(e) requires the SCC to determine whether the utility's costs were "necessary to comply with such environmental laws or regulations." It is thus the necessity to comply with applicable laws or regulations that matters. The most applicable law here is the DEQ regulation requiring VEPCO to incur the costs of purchasing CO₂ allowances. See 9 VAC § 5-140-6050(C). VEPCO did just that. It estimated the actual number of allowances its emission-output formula predicted and projected the costs of purchasing those allowances at the RGGI...