Title: City of Alexandria v. State Corporation Commission
Citation: N/A
Docket Number: 171428
State: Virginia
Issuer: Virginia Supreme Court
Date: August 30, 2018

PRESENT:  Lemons, C.J., Mims, McClanahan, Powell, Kelsey, and McCullough, JJ., and 
Russell, S.J. 
 
CITY OF ALEXANDRIA, ET AL. 
 
 
 
 
 
 
 
 
 
        OPINION BY 
v.  Record No. 171428 
 
 
 
 
     JUSTICE D. ARTHUR KELSEY 
 
 
 
 
 
 
 
 
 
    AUGUST 30, 2018 
STATE CORPORATION COMMISSION, ET AL. 
 
 
FROM THE STATE CORPORATION COMMISSION 
 
The City of Alexandria and the City of Hopewell (“Cities”) appeal from an order of the 
State Corporation Commission (“SCC” or “Commission”) that approved a new surcharge for 
Virginia-American Water Company (“VAWC” or “Company”).  On appeal, the Cities argue that 
the SCC had no statutory authority to approve the new surcharge and that, even if it did, the 
evidence was insufficient to justify the SCC’s approval.  We disagree on both counts and affirm. 
I. 
A.  VAWC’S RATE APPLICATION 
In 2014, VAWC and two other water utilities filed a petition requesting that the SCC 
establish rules pursuant to which a water utility could apply for the establishment of a water and 
wastewater infrastructure surcharge (“WWISC”).  The City of Alexandria participated in that 
proceeding.  See Virginia Am. Water Co., Case No. PUE-2014-00066, 2015 Va. PUC LEXIS 
668, at *2 (S.C.C. Sept. 9, 2015) (“Rulemaking Order”). 
The SCC decided not to implement the requested rule, but stated in its Rulemaking Order 
that “the need for such investment, along with the appropriate recovery thereof, can be 
reasonably addressed on a case-by-case basis wherein the Commission and interested parties 
may consider the specific circumstances attendant to each utility.”  Id. at *6-7.  In reaching this 
2 
 
conclusion, the SCC stated that it was not ruling on the “appropriateness of various rate design 
mechanisms that may be utilized in association with new infrastructure investment.”  Id. at *7. 
In 2015, VAWC filed an application with the SCC for a general increase in water rates.  
VAWC requested a rate increase, claiming increased capital investment costs, decreased water 
sales, and a diminished rate of return on common equity (“ROE”).  VAWC sought to increase 
rates to produce an additional $8.69 million of revenue, representing an 18.42% increase in test-
year revenues based on a 10.75% ROE.  The proposed increase would be divided among 
VAWC’s five operating districts, effective April 1, 2016.1 
In its application, VAWC also sought approval and implementation of a WWISC to allow 
VAWC to better plan for and timely recover costs of necessary investment in replacing aging 
infrastructure and other investments in its system that do not generate additional revenue. 
B.  THE SCC RECORD 
1.  VAWC’s Evidence 
 
A hearing examiner convened a public hearing to receive evidence on VAWC’s 
application.  Along with several other entities, the Cities participated fully in the hearing.  The 
record shows that VAWC owns and operates “a water distribution system consisting of 
approximately 734 miles of water main, ranging in size from under two to 36 inches, as well as 
services, meters, hydrants, water treatment plants, pumping stations, storage tanks and water 
testing equipment.”  3 J.A. at 1306.  VAWC also “owns, operates and maintains a wastewater 
system consisting primarily of approximately 181 miles of sewer main, 101 miles of sewer 
laterals[,] and wastewater treatment plants.”  Id. at 1306-07. 
                                                 
1 The Commission authorized VAWC to implement the WWISC “as set forth in” the 
Commission’s order and dismissed the case.  See In re Virginia-Am. Water Co., Case No. PUR-
2017-00149 (S.C.C. Mar. 13, 2018); see also Appellee’s Br. (SCC) at 4 n.1. 
3 
 
VAWC organized its water and wastewater systems into five operating districts:  The 
“Alexandria District serves the City of Alexandria and parts of Fairfax . . . and Arlington 
Count[ies].”  Id. at 1307.  The “Hopewell District serves the City of Hopewell, and parts of 
Prince George County.”  Id.  The “Eastern District serves 18 subdivisions through 18 distinct 
public water systems in” Westmoreland, Northumberland, Lancaster, Essex, and King William 
Counties.  Id.  The Prince William water and wastewater districts serve “the Dale City 
community in Prince William County.”  Id. 
VAWC constructed its systems over time with different types of materials.  Older water 
systems, like the one in Alexandria started in 1850, include “very old pit-cast pipe, centrifugal 
cast iron pipe, cast iron cement lined pipe, asbestos cement pipe, PVC, reinforced concrete and 
ductile iron pipe.”  Id. at 1283.  “Ductile iron pipe is a newer” and more flexible “pipe material 
that VAWC started to install around 1970.”  Id.  Given its relative inflexibility, “the older cast 
iron pipe” corrodes over time and “fails more often.”  Id.  A significant portion of VAWC’s 
water and wastewater infrastructure has begun to reach the end of its useful life. 
VAWC’s engineering manager testified that, although VAWC “has made and continues 
to make investments in” replacing aging infrastructure, “the amount of main replaced cannot 
keep up with the amount of main requiring replacement in the coming decades.”  Id. at 1294.  
VAWC’s “mains that have been installed over the past 115 years will need to be replaced over 
the next 85 years to ensure that the system is” properly maintained.  Id. at 1295.  At the current 
rate, “the estimated time frame for total replacement of [the Company’s] mains is over 430 years, 
or 345 years longer than the average life expectancy of these facilities.”  Id. at 1296.  The 
engineering manager opined that, if the SCC approved the WWISC, VAWC’s capital 
replacement program would “operate more effectively” and would likely avoid “the additional 
4 
 
costs associated with infrastructure failures or main breaks.”  Id. at 1301.  He also stated that the 
WWISC would fund the total main replacement plan and reduce its duration “to an average of 
139 years,” with the “long-term goal . . . to reduce the time frame for total replacement to 100 
years.”  Id. at 1296. 
Another engineering manager for VAWC pointed out that “VAWC’s water main 
replacement rate for 2014 was 0.32%.”  Id. at 1283-84.  At that rate, “the average pipe in 
VAWC’s network would have to continue in service for nearly 300 years.”  Id. at 1284.  The first 
engineering manager explained further that VAWC planned to focus “its replacement efforts in 
the Alexandria and Eastern Districts.”  Id. at 1298.  Alexandria in particular “has the largest 
inventory of cast iron pipe in need of replacement,” “a significant inventory of pipe” six inches 
or less in diameter, and “the highest average main break frequency rate of all the Districts with 
33 breaks per 100 miles of pipe.”  Id.  “In Alexandria, 63% of mains are cast iron,” and these 
“mains account for 94% of the main breaks in that District.”  Id. 
VAWC’s president testified that “the major drivers of the Company’s need for rate relief” 
in this case were VAWC’s “ongoing capital investment” in infrastructure and “revenue loss 
arising from declining [water] usage.”  Id. at 1117.  He said that VAWC had increased its utility 
plant investment by $53 million “since the last general rate case” and had continued to make 
investment in infrastructure.  Id.  VAWC needed the WWISC, he contended, to replace aging 
infrastructure on an accelerated basis and reach a “100-year main replacement schedule” — “or 
1% annually” — which would permit VAWC to timely recover the costs of these non-revenue 
producing investments.2  Id. at 1129. 
                                                 
2 The SCC last approved VAWC’s base rates on December 12, 2012, “based on a test 
year ended September 30, 2011.”  3 J.A. at 1115. 
5 
 
A manager in VAWC’s Mid-Atlantic Division explained that a utility typically must file 
a general rate case to recover its investment in replacing aging infrastructure but “may only 
include investment that is ‘reasonably predicted to occur’ through the end of the rate year.”  Id. 
at 1198.  He explained that this approach created a “limited and insufficient horizon for 
replacement of aging infrastructure.”  Id.  VAWC considered infrastructure replacement to be a 
non-revenue producing investment “because it [did] not add additional customers” or “increase 
sales.”  Id. at 1199.  He stated that VAWC proposed the WWISC because of this “regulatory lag” 
present in the traditional ratemaking process.  4 id. at 1924.3 
The division manager further opined that the WWISC would accelerate infrastructure 
replacement in a more orderly way and increase capital infusion while mitigating against 
periodic spikes in the base rate.  Otherwise, timely recovery for infrastructure improvements 
would require filing more base-rate cases, which “would result in larger and more frequent base 
rate increases” if they were successful.  3 id. at 1238-39.  But a WWISC would “allow the 
Company to better plan for, more consistently fund, and more gradually incorporate into 
customers’ bills, the costs associated with these types of investment.”  Id. at 1239.  Under 
VAWC’s requested WWISC, the SCC would have to approve the initial charge and any 
adjustments to the charge, could not already be included in the calculation of the company’s base 
rates, and would relate only to non-revenue-producing infrastructure.  See id. at 1201-03.  The 
proposed WWISC could also include conditions safeguarding the public interest such as SCC 
                                                 
3 See generally William T. Reisinger, Public Utilities Law, 49 U. Rich. L. Rev 137, 148 
(2014) (stating that “[r]egulatory lag” refers to “the time period between when a utility first 
makes an investment (such as when it starts construction of a power plant) and when the utility 
may begin to recover those costs through rates”). 
6 
 
approval of annual updates to the rate, audits, and annual reconciliation of the difference between 
revenues and costs.  Id. 
The division manager projected that the Company would spend $44,508,091 in necessary 
expenditures for “WWISC-eligible infrastructure” between 2017 and 2020.  Id. at 1236.  Of that 
amount, the Company would spend $28,543,600 to replace water and wastewater distribution 
mains.  See id.  Compared to the period from 2012 to 2015, these expenditures represented a 
46% increase in capital investment for WWISC-eligible infrastructure and a 98% increase in 
planned replacement of distribution mains.  Id.  Based on “the projected calendar-year 2017 
WWISC-expenditure levels, the typical residential monthly customer bill” for all districts would 
increase “on average by $0.44.”  Id. at 1251.  The projected average increase for the Alexandria 
District was $0.43 per month.  See id. at 1260. 
2.  The Opposition’s Evidence 
 
The City of Alexandria’s energy manager testified that Alexandria did not take issue with 
VAWC’s efforts to replace infrastructure.  See id. at 1395.  But the WWISC was unnecessary, he 
maintained, because VAWC “has the ability to successfully invest in infrastructure replacement 
while . . . achieving appropriate returns” by filing a base-rate case.  Id.; see also 2 id. at 814 
(“[VAWC] does have alternative methods currently available to them to invest in such 
infrastructure.”).  He described the WWISC request as “fraught with issues and questionable 
public protections” as well as “hasty and gratuitous.”  3 id. at 1395. 
A hired consultant agreed, opining that the current ratemaking process sufficiently 
addressed the need for accelerated infrastructure replacement.  See id. at 1416.  He stated that 
“[o]ne way the current ratemaking process permits infrastructure replacement is through 
depreciation of existing plant in service.”  Id.  Under this approach, “depreciation expense 
7 
 
collected through base rates can be invested in new plant without having any impact on the 
utility’s overall revenue requirement.”  Id.  He also said that other existing ratemaking 
mechanisms already addressed the need to replace aging infrastructure.  See id. at 1417. 
The consultant criticized VAWC’s proposed customer safeguards as inadequate.  See id. 
at 1420.  He pointed to the lack of an Earnings Test, which he considered “crucial” in order to 
match actual WWISC-rate expenditures during a defined period with the estimates used to 
determine the WWISC.  In addition, he maintained that a “true up” was necessary to prevent 
VAWC from earning beyond its allowed return.  Id. at 1422.  He argued further that the proposed 
WWISC would require ratepayers to pay for future improvements and infrastructure 
replacements, and that VAWC had “no incentive . . . to control its costs.”  Id. at 1423.  He 
opined that “[t]raditional ratemaking always has and always will best serve the public interest,” 
not single-issue ratemaking.  Id. at 1425. 
Two other consultants testified in opposition to the proposed WWISC, who were both 
experts in the field of public-utility regulation.  They considered the WWISC to be unnecessary 
to accomplish VAWC’s goals.  They contended that VAWC “has not been earning substantially 
less than its authorized [ROE],” id. at 1506, that it has not “experienced exceptional growth in 
rate base” (with an annual growth rate of about 4%), id., and that it has not “show[n] that its 
planned capital expenditures for eligible infrastructure investment will result in rate base growth 
that [could not] be supported under the traditional ratemaking practices,” id. at 1508.  One of the 
consultants testified that “the $200,000 per year of new wastewater infrastructure spending is 
less than” VAWC’s “annual depreciation expense of $1.842 million,” that “[c]ontinuing annual 
accruals of depreciation expense increase Accumulated Depreciation,” and that if “the annual 
change in Accumulated Depreciation equals or exceeds the change in Plant in Service, there is no 
8 
 
net increase in rate base.”  Id. at 1662.  Whether VAWC truly needed a WWISC for 
infrastructure replacement was “highly questionable.”  Id.  Both consultants suggested various 
consumer safeguards if the SCC ultimately approved the WWISC.4 
3.  The SCC Staff’s Evidence 
 
A principal utilities analyst in the SCC’s Division of Energy Regulation did not make a 
recommendation for approval of the WWISC, but he did suggest how to implement the WWISC 
if approved.5  A deputy director with the Division of Utility Accounting and Finance also 
reviewed the proposed WWISC and recommended various safeguards, including an annual 
Earnings Test, if the WWISC were approved.  He agreed that the WWISC would help to 
accomplish VAWC’s goals of continuing improvement, safety, and reliability for its distribution 
system “[t]o the extent [the WWISC] accelerates replacement of infrastructure and the needed 
replacement.”  2 id. at 1021-22.  He also concurred in the view that an acceleration of the 
replacement rate “seems reasonable.”  Id. at 1026-27. 
4.  The Hearing Examiner’s Report 
 
After receiving briefs, the Hearing Examiner found “that a three-year pilot WWISC 
should be approved for [VAWC’s] Alexandria District subject to” certain safeguards and 
                                                 
4 The consultants’ recommendations included that there should be an Earnings Test, 4 
J.A. at 1649-50; that there should be a cap on charges at 5%–7.5% of the base rate, id. at 1678; 
that the WWISC “should be narrowly and specifically tailored to address the specific need to 
replace . . . water utility infrastructure,” id. at 1675; that certain accounting measures should be 
used, id. at 1678-79; that the WWISC should be implemented “as a pilot program that is 
restricted to the Alexandra district,” id. at 1679; that “[t]he WWISC charge should be separated 
between water service and wastewater service,” 3 id. at 1489; and that the WWISC “should be 
implemented on a district-specific basis,” id. 
5 The utilities analyst specifically recommended the filing of “separate rate schedules for 
water [and wastewater] by district . . . for the length of the WWISC,” id. at 1472; that “both 
components of the WWISC . . . should be allocated to each one of the Company’s rate schedules 
in conformance with the revenue allocation by schedule approved by the Commission,” id.; and 
that certain language “be removed from the proposed tariff,” id. at 1473. 
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limitations.  1 id. at 516.  He concluded that the SCC had statutory authority to approve the 
WWISC and that VAWC’s infrastructure-replacement needs justified the imposition of the 
WWISC.  See id. at 518.  He noted that infrastructure replacement does not generate revenue, 
that the WWISC could provide an “ongoing revenue stream” as opposed to “the stop-start regime 
that currently exists,” that it is “expensive” to file base-rate cases, and that the SCC would not be 
deprived of oversight of the rate increases.  Id.  He recommended 12 safeguards as conditions for 
the imposition of the WWISC: 
 “The WWISC should be limited to mains and main related 
infrastructure in the Alexandria District.” 
 “The WWISC should be approved for” only a three-year period after 
which “it may be ended, expanded, or otherwise modified.” 
 “The use of an Earnings Test should accompany the annual WWISC 
review, and to the extent WWISC collections result in annual 
earnings above the mid-point of [VAWC’s] authorized range of 
ROE, a refund should be made to ratepayers, with interest.” 
 “The WWISC should not be approved as an automatic rate 
adjustment clause.” 
 “[A]nnual updates to the WWISC Rider and [its] amendments to the 
WWISC Plan should occur in docketed proceedings.” 
 “The annual filing should occur 120 days prior to the requested rate 
effective date.” 
 The SCC “Staff’s tariff revisions” — “except as modified” in the 
Hearing Examiner’s Report — as well as the “revisions to the 
calculation of the WWISC” appearing in the Hearing Examiner’s 
Report, “should be adopted.” 
 “Detailed accounting information as required by [SCC] Staff should 
accompany the annual WWISC filings,” and the SCC “should have 
the discretion to rule any annual WWISC filing [to be] incomplete.” 
 “Currently approved depreciation rates should be used in WWISC 
calculations.” 
 “The calculation of carrying charges should be based on a series of 
two-month averages over-or under-recovery balances.” 
10 
 
 SCC “Staff should have access to the internal analysis [that VAWC] 
performs in the evaluation of contractor bids for [WWISC-eligible] 
projects.” 
Id. at 519. 
The Hearing Examiner further found that the WWISC revenues should not exceed 7.5% 
of the Alexandria District’s aggregate revenues.  See id.  With a 7.5% cap on “the amount billed 
to customers under otherwise applicable rates and charges,” 3 id. at 1242, “the typical residential 
customer’s [monthly] bill [will] increase, on average, by $0.32,” id.  “Until th[e] cap is 
reached” — that is, “while the program is ramping up,” “which could take a year or more” — 
“the actual bill impact [will] be much less.”  1 id. at 520.  “This is a small price to pay for much 
needed infrastructure improvements that will not only improve customers’ service, but service 
reliability as well,” the Hearing Examiner determined.  Id.  He concluded with the observation 
that “[t]he need to accelerate the rebuilding of the Company’s distribution infrastructure is 
essential to meet the ongoing needs of the community and customers and to maintain system 
reliability.”  Id. 
5.  The Commission’s Final Order 
 
In its final order, the Commission agreed with the Hearing Examiner’s report 
recommending a three-year pilot plan for a WWISC applicable to the Alexandria District, subject 
only to “the safeguards and limitations . . . as modified” by the Commission.  Id. at 651.  The 
Commission authorized VAWC “to file an application on or after June 1, 2017, to institute [the] 
WWISC, as set forth” in the final order.  Id. at 652. 
The Commission emphasized that “the use of an Earnings Test should accompany the 
annual WWISC review” and found “that refunds should be made to ratepayers, with interest, to 
the extent WWISC collections result in annual earnings above the rate of return on common 
equity of 9.25% approved.”  Id.  Under the Earnings Test, the SCC would calculate test-year 
11 
 
earnings every year that the WWISC would be in place.  See 2 id. at 1003.  VAWC would be 
required to issue a refund to ratepayers, with interest, if the SCC found that “WWISC collections 
result[ed] in annual earnings above the mid-point of the Company’s authorized range of return 
on common equity.”  4 id. at 1828.  The Earnings Test would not be used to “reestablish” future 
base rates.  2 id. at 1003. 
II. 
 
The Cities appeal to us, arguing that the SCC has no statutory authority to approve the 
WWISC and, in the alternative, that the evidence was factually insufficient to justify the 
approval of the WWISC.  The SCC and the VAWC disagree, arguing that the SCC has broad 
discretion to approve the WWISC, that the SCC’s discretion may only be limited expressly by 
statute, and that there is sufficient evidence to uphold the SCC’s approval.  We agree with the 
VAWC and the SCC and hold that the SCC has the statutory authority to approve the WWISC.  
We also conclude that sufficient evidence in the record supports the Commission’s finding that 
the rate is “just and reasonable” under Code § 56-235.2. 
A.  STANDARD OF APPELLATE REVIEW 
“[T]he standard of review applied to a Commission decision ‘will depend on the nature of 
the decision under review.’”  Office of the Att’y Gen. v. State Corp. Comm’n, 288 Va. 183, 191, 
762 S.E.2d 774, 778 (2014) (citation omitted).  As we have often said, “the Commission’s 
decision is entitled to the respect due judgments of a tribunal informed by experience.”  Virginia 
Elec. & Power Co. v. State Corp. Comm’n, 284 Va. 726, 735-36, 735 S.E.2d 684, 688 (2012) 
(citation omitted).  Even so, we review questions of law de novo.  See Virginia Elec. & Power 
Co. v. State Corp. Comm’n, 295 Va. 256, 262, 810 S.E.2d 880, 883 (2018).  Although the SCC’s 
statutory construction “is entitled to the respect due judgments of a tribunal informed by 
12 
 
experience,” id. at 263, 810 S.E.2d at 883 (citation omitted), we are “not inextricably bound” by 
it and “will not hesitate to reverse” it if we find that it “is based on a mistake of law,” BASF 
Corp. v. State Corp. Comm’n, 289 Va. 375, 403, 770 S.E.2d 458, 473 (2015). 
A different paradigm governs the SCC’s findings of fact.  We may not “overrule the 
Commission’s findings of fact unless . . . its determination is contrary to the evidence or without 
evidence to support it.”  Virginia Elec. & Power Co., 284 Va. at 735, 735 S.E.2d at 688; Board 
of Supervisors of Campbell Cty. v. Appalachian Power Co., 216 Va. 93, 105, 215 S.E.2d. 918, 
927 (1975).  In this context, we only ask whether a rational factfinder could have interpreted the 
historical facts, accompanied by reasonable inferences therefrom, in a way supportive of and 
consistent with the SCC’s conclusions. 
We also recognize that we are not “at liberty to substitute [our] judgment [for that of the 
Commission] in matters within the province of the Commission.”  Virginia Elec. & Power Co., 
284 Va. at 735, 735 S.E.2d at 688.  That is particularly true with regard to the SCC’s ratemaking 
authority because in that context the SCC “is exercising a legislative function delegated to it by 
the General Assembly.”  Old Dominion Comm. for Fair Util. Rates v. State Corp. Comm’n, 294 
Va. 168, 180, 803 S.E.2d 758, 764 (2017) (citation omitted).  We thus “presume that where the 
General Assembly has not placed an express limitation in a statutory grant of authority, it 
intended for the Commission, as an expert body, to exercise sound discretion.”  Virginia Elec. & 
Power Co., 284 Va. at 741, 735 S.E.2d at 691. 
B.  STATUTORY AUTHORITY TO APPROVE THE WWISC 
On appeal, the Cities “vehemently disagree” that the SCC has statutory authority to 
approve the proposed WWISC.  Appellants’ Br. at 12.  We do not understand the basis for such 
vehemence.  Both the Constitution of Virginia and the enabling statutes enacted by the General 
13 
 
Assembly are written in purposefully broad terms.  While arguably controversial, the SCC’s 
approval of the WWISC does not offend any provision of the Constitution or the Code of 
Virginia. 
1.  Governing Constitutional and Statutory Provisions 
The Constitution of Virginia authorizes the SCC to regulate “rates, charges, and services 
and . . . facilities of railroad, telephone, gas, and electric companies.”  Va. Const. art. IX, § 2.  
Although water companies are not explicitly mentioned, Article IX, Section 2 further states, 
“[t]he Commission shall have such other powers and duties not inconsistent with this 
Constitution as may be prescribed by law.”  Id. 
Code § 12.1-12 confers on the SCC the power and duty to “regulat[e] the rates, charges, 
services, and facilities of all public service companies as defined in [Code] § 56-1,” which 
includes water supply companies and wastewater companies, “[s]ubject to such criteria and other 
requirements as may be prescribed by law.”  See also Code § 56-35.  “When the rate of return 
has been determined, the Commission exercises primarily an administrative duty in deciding 
where, how, and from what source or sources the increased revenue awarded is to be obtained.”  
Anheuser-Busch Cos. v. Virginia Nat. Gas, Inc., 244 Va. 44, 47, 418 S.E.2d 857, 859 (1992). 
Code § 56-235, which sets out the SCC’s general ratemaking authority, provides in 
relevant part: 
If upon investigation the rates, tolls, charges, schedules, or joint 
rates of any public utility[, including water or wastewater 
companies, see Code § 56-232(A)(1),] operating in this 
Commonwealth shall be found to be unjust, unreasonable, 
insufficient or unjustly discriminatory or to be preferential or 
otherwise in violation of any of the provisions of law, the State 
Corporation Commission shall have power to fix and order 
substituted therefor such rate or rates, tolls, charges or schedules 
as shall be just and reasonable.  All rates, tolls, charges or 
14 
 
schedules set by the Commission shall be valid only if they are in 
full conformance with the provisions of this chapter. 
(Emphasis added.)  Code § 56-235.2 states in relevant part: 
A.  Any rate, toll, charge or schedule of any public utility operating in 
this Commonwealth shall be considered to be just and reasonable only 
if:  (1) the public utility has demonstrated that such rates, tolls, charges 
or schedules in the aggregate provide revenues not in excess of the 
aggregate actual costs incurred by the public utility in serving 
customers within the jurisdiction of the Commission, including such 
normalization for nonrecurring costs and annualized adjustments for 
future costs as the Commission finds reasonably can be predicted to 
occur during the rate year, and a fair return on the public utility’s rate 
base used to serve those jurisdictional customers . . . .  Notwithstanding 
[Code] § 56-234, the Commission may approve, either in the context of 
or apart from a rate proceeding after notice to all affected parties and 
hearing, special rates, contracts or incentives to individual customers 
or classes of customers where it finds such measures are in the public 
interest. . . . 
B.  The Commission shall, before approving special rates, contracts, 
incentives or other alternative regulatory plans under subsection A, 
ensure that such action (i) protects the public interest, [and] (ii) will not 
unreasonably prejudice or disadvantage any customer or class of 
customers . . . . 
C.  After notice and public hearing, the Commission shall issue 
guidelines for special rates adopted pursuant to subsection A that will 
ensure that other customers are not caused to bear increased rates as a 
result of such special rates. 
(Emphases added.) 
These broadly written statutes authorize the SCC to set just and reasonable rates for public 
utilities, including water and wastewater companies, without limitation as to the type of rate 
mechanism set.  Code § 56-235.2(A) requires only that when the SCC sets any rate, it must be 
satisfied that the utility has demonstrated that aggregate revenues earned will not exceed aggregate 
costs, plus a fair return. 
15 
 
2.  Explicit Authorization for Rate Change 
The Cities acknowledge the SCC’s delegated ratemaking power but argue that, even so, the 
SCC’s approval of the WWISC in this case cannot satisfy even the minimal statutory requirements.  
Under their view, it is essential that “future improvements to infrastructure be included as a 
component considered by the Commission in approving a public utility company’s proposed rates.”  
Appellants’ Br. at 14 (emphasis in original).  The SCC erred in approving the WWISC, the Cities 
argue, because the WWISC “program only considers infrastructure costs and does not consider 
returns on investment or profit to be derived from system improvements.”  Id. (emphasis added). 
In other words, the Cities reason that the WWISC takes into account “only the cost of 
replacement of a water main, but not the additional profits that might be obtained from that 
replacement due to elimination of inflow and infiltration, and ignores potential new customers or 
profits from replacement of smaller, older lines with larger mains carrying more water volume.”  Id. 
at 15.  Based upon this reasoning, the Cities conclude, the SCC has no “statutory authority for this 
infrastructure cost recovery program outside of a regular rate case.”  Id. at 17. 
Embedded in this argument is a valid concern.  If the SCC approved a rate while wholly 
ignoring the decision-making factors required by Code § 56-235.2, we would declare the approval 
to be ultra vires.  In this case, however, the SCC did not ignore the governing statutory factors.  
VAWC filed this case as a traditional rate case that included each of its five service districts.  The 
VAWC filed its “Application of [VAWC] for a general increase in rates,” 1 J.A. at 3 (altering 
capitalization), requesting an increase in its base rate to recover additional annual revenues of $8.69 
million as well as a surcharge to recover additional revenue for accelerated infrastructure 
replacement costs not included in the base rate.  The SCC ultimately approved an increase in the 
VAWC’s base rate to recover additional annual revenues of $5.18 million and a temporary 
16 
 
surcharge for the accelerated infrastructure replacement costs applicable to only one of VAWC’s 
five districts. 
The SCC’s review of the WWISC was not disconnected from its overall discretionary 
review of VAWC’s request for an increase in its base rate.  It was an analysis that looked at all of 
the facts presented in the aggregate and in light of the statutory factors.  This is particularly evident 
in the extensive qualifications that the SCC placed upon the implementation of the WWISC.  
Perhaps the most significant is the Earnings Test, which takes into account all of the Alexandria 
District’s revenues from base rates and from the WWISC to determine if VAWC earned more than 
its approved rate of return for that district.  Other qualifications — the 7.5% cap and the three-year 
period for the pilot WWISC, the mechanism for customer refunds, and the requirement of SCC 
approval for annual updates to the rate — further reinforce the SCC’s attention to the required 
statutory factors. 
3.  Adjustment Clauses 
We find nothing legally unprecedented about the SCC’s approval of the WWISC.  To be 
sure, we have upheld analogous clauses in other contexts.  In City of Norfolk v. Virginia Electric 
and Power Co., a municipality challenged an “escalator clause” in a natural gas provider’s rate 
schedule.  197 Va. 505, 506-07, 90 S.E.2d 140, 141 (1955).  The clause calibrated the rate to the 
fluctuating costs of natural gas.  Under the clause, “[t]he consumers of gas [were] required to pay 
the increase in the cost of gas, if an increase occur[ed], and they [were] given the benefit of a 
decrease in such cost when a decrease occur[ed].”  Id. at 513, 90 S.E.2d at 146.  Consequently, 
[t]he proposed escalator clause [was] nothing more or less than a 
fixed rule under which future rates to be charged the public [were] 
determined.  It [was] simply an addition of a mathematical formula 
to the filed schedules of the Company under which the rates and 
charges fluctuate as the wholesale cost of gas to the Company 
fluctuates. 
17 
 
Id. at 516, 90 S.E.2d at 148.  See generally 2 William A. Mogel, Regulation of the Gas Industry 
§ 40.06[1] (2017) (“This type of ratemaking mechanism allows the rate approved by the regulators 
to fluctuate in relation to changes in the expense categories and/or business factors covered by the 
clauses.”).  We held that the SCC “had the authority to approve the escalator clause . . . and to 
authorize its insertion in the schedules of rates, charges, rules and regulations of the Company.”  
City of Norfolk, 197 Va. at 519, 90 S.E.2d at 150.  We concluded “that in its operation the escalator 
clause violates no constitutional or statutory limitations.”  Id. 
We also addressed an “automatic adjustment clause” in Old Dominion Power Co. v. State 
Corporation Commission, 228 Va. 528, 323 S.E.2d 123 (1984).  In that case, an electric utility 
requested the clause to protect against “future changes in the price its parent charges it for 
purchased power.”  Id. at 532, 323 S.E.2d at 125.  The SCC denied the request.  We assumed, as the 
electric utility had conceded, that the SCC’s decision to grant or deny requests of this nature fell 
“within the Commission’s discretion.”  Id.  And we held that such decisions would “be upheld if 
they bear some rational relationship to a legitimate interest or purpose.”  Id. at 534, 323 S.E.2d at 
127.6 
                                                 
6 The SCC has regularly exercised its authority in cases involving automatic adjustment 
clauses.  See, e.g., Washington Gas Light Co., 2017 S.C.C. Ann. Rept. 314, 315 (2017) (ordering 
the adoption of a revised stipulation, which provided for a purchase gas cost mechanism and an 
annual cost adjustment mechanism); Columbia Gas of Va., Inc., 2012 S.C.C. Ann. Rept. 337, 
337 (2012) (denying the company’s request to allocate refunds outside of the automatic 
adjustment mechanism in place); Atmos Energy Corp., 2005 S.C.C. Ann. Rept. 322, 322-23 
(2005) (granting the company’s request for a weather normalization adjustment charge); 
Shenandoah Gas Co., 1996 S.C.C. Ann. Rept. 318, 318-19 (1996) (granting the company’s 
request to suspend the actual cost adjustment clause of a purchased gas adjustment provision); 
State Corp. Comm’n, 1988 S.C.C. Ann. Rept. 333, 333, 337 (1988) (incorporating the 
recommendations of SCC Staff regarding the SCC’s purchase gas adjustment policies, subject to 
certain modifications) ; State Corp. Comm’n v. Roanoke Gas Co., 1982 S.C.C. Ann. Rept. 568, 
571 (1982) (ordering the company to issue refunds in accordance with the terms of its purchased 
gas adjustment provisions). 
18 
 
4.  The SAVE Act 
Finally, the Cities compare the SCC’s statutory authority in this case to the SCC’s statutory 
authority to approve rate-adjustment clauses in its regulation of natural gas companies under the 
Steps to Advance Virginia’s Energy Plan Act, Code §§ 56-603 to -604 (the “SAVE Act”).  Because 
the Constitution of Virginia expressly authorizes SCC-regulation of natural gas companies and 
because “the natural gas utilities sought legislation to implement the SAVE Act,” Appellants’ Br. at 
18, the SCC necessarily lacked the authority “to implement a natural gas infrastructure replacement 
charge,” id. at 20.  Therefore, “in order for water and wastewater companies — which are not set 
forth in the [Constitution of] Virginia . . . — to implement a WWISC, legislation is certainly 
required.”  Id. at 18.  Furthermore, the Constitution of Virginia expressly authorizes SCC-regulation 
of “railroads, telephone, gas and electric companies” but authorizes SCC-regulation of other entities 
only when the SCC is exercising “powers and duties not inconsistent with this Constitution as may 
be prescribed by law.”  Va. Const. art. IX, § 2. 
This interpretative inference does not apply here for several reasons.  Express statutory 
authorization on one specific subject may sometimes imply the absence of authorization on another 
analogous subject.  See generally Du v. Commonwealth, 292 Va. 555, 565 n.7, 790 S.E.2d 493, 500 
n.7 (2016).  But as we observed earlier, the SCC’s authority to approve rate-adjustment clauses 
comes from several broadly worded statutes that delegate discretionary power to the SCC.  See, 
e.g., Code § 12.1-12; id. § 56-35; id. § 56-235; id. § 56-235.2.  “[W]hen a statute delegates such 
authority to the Commission, we presume that any limitation on the Commission’s discretionary 
authority by the General Assembly will be clearly expressed in the language of the statute.”  
Virginia Elec. & Power Co., 284 Va. at 741, 735 S.E.2d at 691.  Only the presence of such “clearly 
expressed” statutory language, id., can limit a general statutory grant of authority.  The presence of 
19 
 
statutory grants of power in analogous contexts raises only a silent implication of such a limitation.  
In other areas of law, that silent implication might be enough.  But not here.7 
Other statutory analogies undermine the Cities’ interpretation.  The General Assembly has 
expressly limited the SCC’s ratemaking discretion by enacting specific requirements for the 
approval of rate-adjustment clauses in several regulatory contexts.  See, e.g., Code § 56-
585.1(A)(5)(c) (providing for a rate adjustment clause “to design, implement, and operate energy 
efficiency programs” only if “the program is in the public interest”); id. § 56-585.1(A)(5)(e) 
(providing for a rate adjustment clause to cover costs necessary to ensure compliance “with state or 
federal environmental laws or regulations”); id. § 56-585.1(A)(5)(f) (providing for a rate 
adjustment clause “to design, implement, and operate programs that . . . accelerate the vegetation 
management of distribution rights-of-way”); id. § 56-585.1(A)(6) (providing for a rate adjustment 
clause for new or modified generation facilities “after the expiration or termination of capped 
rates”); id. § 56-249.6 (providing for a rate adjustment clause for electric utility fuel costs under 
certain conditions).  Each of these statutes imposes various procedural and substantive limitations, 
thus presupposing an underlying general regulatory power. 
                                                 
7 See generally Henry Campbell Black, Handbook on the Construction and Interpretation 
of the Laws § 72, at 220 (2d ed. 1911) (stating that there are circumstances in which “the 
legislature [does] not in fact intend that its express mention of one thing should operate as an 
exclusion of all others” such that “the maxim must give way”); Reed Dickerson, The 
Interpretation and Application of Statutes 234-35 (1975) (stating that the application of the 
negative-implication canon “depends on the particular circumstances of context”); Antonin 
Scalia & Bryan A. Garner, Reading Law: The Interpretation of Legal Texts 107 (2012) 
(“Virtually all the authorities who discuss the negative-implication canon emphasize that it must 
be applied with great caution, since its application depends so much on context.”); 2A Norman J. 
Singer & Shambie Singer, Sutherland’s Statutes and Statutory Construction § 47:3, at 423 (7th 
rev. ed. 2014) (stating that “expressio unius is a rule of statutory construction and not a rule of 
law,” and as such “is subordinate to the primary rule that legislative intent governs the 
interpretation of a statute”). 
20 
 
This reasoning also applies to the SAVE Act because it too imposes various limitations on 
the SCC’s discretionary authority to approve rate-adjustment clauses for natural gas infrastructure.  
See Code §§ 56-603 to -604.  The General Assembly enacted the statute in 2010, half a century 
after we recognized the SCC’s authority to approve an “escalator clause” that implemented rate 
adjustments according to the fluctuating costs of natural gas.  See City of Norfolk, 197 Va. at 516-
17, 90 S.E.2d at 148-49.  What we said there we repeat here:  The general ratemaking “power of the 
Commission is in no wise limited or restricted by reason of additional powers granted it in other 
sections of the Code.”  Id. at 515, 90 S.E.2d at 147. 
C.  SUFFICIENCY OF THE EVIDENCE 
The Cities argue in the alternative that the Commission’s findings were contrary to the 
evidence because VAWC allegedly failed to show the need for the WWISC to accelerate 
infrastructure investment, as proven by VAWC’s ability to implement certain accounting 
practices or use existing ratemaking mechanisms.  “There was simply no evidence showing that 
the WWISC program was needed to serve the public interest,” and the SCC “effectively 
dismiss[ed] substantial expert testimony regarding the lack of necessity for the WWISC.”  
Appellants’ Br. at 22-23 (emphasis added); see also id. at 26-27.8 
                                                 
8 To the extent that the Cities argue that the Company’s current request should be rejected 
because the Commission rejected the need for a WWISC in the Rulemaking Order, see 
Appellants’ Br. at 23-24; see also Cities’ Ex. No. 21 at 9-10 (Testimony of Carl W. Eger III, 
Energy Manager for the City of Alexandria) (arguing that the WWISC in this base-rate case 
should be denied because “no material facts have changed since the Commission’s Final Order” 
in that rulemaking case), the Cities’ argument fails.  Even if the Commission rejected a global 
request for the WWISC in the Rulemaking Order, that fact does not bear on the Commission’s 
targeted approval of the pilot WWISC here.  The Hearing Examiner repeatedly observed that the 
Commission acknowledged this fact in the Rulemaking Order when it determined that the 
Commission would decide whether to apply the WWISC on a “case-by-case basis.”  1 J.A. at 
517 (quoting Virginia-Am. Water Co., 2015 Va. PUC LEXIS 668, at *6). 
21 
 
The SCC correctly asserts, however, that whether “the Commission could have set just 
and reasonable rates for the Alexandria district without a rate adjustment clause . . . .  is not the 
standard.”  Appellee’s Br. (SCC) at 20.  Instead, the question is whether there is sufficient 
evidence in the record to support the Commission’s finding that the proposed WWISC is “just 
and reasonable” under Code § 56-235.2.  See BASF Corp., 289 Va. at 398, 770 S.E.2d at 471 
(observing that the Commission’s findings are only reversed if they are “contrary to the evidence 
or without evidentiary support”). 
The Commission’s final order “agree[d] with the Hearing Examiner” and “[found] that a 
three-year pilot WWISC [should] be approved and implemented for the Alexandria District,” 
subject only to “the safeguards and limitations . . . as modified” by the Commission.  1 J.A. at 
651.  Experts in support of and in opposition to the WWISC testified to the deterioration of the 
current infrastructure and the need to replace it.  See 3 id. at 1174; id. at 1284; 4 id. at 1661-62.  
VAWC’s division manager stated that the Company proposed the WWISC primarily due to the 
“regulatory lag” in the traditional ratemaking process, 4 id. at 1924, and the Hearing Examiner 
noted that the WWISC could replace “the stop-start regime that currently exists,” 1 id. at 518. 
In support of their argument, the Cities assert that opposing experts showed that certain 
accounting practices and existing ratemaking mechanisms would adequately support the 
Company’s goals to accelerate the pace of infrastructure replacement.  Appellants’ Br. at 27-28.  
They also argue that the VAWC made “admissions regarding its already-existing ability to 
recover infrastructure costs.”  Id. at 22.  But this evidence does little more than show that the 
parties’ experts disagreed, which does not render the Commission’s findings contrary to the 
evidence, see, e.g., BASF Corp., 289 Va. at 397, 770 S.E.2d at 470, and it does not support the 
argument that the Company produced “simply no evidence,” Appellants’ Br. at 22. 
22 
 
“The Commission [is] entitled to interpret [the] conflicting evidence and to decide the 
weight to afford it.”  Board of Supervisors of Loudoun Cty. v. State Corp. Comm’n, 292 Va. 444, 
458, 790 S.E.2d 460, 467-68 (2016).  Thus, the Commission was entitled to afford more weight 
to testimony that current rates account “only for investment ‘reasonably predicted to occur’ 
before and during a utility’s rate year,” which provides only “a limited and insufficient horizon,” 
3 J.A. at 1198; that there is a “revenue-recognition lag” or “regulatory lag” under the traditional 
ratemaking model, id. at 1238-39; that filing more base-rate cases “would result in larger and 
more frequent base rate increases” if they were successful, id. at 1239; or that a WWISC would 
“allow the Company to better plan for, more consistently fund, and more gradually incorporate 
into customers’ bills, the costs associated with these types of investment,” id.; see also id. at 
1130 (stating that the WWISC would “moderate future rate increases on customers and facilitate 
the acceleration of infrastructure investment”). 
To the extent that the Cities argue that the proposed WWISC fails to meet the “just and 
reasonable” standard in Code § 56-235.2 because the customer protections are insufficient, see 
Appellants’ Br. at 25-26, the Cities’ argument is unpersuasive.  The WWISC is limited to a 
three-year period exclusive to the City of Alexandria, and there is a 7.5% cap on the amount 
billed to customers.  The SCC would also approve annual updates to the WWISC in docketed 
proceedings.  Finally, the SCC would conduct an Earnings Test for the annual review of the 
WWISC so that VAWC will refund ratepayers, “with interest, to the extent WWISC collections 
result in annual earnings above the rate of return on common equity of 9.25% approved.”  1 J.A. 
at 652. 
“In determining the question” whether the Commission’s finding that the WWISC is just 
and reasonable and in the public interest, this Court observes a “highly deferential standard of 
23 
 
review.”  BASF Corp., 289 Va. at 398, 770 S.E.2d at 471.  “[T]he Commission properly 
considered” the testimony on behalf of all parties and “found substantial evidence showing” the 
appropriateness of the WWISC.  Board of Supervisors of Campbell Cty., 216 Va. at 96-97, 215 
S.E.2d at 921.  “We cannot sit as a board of revision to substitute our judgment for that of 
matters within the province of the Commission.”  Virginia Gas Distrib’n Corp. v. Washington 
Gas Light Co., 201 Va. 370, 375, 111 S.E.2d 439, 442-43 (1959).  In light of this record, “we 
cannot say the Commission’s decision is contrary to the evidence or without evidentiary 
support.”  Appalachian Power Co. v. State Corp. Comm’n, 284 Va. 695, 710, 733 S.E.2d 250, 
258 (2012). 
III. 
In sum, the SCC possessed statutory authority to approve the WWISC, and the evidence 
was sufficient to justify its approval.  We thus affirm. 
Affirmed.