Environmental Law and Policy Center, Iowa Environmental Council and Sierra Club v. Iowa Utilities Board, and MidAmerican Energy Company, and Office Of Consumer Advocate ( 2023 )

IN THE SUPREME COURT OF IOWA
No. 22–0385
Submitted March 22, 2023—Filed April 28, 2023
ENVIRONMENTAL LAW AND POLICY CENTER, IOWA ENVIRONMENTAL
COUNCIL, and SIERRA CLUB,
Appellants,
vs.
IOWA UTILITIES BOARD,
Appellee,
and
MIDAMERICAN ENERGY COMPANY,
Intervenor-Appellee,
and
OFFICE OF CONSUMER ADVOCATE,
Intervenor.
Appeal from the Iowa District Court for Polk County, Samantha
Gronewald, Judge.
Appeal from denial of petition for judicial review of the Iowa Utilities
Board’s order approving regulated public utility’s emissions plan and budget.
DISTRICT COURT JUDGMENT REVERSED AND REMANDED WITH
INSTRUCTIONS.
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McDonald, J., delivered the opinion of the court, in which all participating
justices joined. May, J., took no part in the consideration or decision of this case.
Joshua T. Mandelbaum (argued), Des Moines, for appellant Environmental
Law and Policy Center.
Michael R. Schmidt, Des Moines, for appellant Iowa Environmental
Council.
M. Gabriel Rowberry of Sodoro, Mooney, & Lenaghan, LLC, Omaha,
Nebraska, for appellant Sierra Club.
Diana S. Machir (argued), Jon Tack, Kim Snitker, and Matthew Oetker,
Des Moines, for appellee Iowa Utilities Board.
Bret A. Dublinske (argued) of Fredrikson & Byron, P.A., Des Moines, for
intervenor-appellee MidAmerican Energy Company.
Jennifer C. Easler, Consumer Advocate, and Jeffrey J. Cook (until
withdrawal), Des Moines, for amicus curiae Office of Consumer Advocate.
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McDONALD, Justice.
Iowa Code section 476.6 (2020) governs changes in rates, charges,
schedules, and regulations for rate-regulated public utilities. Subsection 19 of
this provision requires “[e]ach rate-regulated public utility that is an owner of
one or more electric power generating facilities fueled by coal” to “develop a
multiyear plan and budget for managing regulated emissions from its facilities
in a cost-effective manner.” Iowa Code § 476.6(19)(a). The utility must submit
biennially a plan and budget to the Iowa Utilities Board for approval. Id.§ 476.6(19)(a)(1). The board “shall approve the plan” if it is “reasonably expected
to achieve cost-effective compliance with applicable state environmental
requirements and federal ambient air quality standards.” Id. § 476.6(19)(c). In
this case, the board approved a utility’s biennial plan and budget. The question
presented in this appeal is whether, in approving the utility’s plan and budget,
the board erred in failing to consider certain intervenors’ evidence that the
retirement of coal-fueled electric power generating facilities was a more
cost-effective manner of achieving compliance with applicable state and federal
environmental and air quality requirements than the utility’s plan and budget.
I.
Broadly speaking, Iowa Code section 476.6 relates to charges and rates for
rate-regulated utilities. “A public utility subject to rate regulation shall not make
effective a new or changed rate, charge, schedule, or regulation until the rate,
charge, schedule, or regulation has been approved by the board.” Id. § 476.6(1).
Section 476.6 includes specific subsections regarding cost recovery and rate
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setting in a variety of contexts. See, e.g., Id. § 476.6(11) (regarding the recovery
of costs for natural gas procurement), (12) (regarding the recovery of costs of fuel
for electric generation), (17) (regarding recovery of replacement tax costs).
Iowa Code section 476.6(19) relates to “power generating facilities fueled
by coal.” In enacting this provision, it was “the intent of the general assembly
that the state, through a collaborative effort involving state agencies and affected
generation owners, provide for compatible statewide environmental and electric
energy policies with respect to regulated emissions from rate-regulated electric
power generating facilities . . . that are fueled by coal.” Id. § 476.6(19)(a). To
advance that purpose, covered utilities are required to “develop a multiyear plan
and budget for managing regulated emissions from [their] facilities in a
cost-effective manner.” Id. Covered utilities were required to submit an initial
plan to the Iowa Utilities Board by April 1, 2002. Id. § 476.6(19)(a)(1). Covered
utilities must file updates to the plan and budget with the board “at least every
twenty-four months” thereafter. Id. For the purposes of this appeal, we refer to
the initial plan and budget and subsequent updates as the “Emissions Plan and
Budget” (EPB).
The board considers the EPB in a “contested case proceeding pursuant to
chapter 17A,” the Iowa Administrative Procedure Act. Id. § 476.6(19)(a)(3). The
Iowa Department of Natural Resources (IDNR) and the Office of the Consumer
Advocate (OCA) are required parties to the contested case proceeding. Id. IDNR’s
role is limited. IDNR “shall state whether” the EPB “meets applicable state
environmental requirements for regulated emissions.” Id. § 476.6(19)(a)(4). If the
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EPB does not meet these requirements, IDNR “shall recommend amendments
that outline actions necessary to bring the plan or update into compliance with
the environmental requirements.” Id. The Code is not as explicit regarding OCA’s
role in the contested case proceeding. Generally, however, OCA represents Iowa
consumers in certain matters relating to utilities. See generally id. ch. 475A
(discussing duties of the OCA). In addition to these two statutorily-required
parties, other interested parties may intervene in the contested case proceeding.
See Iowa Admin. Code r. 199—7.13(3).
The scope of the contested case proceeding is narrow. The board “shall
approve” the EPB if it is “reasonably expected to achieve cost-effective
compliance with applicable state environmental requirements and federal
ambient air quality standards.” Iowa Code § 476.6(19)(c). “In reaching its
decision, the board shall consider whether” the EPB “reasonably balance[s]
costs, environmental requirements, economic development potential, and the
reliability of the electric generation and transmission system.” Id. If the board
approves the EPB, the utility can recover costs through rate increases to
consumers. Id. § 476.6(1). If the EPB does not meet the statutory requirements,
the board shall reject the EPB. See id. § 476.6(19)(c). If the board does not
approve the EPB, the utility cannot recover costs through rate increases to
consumers. Id. The evidence in support of or in opposition to the EPB generally
is submitted in the form of written testimony and supporting exhibits and
reports. The statute provides that the board has 180 days to approve or reject
the EPB. Id. § 476.6(19)(d).
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II.
MidAmerican Energy Company submitted the EPB at issue in this case in
April 2020. MidAmerican’s 2020 EPB did not have any additional capital
expenditures but instead requested approval for operations and maintenance
(O & M) expenditures associated with emissions controls previously approved at
four coal-fueled power plants: Walter Scott, Jr. Energy Center Unit 3, George
Neal Energy Center Unit 3, Neal Unit 4, and the Louisa Generating Station. The
EPB provided projected costs for the 2020 through 2029 period and sought
approval of O & M expenditures from January 1, 2020, through December 31,
2022. If the board approved the plan, MidAmerican could recover the
expenditures through rate increases. If the board did not approve the plan,
MidAmerican could not recover the expenditures through rate increases.
In addition to the statutorily-required parties—IDNR and OCA—the board
granted several motions to intervene in the contested case proceeding. The
Environmental Law & Policy Center, the Iowa Environmental Council, and the
Sierra Club (collectively, “Environmental Parties”) were allowed to intervene to
assert their “interest in effective environmental compliance that appropriately
considers and implements all options that reduce emissions while maintaining
the reliability and affordability of our electric generation system.” Facebook and
Google (collectively, “Tech Customers”) were allowed to intervene to assert “an
interest in environmental compliance, as well as reliable and affordable electric
energy.”
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The board set a contested case hearing for February 16, 2021. In accord
with the board’s orders, the parties exchanged written testimony and supporting
exhibits. Utility specialist Scott C. Bents, testifying on behalf of OCA, stated
MidAmerican failed to “perform even a basic analysis” of the relevant statutory
factors. Bents also criticized MidAmerican’s EPB for failing to consider the
retirement of coal-fueled electric power generating facilities. Environmental
Parties submitted testimony from Steven C. Guyer, an energy and climate policy
specialist with the Iowa Environmental Council, and David B. Posner, an
independent consultant. Guyer testified that MidAmerican’s request to recover
emission control expenditures for two coal-fueled generating facilities should be
denied because continued operation of the facilities, in his view, would not be
cost-effective. Posner testified two facilities fueled by coal should be retired
through the EPB process because they operate below capacity and in an
“uneconomic” way. Posner also submitted five exhibits (168 pages total)
supporting his testimony. In sum, OCA and the Environmental Parties’ evidence
purported to show the most cost-effective way to comply with ongoing
environmental obligations was to retire two MidAmerican coal-fueled generating
facilities.
Approximately two weeks prior to the scheduled hearing, MidAmerican
and OCA filed a joint motion and nonunanimous full settlement agreement. They
requested the board cancel the scheduled contested case hearing and approve
the settlement agreement. The nonunanimous settlement agreement provided
that the parties agreed and stipulated that MidAmerican’s 2020 EPB complied
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with Iowa Code section 476.6(19). The parties further agreed “that the EPB is not
an optimal forum for review of the Electric Generating Needs Forecast due to the
narrow scope of the filing.” The parties agreed MidAmerican would provide to the
board—in an alternative proceeding—an Electric Generating Needs Forecast “to
demonstrate how MidAmerican is managing its current generation resources and
how it is planning for new resources in a manner that are cost-effective and
prudent for its Iowa customers.” The parties agreed the forecast would address
plans for existing coal facilities. Environmental Parties and Tech Customers filed
comments on the nonunanimous full settlement.
The board continued the contested hearing date until the end of March.
Prior to the scheduled hearing, however, the board issued an order that approved
MidAmerican’s 2020 EPB, denied the joint motion to settle, and cancelled the
contested case hearing. The board stated it had “considered the evidence
presented by the parties” and decided “that there [were] no material facts about
the EPB filed by MidAmerican that [were] in dispute” because “the evidence
addressing other options, filed by OCA and the intervenors, is outside the scope
of an EPB proceeding under Iowa Code § 476.6(19).” (Emphasis added.) OCA and
Environmental Parties moved for reconsideration, which MidAmerican resisted.
The board denied the motion to reconsider and reiterated “that the evidence filed
by OCA and the Environmental Intervenors addressing these other options was
outside the scope of an EPB proceeding.” (Emphasis added.) The board did,
however, open two additional matters on separate dockets to address the issues
raised by Environmental Parties.
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Environmental Parties filed a petition for judicial review in the district
court, and MidAmerican and OCA moved to intervene without objection. OCA
and Environmental Parties contended the board erred in failing to consider their
evidence during the EPB process. Specifically, OCA and Environmental Parties
argued the board erred in concluding that the consideration of least-cost
alternatives and retirement of coal-fueled electric generating facilities were
outside the scope of the statute. This is particularly true, they argued, because
the board had considered this type of evidence in previous EPB proceedings.
The district court rejected the arguments and affirmed the board’s
approval of the EPB. The district court held the board correctly determined it
was not required to consider the evidence offered by OCA and Environmental
Parties. The district court concluded that OCA and Environmental Parties’
evidence—particularly the evidence regarding the retirement of coal-fueled
facilities to be replaced by renewable energy—was outside the scope of the EPB
proceeding. Lastly, the district court concluded the board correctly approved
MidAmerican’s EPB.
Environmental Parties timely appealed, and we retained the appeal. OCA
filed a proof brief requesting oral argument. OCA did not, however, file a notice
of appeal. Because OCA failed to file a notice of appeal, we struck OCA’s brief
and denied it leave to file a reply brief. We granted OCA leave to file a brief amicus
curiae.
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III.
Iowa Code section 17A.19(10) governs our review of the board’s decision.
Iowa Code § 476.6(19)(a)(3); SZ Enters., LLC v. Iowa Utils. Bd., 850 N.W.2d 441,
449 (Iowa 2014). The standard of review differs depending on the error alleged.
Jacobson Transp. Co. v. Harris, 778 N.W.2d 192, 196 (Iowa 2010). A party’s
challenge to factual findings or the sufficiency of the evidence is subject to
substantial evidence review. Id. “Evidence is substantial if a reasonable mind
would find it adequate to reach a conclusion.” Quaker Oats Co. v. Ciha,
552 N.W.2d 143, 150 (Iowa 1996). A party’s challenge to an agency’s application
of law to fact is subject to a highly deferential standard of review, and we will
reverse only if the agency’s action is irrational, illogical, or wholly unjustifiable.
Iowa Code § 17A.19(10)(i), (m). In reviewing an agency’s interpretation of a
statute, the standard of review is contingent. “If the legislature has clearly vested
the agency with authority to interpret the relevant statute, we give deference and
reverse only if the agency’s interpretation is ‘irrational, illogical, or wholly
unjustifiable.’ ” Hawkeye Land Co. v. Iowa Utils. Bd., 847 N.W.2d 199, 207 (Iowa
2014) (quoting Iowa Code § 17A.19(10)(l)); see SZ Enters., 850 N.W.2d at 449;
NextEra Energy Res. LLC v. Iowa Utils. Bd., 815 N.W.2d 30, 36–37 (Iowa 2012);
Renda v. Iowa C.R. Comm’n, 784 N.W.2d 8, 10 (Iowa 2010). “If the agency lacks
interpretive authority, ‘we review for erroneous interpretations of law.’ ”
Hawkeye Land Co., 847 N.W.2d at 207 (quoting Iowa Dental Ass’n v. Iowa Ins.
Div., 831 N.W.2d 138, 142–43 (Iowa 2013)); see SZ Enters., 850 N.W.2d at 449;
NextEra, 815 N.W.2d at 36–37.
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The parties spend a significant portion of their briefing disputing the
applicable standard of review with respect to the interpretation of
section 476.6(19). The board contends that its interpretation of section 476.6(19)
is entitled to deference because the terms of the statute are highly specialized.
Environmental Parties contend the board’s interpretation of the statute is not
entitled to deference because the relevant words of the statute are not highly
specialized. The parties’ dispute regarding the standard of review is largely due
to the parties misframing the issue. While the board couches its argument as
one of deference to its interpretation of the statute, it really argues for deference
to its conclusion that the statutory standard has been met. The board contends,
in its own words, that this court should defer to “the expertise of the board to
make the determination of whether the EPB plan meets the statutory
requirements.” That does not pose a question of statutory interpretation.
Instead, that poses a question of the board’s application of law to fact, to which
the board is already entitled to deference. See Iowa Code § 17A.19(10)(i), (m). We
thus need not resolve the parties’ dispute regarding whether the board is entitled
to deference in its interpretation of section 476.6(19).
IV.
Properly framed, as MidAmerican repeatedly contended during oral
argument, the contested issue in this case is whether Environmental Parties and
OCA’s evidence was relevant. The board and MidAmerican’s position is that the
board correctly rejected Environmental Parties and OCA’s evidence as outside
the scope of the statute and thus not relevant. MidAmerican emphasizes that the
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scope of proceedings under section 476.6(19) is very narrow. MidAmerican’s view
is that the board is faced with an up or down vote: approve the EPB submitted
by MidAmerican and allow MidAmerican to recover the costs, or reject the EPB
submitted by MidAmerican and disallow MidAmerican from recovering the costs.
MidAmerican argues the statute does not impose “a least-cost requirement, a
least-emissions requirement, a requirement to consider alternative plans, [or] a
mechanism to require evaluation of the retirement of coal-fired generation of
electricity in Iowa.” In other words, according to MidAmerican, the statute
neither allows Environmental Parties and OCA to foist alternative budgets and
plans on the utility nor allows the board to consider or approve alternative
budgets and plans.
We agree with MidAmerican’s description of the scope and operation of the
statute, but the scope and operation of the statute do not fully resolve the
question of whether Environmental Parties and OCA’s expert testimony was
nonetheless relevant to the issues before the board. “Evidence is relevant when
‘it has any tendency to make a fact more or less probable than it would be
without the evidence[] and . . . [t]he fact is of consequence in determining the
action.’ ” State v. Thoren, 970 N.W.2d 611, 622 (Iowa 2022) (alterations and
omission in original) (quoting Iowa R. Evid. 5.401).
Three considerations lead us to conclude Environmental Parties and
OCA’s evidence was relevant and should have been considered by the board.
First, the text of the statute supports the conclusion that Environmental Parties
and OCA’s evidence was relevant. Under the statute, the board was required to
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determine whether MidAmerican’s EPB was “reasonably expected to achieve
cost-effective compliance with applicable state environmental requirements and
federal ambient air quality standards.” Iowa Code § 476.6(19)(c). In reaching its
determination, the board was required to consider whether MidAmerican’s EPB
“reasonably balance[d] costs, environmental requirements, economic
development potential, and the reliability of the electric generation and
transmission system.” Id. “Cost-effective” means “producing optimum results for
the expenditure.” Cost-effective, Webster’s Third New International Dictionary
(unabr. ed. 2002). “Optimum” means “the amount or degree of something that is
most favorable to some end.” Optimum, Webster’s Third New International
Dictionary (unabr. ed. 2002). “Reasonable” means “fair, proper, or moderate
under the circumstances.” Reasonable, Black’s Law Dictionary (11th ed. 2019).
All of these are words of comparison or comparative value. The statutory
requirement that the board determine whether MidAmerican’s EPB was
“reasonably expected to achieve cost-effective compliance” and whether the EPB
“reasonably balance[d]” the relevant statutory factors requires, or at least invites,
comparison of alternative methods to achieve compliance with state
environmental requirements and federal ambient air quality standards.
Second, a structural consideration points to the evidence being relevant.
The board considers the EPB in a “contested case proceeding pursuant to
chapter 17A.” Iowa Code § 476.6(19)(a)(3). A contested case is “a proceeding
including but not restricted to ratemaking, price fixing, and licensing in which
the legal rights, duties or privileges of a party” are determined by an
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administrative agency. Id. § 17A.2(5). “A contested case entitles parties affected
by the agency action to an adversarial hearing with the presentation of evidence
and arguments and the opportunity to cross-examine witnesses and introduce
rebuttal evidence.” Greenwood Manor v. Iowa Dep’t of Pub. Health, 641 N.W.2d
823, 834 (Iowa 2002). “The underlying purpose of an evidentiary hearing is to
adjudicate disputed facts pertaining to particular individuals in specific
circumstances.” Id. By calling for a contested case proceeding, the statute
presupposes the parties, including intervening parties, may contest the EPB and
may submit additional evidence relevant to the statutory considerations even
though the evidence may address items not covered in the particular EPB at
issue.
Third, the board has previously concluded the type of evidence at issue in
this case is, in fact, relevant under section 476.6(19). In 2014, 2016, and 2018,
MidAmerican discussed the retirement of coal-fueled generation facilities in
connection with its EPB. For example, in 2014, MidAmerican witness Jennifer
A. McIvor testified that:
MidAmerican assessed the costs of its compliance options for units
not currently scheduled to have controls installed. MidAmerican
determined that, based on economic and other considerations, it is
in the best interest of its customers to comply with the MATS
[Mercury and Air Toxic Standards] and other environmental
requirements by discontinuing the utilization of coal as a fuel and
not installing environmental controls on five operating units.
Therefore, by April 16, 2016, MidAmerican will cease burning coal
at Neal Energy Center Units 1 and 2, Walter Scott Jr. Energy Center
Units 1 and 2, and Riverside Generating Station.
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McIvor offered similar testimony in 2016 and 2018. She explained that
“MidAmerican is retiring certain coal-fueled generating units as the least-cost
alternative” and identified several plants that “are to be retired.”
The board argues, and the district court agreed, that the board’s past
practice of considering plant retirement is not relevant here because in those
prior cases, plant retirement was advanced by the utility rather than an
intervening party. We think the distinction is immaterial and misses the point.
If facility retirement was a relevant means of “managing regulated emissions from
its facilities in a cost-effective manner” when MidAmerican proposed it, it must
also be relevant when offered into evidence by Environmental Parties and OCA.
Iowa Code § 476.6(19)(a). We see no basis for determining relevance of this
evidence in this proceeding based on the identity of the party offering the
evidence.
We agree with MidAmerican that the intervening parties could not force
alternative budgets and plans, including plant retirement, on MidAmerican. And
we agree with the board that it was without the authority to approve alternative
budgets and plans. We disagree, however, that Environmental Parties and OCA’s
evidence was not relevant in determining whether the EPB, as submitted, met
the statutory requirements. Steven C. Guyer, an energy and climate policy
specialist, testified that MidAmerican’s emission control expenditures were not
cost-effective. David B. Posner, an independent consultant, testified two facilities
fueled by coal should be retired because they operate below capacity and in an
uneconomic way. Utility specialist Scott C. Bents testified MidAmerican failed to
16
“perform even a basic analysis” of the relevant statutory factors. Bents also
criticized MidAmerican’s EPB for failing to consider the retirement of coal-fueled
electric power generating facilities. All of this evidence is relevant and should
have been considered by the board. The board might have concluded that the
evidence is not particularly probative of the cost-effectiveness of MidAmerican’s
EPB given that the plan calls for no additional capital expenditures and contains
only O & M expenses related to previously-approved capital expenditures. Or the
board might conclude the evidence has great weight on the relevant
considerations. What weight, if any, the board gives to Environmental Parties
and OCA’s evidence is to be determined by the board.
The deference afforded an agency in its application of law to fact is
predicated on the assumption the agency reviewed and considered all of the
relevant evidence in reaching its decision. See JBS Swift & Co. v. Hedberg,
873 N.W.2d 276, 280–81 (Iowa Ct. App. 2015). If, as here, the record discloses
the agency did not review and consider the relevant evidence, then no deference
is afforded to the agency. See id. An agency is entitled to reconcile relevant
evidence not ignore relevant evidence. See id. Where the agency fails to consider
relevant evidence, the agency’s action is unreasonable, arbitrary, capricious, an
abuse of discretion, and the product of illogical reasoning. See Iowa Code
§ 17A.19(10)(i), (j), (m), (n); Hedberg, 873 N.W.2d at 280–81; Meyer v. IBP, Inc.,
710 N.W.2d 213, 225 (Iowa 2006) (“We have said that the commissioner commits
error by failing to weigh and consider all of the evidence.”); Armstrong v. State of
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Iowa Bldgs. & Grounds, 382 N.W.2d 161, 165 (Iowa 1986) (en banc) (stating it is
reversible error for the agency to fail to “weigh and consider all the evidence”).
V.
“Because the court on judicial review of agency action has no original
authority to make findings of fact and declare the parties’ rights, the court should
remand for further specific findings when the agency’s ruling does not clearly
disclose a sound factual and legal basis for its decision.” Taylor v. Iowa Dep’t of
Job Serv., 362 N.W.2d 534, 537 (Iowa 1985). We reverse the district court’s order
affirming the board’s action and vacate the decision of the board. “We remand
this matter to the district court with instructions to remand this matter to the
agency” for further proceedings not inconsistent with this opinion. Carreras v.
Iowa Dep’t of Transp., 977 N.W.2d 438, 452 (Iowa 2022).
DISTRICT COURT JUDGMENT REVERSED AND REMANDED WITH
INSTRUCTIONS.
All justices concur except May, J., who takes no part.