SJR 173/HJR 187

Joint Subcommittee to Study the Regulatory Responsibilities, Policies and Activities of the State Corporation Commission

June 24, 2000, Richmond

At the joint subcommittee's first meeting, the three SCC commissioners (Judges Hullihen Williams Moore, Theodore V. Morrison, Jr., and Clinton Miller) were in attendance, and Judge Moore provided an overview of the SCC's operations. The joint subcommittee also held initial discussions on the scope and focus of its charge. Also, staff presented an overview of the history and constitutional framework of the SCC and briefed the joint subcommittee on two earlier studies that reviewed SCC operations and regulatory responsibilities.

History and Constitutional Framework

The 1902 Constitution of Virginia created the State Corporation Commission (SCC) as a separate department of state government vested with legislative, executive and judicial functions. The unique grant of power is the product of the circumstances existing in the years preceding the 1902 constitutional revision and creation of the SCC.

The 1800s saw a great rise in size and power of the railroad companies in the country. As the lives of individual citizens began to be increasingly affected by this power, the need for some form of regulation became evident as a means to protect the public interest. The General Assembly frequently attempted to regulate railroads and to provide for a state entity to promulgate and enforce railroad regulations. Beginning in 1816, with the creation of the Board of Public Works, and continuing through the establishment of the Railroad Commissioner in 1876, most of these efforts to control the power of the railroads through regulatory action were ineffective.

The dominance of railroad companies in the commercial and political arenas and the use of such concentrated power have been cited by many observers as the single most important contributing factor in the state's failure to achieve effective railroad regulation during this time period. It became the widely held belief of the time that the regular legislative process, with its exposure to the powerful pressures of the railroad industry, was not operating effectively and was failing to adequately protect the public interest.

The combined experience of these past regulatory failures led to the feeling among the state's legislators that the need to meet the challenge of effective economic regulation in the public interest overshadowed the problems inherent in granting any one governmental body judicial, legislative and executive powers. As a result, the 1902 Constitution created the SCC as a separate department of state government empowered to perform legislative functions and to issue and enforce its own orders as a court of record. The 1902 Constitution established the SCC with three basic powers: (i) to grant charters of incorporation in Virginia and administer corporate laws, (ii) to regulate the rates and services of railroads and telephone and telegraph companies, and (iii) to regulate certain other transportation companies.

The Constitution also provided for the General Assembly to grant additional responsibilities to the SCC, and within a few years the General Assembly began to add several statutory duties and responsibilities, which served to give the SCC authority to exercise executive, legislative and judicial powers over public utilities, banks, insurance companies, securities, motor carriers, pipelines and railroads by the time of the constitutional revision of 1971. The 1971 Constitution left the core structure of the SCC intact; however, the General Assembly was provided with broader authority to shape the role and responsibilities of the SCC than in the 1902 Constitution.

Past Studies

While numerous studies have been done reviewing various operational components of the SCC and the industries it regulates, two previous studies have had the objective of independently examining the SCC's core functions in their entirety. The first study was performed in the mid-1970s by the Commission on State Governmental Management (Hopkins Commission), and the second was performed by the Joint Legislative Audit and Review Commission (JLARC) in 1985.

The Hopkins Commission was created by the 1973 General Assembly to examine state government in its entirety, primarily in response to concerns about the growth of the state's government. The commission's priority recommendations for 1978 included numerous proposed changes to the SCC. Based mainly on perceived advantages inherent in the separation of governmental powers, the Hopkins Commission recommended that most of the executive functions of the SCC be transferred to various executive branch agencies headed by individuals appointed by and directly responsible to the Governor. Under these proposals the SCC would have continued its rate-making, rule-making and adjudicative activities. The commission reasoned that the separation of responsibilities was necessary both to ensure the independence of the judicial and legislative activities of the SCC and to subject the executive decisions to policy-making input by elected officials directly responsible to the people.

The second broad, independent study of the SCC was performed by JLARC in 1985. The report issued in 1987 focused primarily on the efficiency, effectiveness and degree of compliance with legislative intent of the internal structure and management of the SCC. While the report noted some problems, its overall finding was that organization and management of the SCC was sound. JLARC's report alluded to, but did not address, the issue concerning separation of powers raised by the Hopkins Commission.

Remarks of Judge Moore

Judge Moore provided the joint subcommittee with an overview of the SCC's operations. The current organizational structure includes 17 divisions with a staff of 560 persons. The commission's annual budget is approximately $56 million, which is paid by the regulated industries and registrations and other fees. In the previous year the SCC provided more than $350 million to the Commonwealth's general fund.

Judge Moore discussed the growth in the regulatory responsibility, stating that the primary businesses regulated by the SCC, especially insurance, banking, communications, and energy, shared three basic characteristics: each is a critical industry that affects the lives of Virginia's citizens every day, each industry has been subject to comprehensive economic regulation, and each industry has now moved to an increased reliance on the market and competition as a principal regulator.

Judge Moore also informed the joint subcommittee that the SCC had hired an independent consultant to undertake a comprehensive study of the SCC's organization, structure and process as well as its rules of practice and procedure to determine how best to meet its regulatory responsibilities. It was emphasized that the scope of the consultant's review would be confined to the effectiveness and efficiency of SCC operations and was not to extend to the powers and duties of the SCC. Judge Moore offered the independent consultant as a resource to the joint subcommittee.

Future Activities

Discussion among the members of the joint subcommittee centered on developing a work plan for the first year of the study. The feeling of the joint subcommittee was that before a work plan could be developed there was a need to clarify the focus and direction of the study. Suggestions among the joint subcommittee members included:

  • Defining the relevance of the SCC's structure in light of the changes to the regulatory scheme of many of the industries within the SCC's purview;

  • Determining whether the Commonwealth is best served under the SCC's current authority and organizational structure;

  • Determining the economic development role of the SCC;

  • Examining the impact of federal regulation and the direction of such regulation over time; and

  • Reviewing how regulation of the various industries is shared by the state and federal governments.

The joint subcommittee also discussed the possibility of hiring an independent consultant to assist in its work, especially in consideration of the enormity of the legislative charge. While some members voiced support for such a consultant, others expressed concern about funding and the amount of time necessary for the work to be completed. It was agreed that Chairman Norment, Secretary DuVal and staff would review the issue and provide the joint subcommittee with a recommendation regarding the feasibility of securing an independent consultant and determining what issues would be appropriate for such a consultant to examine.

It was also resolved that a portion of the next meeting of the joint subcommittee be devoted to clarifying the greater issue of the direction of the study and finalizing a work plan and timeline for the remainder of the study. In this regard, Chairman Norment suggested that members provide staff, by July 17, 2000, their comments on the overall direction of the study and on the issue of securing an independent consultant and the possible areas of examination for such a consultant. These suggestions would be incorporated into the discussion of the joint subcommittee's charge at its next meeting.

Several members believed that the report of the consultant hired by the SCC would be extremely helpful to the work of the joint subcommittee. After it was indicated that a preliminary report would be available by August of 2000, it was decided that the report be reviewed at the next meeting, scheduled for August 24, 2000 at 10:00 a.m.

The Honorable Thomas K. Norment, Jr., Chairman
Legislative Services Contacts: Amigo Wade and David Rosenberg