Nextera Energy Resources LLC v. Iowa Utilities Board

IN THE SUPREME COURT OF IOWA
No. 10–2080
Filed June 8, 2012
NEXTERA ENERGY RESOURCES LLC,
Appellant,
vs.
IOWA UTILITIES BOARD,
Appellee,
MIDAMERICAN ENERGY COMPANY and
OFFICE OF CONSUMER ADVOCATE,
Intervenors-Appellees.
Appeal from the Iowa District Court for Polk County, Scott D.
Rosenberg, Judge.
An energy company appeals a district court decision affirming the
Iowa Utility Board’s decision to grant advance ratemaking principles to a
regulated utility. AFFIRMED
Bret A. Dublinske of Gonzalez Saggio & Harlan LLP, West Des
Moines, Victoria J. Place, Des Moines, and Peter L. Gardon and Bryan K.
Nowicki of Reinhart Boerner Van Deuren S.C., Madison, Wisconsin, for
appellant.
David J. Lynch and Gary D. Stump, Des Moines, for appellee Iowa
Utilities Board.
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Steven L. Nelson of Davis, Brown, Koehn, Shors & Roberts, P.C.,
Des Moines, and Steven R. Weiss and Charles R. Montgomery,
Urbandale, for appellee MidAmerican Energy Company.
Mark R. Schuling and Ronald C. Polle, Des Moines, for appellee
Office of Consumer Advocate.
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WIGGINS, Justice.
NextEra Energy Resources, LLC, appeals the Iowa Utility Board’s
decision to grant advance ratemaking principles to MidAmerican Energy
Company for the Wind VII Iowa Project, a proposed wind generation
facility. NextEra raises issues pertaining to the Board’s interpretation of
Iowa Code section 476.53 (2009), whether substantial evidence
supported the Board’s findings, the applicability of section 476.43 to the
ratemaking proceeding, and section 476.53’s constitutionality as applied
to a rate-regulated public utility that may compete in the wholesale
energy market. After the Board approved MidAmerican’s application,
NextEra sought judicial review of that decision. The district court
affirmed the Board.
On appeal, we find (1) the Board properly interpreted and applied
section 476.53, (2) substantial evidence supported the Board’s findings,
(3) section 476.43 is not applicable to this ratemaking proceeding, and
(4) section 476.53 as applied to a rate-regulated public utility that may
compete in the wholesale energy market does not violate the Equal
Protection Clauses of the Iowa or United States Constitutions or the
Commerce Clause of the United States Constitution. Accordingly, we
affirm the judgment of the district court affirming the judgment of the
Board.
I. Background Facts and Proceedings.
On March 25, 2009, MidAmerican filed an application with the
Board for advance ratemaking principles for Wind VII, a project involving
the generation of up to 1001 megawatts of wind energy. MidAmerican is
a rate-regulated utility subject to the Board’s regulatory authority
pursuant to chapter 476 of the Iowa Code. MidAmerican is obligated to
serve all retail electric customers in its exclusive service territory and
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sells excess power in the wholesale market subject to the Board’s
regulations. Prior to its application for ratemaking principles for Wind
VII, MidAmerican sought and received ratemaking principles for six wind
generation projects ranging from 50 to 540 megawatts.
Before filing its application, MidAmerican entered into a stipulation
and agreement with the Office of Consumer Advocate. The agreement,
which accompanied MidAmerican’s application, addressed twelve
ratemaking principles. It also stipulated MidAmerican had met the
conditions precedent for receiving ratemaking principles.
MidAmerican stated numerous reasons for pursuing Wind VII. In
particular, MidAmerican stated the following reasons underlie its
decision to expand its wind power generating capacity: (1) the State’s
encouragement of the generation of renewable energy; (2) positive
experiences with its own existing wind projects; (3) timing and economics
that are advantageous for MidAmerican’s customers; (4) soft market
conditions, which allow MidAmerican to obtain reasonably priced
turbines; (5) a projection that Wind VII will essentially pay for itself over
its twenty-year depreciable life, mitigating the need to increase rates in
the future; (6) an increased likelihood that Congress will enact carbon
legislation, making wind power more valuable to MidAmerican’s
customers; and (7) its desire to further increase fuel diversity.
On April 17, NextEra filed a petition to intervene and objected to
the stipulation and agreement, arguing the Board should not award
advance ratemaking principles to MidAmerican for Wind VII. 1 NextEra is
an independent wholesale energy producer that sells electricity in the
wholesale market. It is North America’s largest producer of wind energy
1IberdrolaRenewables, Inc., and Interstate Power and Light Company also
intervened; however, neither sought judicial review of the Board’s decision.
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and, in August 2009, owned sixty-five wind facilities in the United States
and Canada, including facilities in Iowa. Because it is an independent
energy producer, chapter 476 does not apply to NextEra, the Board does
not regulate NextEra, and NextEra does not have an obligation to serve
retail customers.
NextEra believes that MidAmerican is pursuing Wind VII solely as
a vehicle to increase MidAmerican’s presence in the wholesale energy
market and that the awarding of ratemaking principles would give
MidAmerican a competitive advantage in the wholesale market. NextEra
believes the award of ratemaking principles for Wind VII would impose
risks on MidAmerican’s ratepayers that should instead be borne by its
shareholders. Further, NextEra would like to sell renewable energy to
MidAmerican, either through a purchase power agreement or by
developing and selling a wind farm to MidAmerican.
The Board granted advance ratemaking principles for Wind VII to
MidAmerican. NextEra timely filed a petition for judicial review. The
district court affirmed the Board’s decision. NextEra appeals. Additional
background facts and proceedings will be set out below as they relate to
each issue.
II. Issues.
NextEra presents the following issues for review: (1) whether the
Board incorrectly applied the “need” requirement of section 476.53;
(2) whether the Board failed to require MidAmerican to compare Wind VII
with other feasible alternatives as required by section 476.53(4)(c)(2);
(3) whether the Board’s decision to grant advance ratemaking principles
to NextEra was supported by substantial evidence; (4) whether the Board
erred in determining section 476.43 did not apply to MidAmerican’s
application for advance ratemaking principles for Wind VII; (5) whether
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section 476.53, as applied to a rate-regulated utility that may compete in
the wholesale energy market, violates the equal protection guarantees of
the United States or Iowa Constitutions; and (6) whether section 476.53,
as applied to a rate-regulated utility that may compete in the wholesale
energy market, violates the Commerce Clause of the United States
Constitution.
III. Interpretation of the “Need” Requirement of Section
476.53.
When a rate-regulated public utility files an application to
construct a wind energy generating facility, Iowa Code section 476.53
requires the Board to specify in advance the ratemaking principles that
will apply when the costs of the facility are included in regulated electric
rates. Iowa Code § 476.53(4)(a)(1). Before the Board may determine the
applicable ratemaking principles, section 476.53(4) requires the Board to
find that “[t]he rate-regulated public utility has demonstrated to the
board that the public utility has considered other sources for long-term
electric supply and that the facility . . . is reasonable when compared to
other feasible alternative sources of supply.” Id. § 476.53(4)(c)(2).
Section 476.53(4) then contemplates that the utility may satisfy this
requirement “through a competitive bidding process, under rules adopted
by the board, which demonstrate the facility . . . is a reasonable
alternative to meet its electric supply needs.” Id. NextEra argues the
Board incorrectly applied this “need” requirement.
A. Scope of Review. Iowa Code section 17A.19(10) governs
judicial review of administrative agency decisions. Auen v. Alcoholic
Beverages Div., 679 N.W.2d 586, 589 (Iowa 2004). To decide this issue
we must interpret section 476.53. To determine the applicable standard
of review of an agency’s interpretation of a statute, we must determine
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whether the legislature clearly vested the agency with the authority to
interpret the statute at issue. Doe v. Iowa Dep’t of Human Servs., 786
N.W.2d 853, 857 (Iowa 2010). If the legislature clearly vested the agency
with the authority to interpret specific terms of a statute, then we defer
to the agency’s interpretation of the statute and may only reverse if the
interpretation is “irrational, illogical, or wholly unjustifiable.” Id.; accord
Renda v. Iowa Civil Rights Comm’n, 784 N.W.2d 8, 10 (Iowa 2010); see
also Iowa Code § 17A.19(10)(l). If, however, the legislature did not clearly
vest the agency with the authority to interpret the statute, then our
review is for correction of errors at law. Doe, 786 N.W.2d at 857; see also
Iowa Code § 17A.19(10)(c).
When making this determination, we look carefully “at the specific
language the agency has interpreted as well as the specific duties and
authority given to the agency with respect to enforcing particular
statutes.” Renda, 784 N.W.2d at 13. Although “[t]he legislature may
explicitly vest the authority to interpret an entire statutory scheme with
an agency[,] . . . the fact that an agency has been granted rule making
authority does not ‘give[] an agency the authority to interpret all
statutory language.’ ” Evercom Sys., Inc. v. Iowa Utils. Bd., 805 N.W.2d
758, 762 (Iowa 2011) (quoting Renda, 784 N.W.2d at 13). Furthermore,
“broad articulations of an agency’s authority, or lack of authority, should
be avoided in the absence of an express grant of broad interpretive
authority.” Renda, 784 N.W.2d at 14.
Certain guidelines have emerged to help us determine whether the
legislature clearly vested interpretative authority in the agency, two of
which are relevant here. Id. First, “when the statutory provision being
interpreted is a substantive term within the special expertise of the
agency, . . . the agency has been vested with the authority to interpret
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the provisions.” Id. Second, “[w]hen a term has an independent legal
definition that is not uniquely within the subject matter expertise of the
agency, we generally conclude the agency has not been vested with
interpretative authority.” Id. In sum, in order for us to find the
legislature clearly vested the Board with authority to interpret section
476.53, we
must have a firm conviction from reviewing the precise
language of the statute, its context, the purpose of the
statute, and the practical considerations involved, that the
legislature actually intended (or would have intended had it
thought about the question) to delegate to the agency
interpretive power with the binding force of law over the
elaboration of the provision in question.
Doe, 786 N.W.2d at 857 (citation and internal quotation marks omitted).
Accordingly, we must determine whether the general assembly
explicitly vested the Board with the authority to interpret specific terms
in chapter 476. In the first section of chapter 476, the general assembly
granted the Board authority to “regulate the rates and services of public
utilities to the extent and in the manner hereinafter provided.” Iowa
Code § 476.1. The general assembly also granted the Board broad
general powers to carry out the purposes of chapter 476. Id. § 476.2(1).
Section 476.2(1) states:
The board shall have broad general powers to effect the
purposes of this chapter notwithstanding the fact that
certain specific powers are hereinafter set forth. The board
shall have authority to issue subpoenas and to pay the same
fees and mileage as are payable to witnesses in the courts of
record of general jurisdiction and shall establish all needful,
just and reasonable rules, not inconsistent with law, to
govern the exercise of its powers and duties, the practice and
procedure before it, and to govern the form, contents and
filing of reports, documents and other papers provided for in
this chapter or in the board’s rules. In the establishment,
amendment, alteration or repeal of any of such rules, the
board shall be subject to the provisions of chapter 17A.
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Id. However, simply because the general assembly granted the Board
broad general powers to carry out the purposes of chapter 476 and
granted it rulemaking authority does not necessarily indicate the
legislature clearly vested authority in the Board to interpret all of chapter
476.
In granting the Board rulemaking authority, the general assembly
used the following language: “The Board . . . shall establish all needful,
just and reasonable rules . . . to govern the exercise of its powers and
duties.” Id. § 476.2(1). While “govern” means, “to exercise arbitrarily or
by established rules continuous sovereign authority over,” it also means
“to rule without sovereign power.” Webster’s Third New International
Dictionary 982 (unabr. ed. 2002). This second definition is synonymous
with implementing or administering. See id. “Exercise” means “the
discharge of an official function or professional occupation.” Id. at 795.
From these definitions, we can draw two possible conclusions. The
general assembly may have intended that the Board exercise sovereign
authority in discharging its official function of effecting the purposes of
chapter 476. However, the general assembly may also have intended
that the Board merely implement or administer the laws contained in
chapter 476 without sovereign authority. Furthermore, the general
assembly expressly subjected the Board to chapter 17A, the Iowa
Administrative Procedure Act, which specifically provides for “legislative
oversight of powers and duties delegated to administrative agencies.”
Iowa Code § 17A.1(3). Therefore, because of the ambiguous definition of
“govern” and the express reference to chapter 17A, we conclude under
Renda that the general assembly did not delegate to the Board
interpretive power with the binding force of law. Accordingly, we will
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examine the Board’s interpretation of section 476.53(4)(c)(2) for
correction of errors at law. Id. § 17A.19(10)(c).
B. Interpretation of Section 476.53. NextEra claims the
“electric supply needs” language in section 476.53(4)(c)(2) requires the
Board to determine Iowa ratepayers need the electrical supply the
proposed project will generate before it can grant an order specifying
advance ratemaking principles. After conceding MidAmerican did not
have an immediate need for additional wind energy capacity, the Board
interpreted section 476.53(4)(c)(2)’s “need” requirement to be broader
than alleged by NextEra. The Board concluded the “need” requirement
not only includes present capacity, but that it also includes needs based
on compliance with present and future environmental regulations, fuel
diversity, the supply of less expensive energy to its consumers, and the
promotion of economic development and Iowa’s energy policy. The Board
stated consideration of these needs demonstrated MidAmerican’s
compliance with its statutory obligation to plan prudently to provide
reasonable and adequate service to its retail customers at just and
reasonable rates.
In 2009, section 476.53 provided in relevant part:
1. It is the intent of the general assembly to attract the
development of electric power generating and transmission
facilities within the state in sufficient quantity to ensure
reliable electric service to Iowa consumers and provide
economic benefits to the state.
2. The general assembly’s intent with regard to the
development of electric power generating and transmission
facilities, as provided in subsection 1, shall be implemented
in a manner that is cost-effective and compatible with the
environmental policies of the state, as expressed in Title XI.
Id. § 476.53(1)–(2).
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While this case was on judicial review, the general assembly
passed a bill amending subsections (1) and (2) of section 476.53, which
the governor subsequently signed into law. 2010 Iowa Acts ch. 1176 § 2
(codified at Iowa Code § 476.53(1)–(2) (2011)). The general assembly
added the following intent language to subsection (1): “It is also the
intent of the general assembly to encourage rate-regulated public utilities
to consider altering existing electric generating facilities, where
reasonable, to manage carbon emission intensity in order to facilitate the
transition to a carbon-constrained environment.” Id.
Further, the general assembly amended subsection (2) by adding
the following language:
b. The general assembly’s intent with regard to the
reliability of electric service to Iowa consumers, as provided
in subsection 1, shall be implemented by considering the
diversity of the types of fuel used to generate electricity, the
availability and reliability of fuel supplies, and the impact of
the volatility of fuel costs.
Id. The bill also deleted outdated provisions in section 476.53 regarding
a cogeneration pilot program that the general assembly repealed in 2007
and amended the statute to apply to significant alterations of existing
generating facilities. Id. The general assembly thought this bill was of
such importance that it amended the bill to take immediate effect upon
enactment. Id. § 3.
In interpreting section 476.53, we attempt to determine the general
assembly’s intent. See State v. McCoy, 618 N.W.2d 324, 325 (Iowa 2000).
We “may not extend, enlarge or otherwise change the meaning of a
statute” under the guise of construction. Auen, 679 N.W.2d at 590.
Additionally, when the legislative history discloses that the general
assembly may have amended a statute simply to remove doubt from a
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previous statute, we are required to give effect to that purpose. Barnett v.
Durant Cmty. Sch. Dist., 249 N.W.2d 626, 629 (Iowa 1977). The rule for
determining whether a legislative change in a statute modifies or clarifies
the original statute is as follows:
Where the original law was subject to very serious doubt, by
permitting subsequent amendments to control the former
meaning a great deal of uncertainty in the law is removed.
And the legislature is probably in the best position to
ascertain the most desirable construction. In addition it is
just as probable that the legislature intended to clear up
uncertainties, as it did to change existing law where the
former law is changed in only minor details. Thus it has
been asserted that “one well recognized indication of
legislative intent to clarify, rather than change, existing law
is doubt or ambiguity surrounding a statute.” The New York
court has established the following test: “The force which
should be given to subsequent, as affecting prior legislation,
depends largely upon the circumstances under which it
takes place. If it follows immediately and after controversies
upon the use of doubtful phraseology therein have arisen as
to the true construction of the prior law it is entitled to great
weight . . . . If it takes place after a considerable lapse of
time and the intervention of other sessions of the legislature,
a radical change of phraseology would indicate an intention
to supply some provisions not embraced in the former
statute.”
Orr v. Lewis Cent. Sch. Dist., 298 N.W.2d 256, 260 (Iowa 1980) (citation
and internal quotation marks omitted).
Applying these principles, we find the general assembly did not
intend the “need” requirement of section 476.53 to only include present
capacity, but rather the general assembly also intended it to include
needs based on other considerations such as fuel diversity, the supply of
less expensive energy to consumers, and compliance with future
environmental regulations requiring clean energy. We reach this
conclusion for a number of reasons.
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First, prior to the 2010 amendments, the statute stated it was the
general assembly’s intent that the statute be compatible with the
environmental policies of the state, as expressed in Title XI of the Code,
of which section 476.53 is a part. See Iowa Code § 476.53(2) (2009).
Title XI deals with a myriad of environmental issues, including energy
independence initiatives, such as those that reduce greenhouse gas
emissions and carbon sequestration. See, e.g., id. § 469.9(4)(b)(3).
Compliance with environmental regulations, present or future, requiring
clean energy, diversifying fuel sources, and accounting for the impact of
the volatility of fuel prices are the types of issues that would be
consistent with Title XI. They are also consistent with a legislative intent
that utilities plan prudently to provide reasonable and adequate service
to retail customers at just and reasonable rates.
Second, when the general assembly amended the statute by adding
the intent language in subsections (1) and (2), it did not make any
substantive changes to the statute indicative of a legislative intent to
change the statute’s underlying goals or reasons. In subsection (2), the
general assembly left intact the language indicating its intent that
section 476.53 be compatible with Title XI and added the language
requiring the consideration of “the diversity of the types of fuel used to
generate electricity, the availability and reliability of fuel supplies, and
the impact of the volatility of fuel costs.” See id. § 476.53(2)(b) (2011).
Moreover, while subsection (1) of the previous version indicated
legislative intent to encourage the development of electric generating
facilities to provide reliable service to consumers, the general assembly
amended subsection (1) by simply adding language indicating its intent
to encourage utilities to adapt their facilities for a carbon-constrained
environment. Compare id. § 476.53(1) (2009), with id. § 476.53(1) (2011).
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The amendment to the statute to permit its application to significant
alterations of existing facilities furthers this intent. Therefore, the
general assembly’s inclusion of additional intent language in the statute,
without making changes other than deleting outdated provisions, leads
us to conclude the additional intent language clarified the original intent
rather than adding a new intent.
Finally, at the time the general assembly added the intent
language, the issue of whether the Board could consider these factors
was being litigated in the courts. The timing of the amendment confirms
that the general assembly was trying to clarify the law in this area. See
Barnett, 249 N.W.2d at 629–30.
Therefore, we conclude the Board correctly construed section
476.53 to allow it to consider compliance with future environmental
regulations, fuel diversity, the volatility of fuel prices, and the supply of
less expensive energy to consumers.
IV. Interpretation of Other Feasible Alternatives Under
476.53(4)(c)(2).
Section 476.53(4)(c)(2) requires the Board to find that “the rate-
regulated public utility has demonstrated to the board that [it] has
considered other sources for long-term electric supply” and that its
proposed facility “is reasonable when compared to other feasible
alternative sources of supply.” Iowa Code § 476.53(4)(c)(2) (2009)
(emphasis added).
A. Scope of Review. The resolution of this issue also involves the
Board’s interpretation of section 476.53(4)(c)(2). Accordingly, we will
review the Board’s interpretation of “other feasible alternative sources of
supply” under 476.53(4)(c)(2) for correction of errors at law pursuant to
section 17A.19(10)(c).
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B. Analysis. NextEra sets forth two reasons for its contention the
Board failed to require MidAmerican to compare Wind VII with “other
feasible alternatives.” First, it argues that “other feasible alternatives”
necessarily requires comparison to other generating facilities using the
same power source, which in this case is wind. Second, it argues the
Board improperly permitted MidAmerican to attempt to perform a
postapplication comparison with a wind alternative during the Wind VII
proceeding, instead of a preapplication comparison. It argues
MidAmerican did not engage in commercial negotiations, but instead
compared Wind VII with a sample NextEra purchase power agreement
obtained through discovery. NextEra argues the Board’s misapplication
of the comparison requirement opens the door for utilities to avoid
competition, which denies their customers the benefits that competition
brings in contravention of Iowa public policy.
When the general assembly fails to provide a statutory definition or
a word does not have an established meaning in law, we give the words
their ordinary and common meaning by considering the context in which
the general assembly used them. State v. Stone, 764 N.W.2d 545, 549
(Iowa 2009). “Considered” is the past tense of “consider,” which means
“to reflect on: think about with a degree of caution.” Webster’s Third New
International Dictionary 483. “Other” is defined as “being the ones
distinct from the one or those first mentioned or understood,” i.e., an
alternative. Id. at 1598. “Compared” is the past tense of “compare,”
which means “to examine the character or qualities of (as two or more
. . . things) esp. for the purpose of discovering resemblances or
differences.” Id. at 462. “Feasible” means “capable of being . . . utilized
. . . successfully.” Id. at 831. Finally, “alternatives” is the plural form of
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“alternative,” which means “offering a choice of two or more things
wherein if one thing is chosen the other is rejected.” Id. at 63.
Taking these definitions together with the language of section
476.53(4)(c)(2), we conclude this section requires a utility to do no more
than demonstrate its proposed facility is reasonable in light of the fact
the utility cautiously thought about the character or qualities of
alternative sources for long-term electric supply it could successfully
utilize. The statute does not require the utility to compare the facility
only to alternatives of the same generation source.
In addition, the intent of this Code section refers to, “electric power
generating and transmission facilities.” Iowa Code § 476.53(1).
Therefore, this section of the Code is not limited solely to wind energy or
other sources of renewable energy. Finally, the primary goals of section
476.53 are to “ensure reliable electric service to Iowa consumers and
provide economic benefits to the state.” Id. There are sources of long-
term electric supply besides wind that meet these goals. In addition to
conventional generation sources, such as fossil fuels, Iowa law recognizes
renewable generation sources other than wind, including solar, biomass,
and hydroelectric energies. See id. § 476.42(1)(a), (4) (defining “alternate
energy production facility” and “small hydro facility”).
Based on this analysis, the general assembly did not intend “other
feasible alternatives” to include only alternatives of the same generation
type. To achieve the general assembly’s goals and considering the plain
language of the statute, the only practical reading of section
476.53(4)(c)(2) is that it permits comparison with alternatives of different
generation types. Therefore, the Board did not err in allowing
MidAmerican to compare Wind VII to alternatives other than wind
energy.
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NextEra’s second contention is the Board permitted MidAmerican
to perform a postapplication comparison with a wind alternative during
the Wind VII proceeding and the statute requires MidAmerican to
perform this comparison prior to submitting its application for
ratemaking principles. However, the plain language of section
476.53(4)(c)(2) does not require the utility to demonstrate it has
performed the comparison prior to filing its application. Similarly, the
section does not require a utility to compare its proposed facility with
other proposed facilities. The only requirement under section
476.53(4)(c)(2) is that the utility compares its proposed facility to other
feasible supply sources prior to receiving ratemaking principles.
Accordingly, the Board properly interpreted the other feasible
alternatives language contained in section 476.53(4)(c)(2).
V. Substantial Evidence Claims.
The next issue we must consider is whether substantial evidence
supported the Board’s findings that MidAmerican met the “need”
requirement and considered other feasible alternatives of section
476.53(4)(c)(2).
A. Scope of Review. We must “reverse, modify, or grant other
appropriate relief from agency action” that is “not supported by
substantial evidence in the record . . . when that record is viewed as a
whole.” Id. § 17A.19(10)(f). The Iowa Administrative Procedure Act
defines “substantial evidence” as follows:
[T]he quantity and quality of evidence that would be deemed
sufficient by a neutral, detached, and reasonable person, to
establish the fact at issue when the consequences resulting
from the establishment of that fact are understood to be
serious and of great importance.
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Id. § 17A.19(10)(f)(1). When reviewing a finding of fact for substantial
evidence, we adjudicate the finding “in light of all the relevant evidence in
the record cited by any party that detracts from that finding . . . [or] that
supports it.” Id. § 17A.19(10)(f)(3). “The agency’s decision does not lack
substantial evidence merely because the interpretation of the evidence is
open to a fair difference of opinion.” ABC Disposal Sys., Inc. v. Dep’t of
Natural Res., 681 N.W.2d 596, 603 (Iowa 2004).
B. The “Need” Requirement. In determining whether
MidAmerican satisfied the “need” requirement of section 476.53(4)(c)(2),
the Board could consider compliance with future environmental
regulations requiring clean energy, fuel diversity, and the supply of less
expensive energy to consumers. The record reveals MidAmerican
demonstrated Wind VII would defer a capacity deficiency from 2019 to
2020. Furthermore, because of the benefits of Wind VII, MidAmerican is
able to project a capacity deficiency of a mere 21 megawatts in 2020.
Further, the record contains substantial evidence Wind VII would
satisfy a need for an electric supply with lower emissions, especially in
light of potential future carbon legislation; a need for an electric supply
that produces low-cost energy; a need for an electric supply that
enhances fuel diversity; a need for MidAmerican to maintain reasonable
prices for its customers; a need to promote economic development in
Iowa; and a need to promote the use of renewable energy.
Therefore, substantial evidence supports the Board’s finding of the
“need” requirement under section 476.53(4)(c)(2).
C. Other Feasible Alternatives. The record demonstrates
MidAmerican compared wind generation generally to conventional and
renewable generation alternatives prior to submitting its application and,
prior to the Board’s decision, MidAmerican compared Wind VII with
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NextEra’s purchase power agreement. MidAmerican’s application for
advance ratemaking principles generally compares wind power to
renewable energy alternatives, including biomass energy, hydroelectric
energy, solar energy, and geothermal energy based on availability,
economic practicality, and maturity. It also compares wind power to
coal- and gas-fired power plants in terms of cost, cost robustness,
environmental reasonableness, system reliability, economic value to the
local area, political uncertainty, flexibility, and diversity.
The testimony of MidAmerican’s manager of market assessment
further details MidAmerican’s comparison of Wind VII to conventional
and renewable generation alternatives. The record contains evidence as
to MidAmerican’s six-stage resource planning process, the different
analytical models used during the process, and other criteria
MidAmerican uses to further evaluate the attractiveness of other
generation sources.
Accordingly, the record supports a finding that MidAmerican
compared its proposed facility to other feasible supply sources prior to
receiving ratemaking principles. Thus, substantial evidence supports the
Board’s finding that MidAmerican complied with the requirements of
section 476.53(4)(c)(2) by demonstrating “to the board that the public
utility has considered other sources for long-term electric supply and
that the facility . . . is reasonable when compared to other feasible
alternative sources of supply.”
VI. Applicability of Iowa Code Section 476.43.
We must next determine whether the Board erred in determining
section 476.43 did not apply to MidAmerican’s application for advance
ratemaking principles. Section 476.43 requires, under certain
20
conditions, that electric utilities not discriminate against alternate energy
producers.
A. Scope of Review. The resolution of this issue involves the
Board’s interpretation of sections 476.43 and 476.44. Accordingly, we
will review the interpretation of sections 476.43 and 476.44 for
correction of errors at law pursuant to section 17A.19(10)(c).
B. Analysis. NextEra argues the Board failed to require
MidAmerican to comply with Iowa Code section 476.43. Section 476.43
provides, in relevant part:
1. Subject to section 476.44, the board shall require
electric utilities to do both of the following under terms and
conditions that the board finds are just and economically
reasonable for the electric utilities’ customers, are
nondiscriminatory to alternate energy producers and small
hydro producers, and will further the policy stated in section
476.41:
a. At least one of the following:
(1) Own alternate energy production facilities or small
hydro facilities located in this state.
(2) Enter into long-term contracts to purchase or wheel
electricity from alternate energy production facilities or small
hydro facilities located in the utility’s service area.
b. Provide for the availability of supplemental or backup
power to alternate energy production facilities or small hydro
facilities on a nondiscriminatory basis and at just and
reasonable rates.
Iowa Code § 476.43 (emphasis added). The Board found section 476.43
did not apply to this situation because of an exception contained in
section 476.44. In particular, the Board relied on the following
exception:
2. a. An electric utility subject to this division, except a
utility that elects rate regulation pursuant to section 476.1A,
shall not be required to own or purchase, at any one time,
21
more than its share of one hundred five megawatts of power
from alternative energy production facilities or small hydro
facilities at the rates established pursuant to section 476.43.
Id. § 476.44(2)(a) (emphasis added).
The language of sections 476.43 and 476.44 clearly and
unambiguously provide that a utility that owns or purchases, “at any one
time, more than its share of one hundred five megawatts of power from
alternative energy production facilities” is exempt from the requirements
of section 476.43. The record establishes that even without Wind VII,
MidAmerican owns 1,284.3 megawatts of wind-powered generation and
purchases another 109.1 megawatts of wind power. Accordingly, the
Board correctly found that MidAmerican is exempt from the
requirements of section 476.43 because it already meets the statutorily
required minimum of 105 megawatts.
VII. Equal Protection Claim.
We must next determine whether the Board’s decision to grant
MidAmerican advance ratemaking principles for Wind VII violates the
Equal Protection Clauses of the United States or Iowa Constitutions.
A. Scope of Review. We can grant relief from agency action if the
action is “[u]nconstitutional on its face or as applied or is based upon a
provision of law that is unconstitutional on its face or as applied.” Id.
§ 17A.19(10)(a). We do not give any deference to the agency with respect
to the constitutionality of a statute or administrative rule because it is
entirely within the province of the judiciary to determine the
constitutionality of legislation enacted by other branches of government.
ABC Disposal Sys., 681 N.W.2d at 605; see also Iowa Code
§ 17A.19(11)(b). Accordingly, we review constitutional issues in agency
proceedings de novo. Swanson v. Civil Commitment Unit for Sex
Offenders, 737 N.W.2d 300, 306 (Iowa 2007).
22
B. Analysis. NextEra contends the Board’s application of section
476.53, as applied to subsidize a wholesale market endeavor, violates the
Equal Protection Clause of the Fourteenth Amendment of the United
States Constitution and the equal protection provision found in article I,
section 6 of the Iowa Constitution. By its terms, section 476.53 only
applies to rate-regulated utilities. MidAmerican is a rate-regulated public
utility obligated to serve all retail electric customers in its exclusive
service territory. NextEra is an independent wholesale energy producer.
Therefore, NextEra is ineligible for ratemaking principles treatment under
section 476.53 because it is not a rate-regulated public utility. The
proper determination is broader than that urged by NextEra. The issue
is not whether the Board’s application of section 476.53 to MidAmerican
in this case was unconstitutional, but rather, whether any application of
section 476.53 to a rate-regulated utility that may engage in competition
in the wholesale energy market is unconstitutional because it violates the
constitutional guarantees of equal protection.
The Equal Protection Clause of the Fourteenth Amendment of the
United States Constitution provides that “[n]o State shall . . . deny to any
person within its jurisdiction the equal protection of the laws.” U.S.
Const. amend. XIV, § 1. The Iowa Constitution’s counterpart to the
federal clause provides that “[a]ll laws of a general nature shall have a
uniform operation; the general assembly shall not grant to any citizen, or
class of citizens, privileges or immunities, which, upon the same terms
shall not equally belong to all citizens.” Iowa Const. art. I, § 6.
Corporations are persons for the purposes of equal protection. See Chi.
& N.W. Ry. v. Fachman, 255 Iowa 989, 995, 125 N.W.2d 210, 213 (1963);
McGuire v. Chi., B. & Q.R. Co., 131 Iowa 340, 350, 108 N.W. 902, 905
(1906); see also Wheeling Steel Corp. v. Glander, 337 U.S. 562, 571–72,
23
69 S. Ct. 1291, 1296, 93 L. Ed. 1544, 1551 (1949) (finding that, where a
state has chosen to domesticate foreign corporations, the adopted
corporations are entitled to equal protection with the state’s own
corporate progeny).
When a party raises an issue involving parallel provisions of the
State and Federal Constitutions, a number of principles emerge from our
cases. First, we jealously reserve the right to develop an independent
framework under the Iowa Constitution. Racing Ass’n of Cent. Iowa v.
Fitzgerald (RACI), 675 N.W.2d 1, 5 (Iowa 2004). Second, when a party
does not urge that we adopt a standard under the Iowa Constitution
different from that under the Federal Constitution, we generally proceed
under the standard proposed by the party. See, e.g., id. at 6. Even in
cases where a party has not suggested that our approach under the Iowa
Constitution should be different from that under the Federal
Constitution, we reserve the right to apply the standard in a fashion at
variance with federal cases under the Iowa Constitution. See, e.g., State
v. Pals, 805 N.W.2d 767, 771–72 (Iowa 2011); Varnum v. Brien, 763
N.W.2d 862, 896 n.23 (Iowa 2009); RACI, 675 N.W.2d at 6; State v. Cline,
617 N.W.2d 277, 283 (Iowa 2000), overruled in part on other grounds by
State v. Turner, 630 N.W.2d 601, 606 n.2 (Iowa 2001); Bierkamp v.
Rogers, 293 N.W.2d 577, 579 (Iowa 1980). In this case, NextEra has not
urged that we apply equal protection principles under the Iowa
Constitution that depart from established federal principles. Therefore,
we proceed to consider this case under the established federal equal
protection principles, recognizing, however, that we may apply them
differently under the Iowa Constitution.
Essentially, “[t]he Equal Protection Clause requires that similarly-
situated persons be treated alike.” Bowers v. Polk Cnty. Bd. of
24
Supervisors, 638 N.W.2d 682, 689 (Iowa 2002). Therefore, there is a
threshold determination in all equal protection challenges as to whether
persons are similarly situated. “ ‘If people are not similarly situated,
their dissimilar treatment does not violate equal protection.’ ” Id.
(quoting In re Morrow, 616 N.W.2d 544, 547 (Iowa 2000)).
Once it is determined persons are similarly situated, we apply one
of three different levels of scrutiny depending on the type of legislative
classification under attack. Sherman v. Pella Corp., 576 N.W.2d 312, 317
(Iowa 1998). We apply strict scrutiny to “classifications based on race,
alienage, or national origin and those affecting fundamental rights.”
Varnum, 763 N.W.2d at 880. We apply intermediate scrutiny to
classifications based on gender, illegitimacy, or sexual orientation. Id. at
880, 896. Finally, we apply a rational basis analysis to all other
classifications. Id. at 879.
Although the parties disagree as to whether MidAmerican and
NextEra are similarly situated, they correctly agree that the legislative
classification at issue is not one requiring any more than rational basis
scrutiny. Therefore, we will apply a rational basis analysis.
The rational basis test is a “very deferential standard.” Id. Under
this lowest level of scrutiny, “[t]he plaintiff has the heavy burden of
showing the statute unconstitutional and must negate every reasonable
basis upon which the classification may be sustained.” Bierkamp, 293
N.W.2d at 579–80. A statute satisfies the requirements of equal
protection as long as
“there is a plausible policy reason for the classification, the
legislative facts on which the classification is apparently
based rationally may have been considered to be true by the
governmental decisionmaker, and the relationship of the
classification to its goal is not so attenuated as to render the
distinction arbitrary or irrational.”
25
Varnum, 763 N.W.2d at 879 (quoting RACI, 675 N.W.2d at 7). We have
stated this test more succinctly as requiring that “ ‘classifications drawn
in a statute are reasonable in light of its purpose.’ ” RACI, 675 N.W.2d at
7 (quoting McLaughlin v. Florida, 379 U.S. 184, 191, 85 S. Ct. 283, 288,
13 L. Ed. 2d 222, 228 (1964)). “A classification is reasonable if it is
‘based upon some apparent difference in situation or circumstances of
the subjects placed within one class or the other which establishes the
necessity or propriety of distinction between them.’ ” Morrow, 616
N.W.2d at 548 (quoting State v. Mann, 602 N.W.2d 785, 792 (Iowa 1999)).
Furthermore, “[a] classification ‘does not deny equal protection simply
because in practice it results in some inequality; practical problems of
government permit rough accommodations . . . .’ ” Id.
The threshold determination is whether MidAmerican and NextEra
are similarly situated. NextEra argues they are similarly situated with
respect to the application of section 476.53 to a wholesale market
venture. We will assume, without deciding, that NextEra and
MidAmerican are similarly situated because NextEra has failed to prove
that there is not a rational basis between section 476.53 and a legitimate
state interest.
The Board found that even if NextEra and MidAmerican were
similarly situated, NextEra did not meet its burden of showing that the
statute is unconstitutional by negating every reasonable basis upon
which the classification may be sustained. The Board found:
the General Assembly determined that there were valid
reasons for the different treatment, including the General
Assembly’s conclusion that traditional ratemaking provided
inadequate incentives for rate-regulated utilities to build new
generation. Ratemaking principles were limited to rate-
regulated utilities because those are the only companies
subject to the Board’s rate jurisdiction and therefore the only
companies that could be reasonably influenced by the
26
statute to build generation. Even if the Board wanted to,
there are no incentives that it could give to NextEra . . . to
build new generation because the Board has no jurisdiction
over [its] rates or [return on equity] levels.
NextEra does not contend these are not legitimate state interests.
Instead, NextEra attacks the Board’s conclusions. It attacks the Board’s
first conclusion that the legislature concluded that “traditional
ratemaking provided inadequate incentives for rate-regulated utilities to
build new generation” as ignoring NextEra’s argument that Iowa Code
section 476.53 is unconstitutional as applied to subsidize a wholesale
market endeavor. Second, it attacks the Board’s conclusion that
“[r]atemaking principles were limited to rate-regulated utilities because
those are the only companies subject to the Board’s rate jurisdiction” as
circular reasoning. NextEra essentially seeks to have the court invalidate
section 476.53 as far as it awards ratemaking principles to public
utilities that engage in competition in the wholesale market because
NextEra feels that a public utility exceeds the scope of its role when
selling energy in the wholesale market.
NextEra’s contentions are misguided. The primary purpose of a
public electric utility is to furnish electricity to the public. The legislative
intent of section 476.53 is clear that public utilities are to furnish
electricity in an efficient, reliable manner. Iowa Code §§ 476.1, 476.53.
This implies a public utility should strive to decrease the cost at which it
supplies electricity to consumers while at the same time ensuring reliable
service. To further this goal, section 476.53 allows rate-regulated
utilities to receive advance ratemaking principles. The record establishes
selling energy in the wholesale market allows MidAmerican to reduce
rates at which its retail customers purchase energy. Furthermore, Wind
VII allows MidAmerican to meet the needs of its retail customers, which
27
include maintaining a diverse fuel supply and acting in compliance with
environmental regulations. These considerations aid in keeping the price
of electricity low for MidAmerican’s retail customers.
As the Office of the Consumer Advocate points out in its brief, the
general assembly was forced to limit its grant of advance ratemaking
principles to rate-regulated utilities because they were the only
companies subject to the State’s ratemaking jurisdiction. Companies
that did not provide energy to retail consumers in Iowa, like NextEra,
were, and still are, completely beyond the State’s ratemaking influence.
Such a difference is reasonable and consistent with the constitutional
guarantee of equal protection. The State cannot influence NextEra to
provide electric service to Iowa consumers or economic benefits to the
state. Instead, NextEra is only subject to federal regulation when it sells
energy in the wholesale market.
Therefore, applying the rational basis test traditionally or
independently in a more rigorous fashion as we did in RACI, compare
RACI, 675 N.W.2d at 16 (finding a violation of the equal protection clause
of the Iowa Constitution by applying the federal analytical framework),
with Fitzgerald v. Racing Ass’n of Cent. Iowa, 539 U.S. 103, 110, 123
S. Ct. 2156, 2161, 156 L. Ed. 2d 97, 105 (2003) (finding no violation of
the Equal Protection Clause of the Federal Constitution when applying
the traditional federal analytical framework), NextEra has failed to
demonstrate a lack of factual basis for the asserted legitimate purposes.
Thus, the granting of advance ratemaking principles to MidAmerican
does not violate the guarantee of equal protection under the State or
Federal Constitution even if it seeks to compete in the wholesale energy
market.
28
VIII. Commerce Clause Claim.
Next, we must decide if the Commerce Clause of the United States
Constitution prohibits the Board from granting MidAmerican’s
application.
A. Scope of Review. We review constitutional issues raised in
agency proceedings regarding the Commerce Clause de novo. KFC Corp.
v. Iowa Dep’t of Revenue, 792 N.W.2d 308, 312 (Iowa 2010), cert. denied,
___ U.S. ___, ___, 132 S. Ct. 97, 98, 181 L. Ed. 2d 26, ___ (2011).
B. Analysis. NextEra asserts the Board’s decision violates the
Commerce Clause of the United States Constitution because it
unlawfully applies section 476.53 as a mechanism that allows ratepayer
subsidization of MidAmerican’s wholesale market endeavors. The
Commerce Clause grants Congress the power “[t]o regulate Commerce
. . . among the several States.” U.S. Const., art. I, § 8, cl. 3. Although
the Commerce Clause is an affirmative grant of power to Congress, since
the nineteenth century the United States Supreme Court has interpreted
the Clause to have a negative implication. KFC Corp., 792 N.W.2d at
313. This implication, known as the “negative” or “dormant” Commerce
Clause, “limits the power of the states to erect barriers against interstate
trade.” Iowa Auto. Dealers Ass’n v. Iowa State Appeal Bd., 420 N.W.2d
460, 462 (Iowa 1988).
We have adopted the two-tiered approach of the United States
Supreme Court to analyze state economic regulation under the
Commerce Clause. Id. The approach is as follows:
“When a state statute directly regulates or discriminates
against interstate commerce, or when its effect is to favor in-
state economic interests over out-of-state interests, we have
generally struck down the statute without further inquiry.
When, however, a statute has only indirect effects on
interstate commerce and regulates evenhandedly, we have
29
examined whether the State’s interest is legitimate and
whether the burden on interstate commerce clearly exceeds
the local benefits.”
Id. (quoting Brown-Forman Distillers Corp. v. N.Y. State Liquor Auth., 476
U.S. 573, 579, 106 S. Ct. 2080, 2084, 90 L. Ed. 2d 552, 559–60 (1986)
(citations omitted)). “Discrimination” in this context means “differential
treatment of in-state and out-of-state economic interests that benefits
the former and burdens the latter.” Or. Waste Sys., Inc. v. Dep’t of
Environmental Quality, 511 U.S. 93, 99, 114 S. Ct. 1345, 1350, 128
L. Ed. 2d 13, 21 (1994). A discriminatory restriction on interstate
commerce “is virtually per se invalid.” Id. However, if we find “the
statute regulates evenhandedly to effectuate a legitimate local public
interest,” then “the extent of the burden that will be tolerated depends on
the nature of the local interest involved, and on whether it could be
promoted as well with a lesser impact on interstate activities.” Iowa
Auto. Dealers Ass’n, 420 N.W.2d at 462–63.
Section 476.53 permits rate-regulated utilities to obtain advance
ratemaking principles when building new facilities. Section 476.53 does
not discriminate based on a company’s residency. Instead, it
discriminates based on whether a company is a rate-regulated utility.
NextEra argues the Board’s application of section 476.53 has the
effect of favoring in-state economic interests because it allows Iowa
public utilities to get a benefit in the wholesale market that is
unavailable to entities that do not serve Iowa retail customers. We
disagree.
The Board’s decision to grant advance ratemaking principles to
MidAmerican does not affect NextEra or favor in-state economic
interests. The Board’s decision is entirely based on the fact MidAmerican
is a rate-regulated utility in Iowa. The impact, or lack thereof, on
30
NextEra would be the same if NextEra was located wholly within Iowa or
completely outside Iowa because NextEra is not a rate-regulated Iowa
utility. Similarly, the Board’s decision does not affect the sale of
NextEra’s products based on whether they are sold in Iowa.
NextEra contends there are striking similarities between the
Board’s decision and Alliance for Clean Coal v. Miller, 44 F.3d 591 (7th
Cir. 1995). NextEra’s reliance on Alliance for Clean Coal is misplaced. In
Alliance for Clean Coal, coal suppliers from western states sued the
Illinois Commerce Commission and challenged an Illinois statute that
encouraged Illinois electric utilities to continue to burn coal mined in
Illinois despite the availability of cleaner, out-of-state coal. 44 F.3d at
593–94. The Illinois Coal Act encouraged the use of Illinois coal by
allowing Illinois utilities to pass along the added costs of such coal to
Illinois ratepayers. Id. This effectively made out-of-state coal a more
expensive option for Illinois utilities. The Seventh Circuit Court of
Appeals concluded the statute violated the Commerce Clause because it
had “the same effect as a ‘tariff or customs duty’ ” placed on out-of-state
coal that would burden the flow of commerce across state lines. Id. at
595 (quoting W. Lynn Creamery, Inc. v. Healy, 512 U.S. 186, 194, 114 S.
Ct. 2205, 2212, 129 L. Ed. 2d 157, 167 (1994)).
NextEra ignores the key difference between the statute at issue in
Alliance for Clean Coal and section 476.53. The Illinois statute effectively
discriminated against out-of-state producers by creating a tariff on out-
of-state coal. This tariff had the effect of “ ‘neutralizing the advantage
possessed by lower cost out-of-state producers.’ ” Id. Section 476.53 is
not a tariff, nor would it treat NextEra or its products differently based
on whether NextEra was located wholly inside or outside of Iowa.
31
Therefore, section 476.53 does not have the effect of favoring Iowa
economic interests over non-Iowa economic interests.
However, because it is possible that energy produced by Wind VII
will end up in the wholesale market, it is possible that the Board’s
decision to grant ratemaking principles pursuant to section 476.53 will
indirectly affect interstate commerce. As NextEra correctly points out,
this burden would be the potential presence of state-subsidized
electricity in the wholesale market. It would be in direct competition
with non-state-subsidized electricity, produced by companies like
NextEra. NextEra is also correct that advance ratemaking principles
allow MidAmerican to shift risk to its retail customers by guaranteeing
returns on equity even if the demand for electricity and the attached
price fail to meet MidAmerican’s projections.
We find the burden on the wholesale market, if any, would be
minimal. Once completed, Wind VII will be able to produce up to 1001
megawatts of electricity. MidAmerican’s director of environmental
programs, compliance, and permitting testified that “there are over
130,000 megawatts of electric generation capacity currently in the
market footprint of the MidWest Independent Transmission System
Operator, Inc. (MISO).” MISO is the energy market in which
MidAmerican competes. The testimony revealed there are an additional
165,000 megawatts of generating capacity in the footprint of the PJM
Interconnection, Inc. L.L.C., which operates as a common market with
MISO. The testimony further revealed MISO’s annual growth
requirements far exceeded the size of Wind VII. This means Wind VII, at
most, would account for 0.76 percent of MISO. If we add the 165,000-
megawatt capacity of the PJM, then Wind VII only accounts for 0.34
32
percent of the market. Therefore, it seems any burden Wind VII might
have on these large interstate markets would be slight.
The local benefits of Wind VII, on the other hand, would be
considerable. As the district court pointed out, “Wind VII would provide
MidAmerican’s retail customers with a clean, renewable power source
with no inherent fuel costs, and help insulate its retail customers from
spikes in fossil fuel costs.” It is also reasonable to believe that
MidAmerican’s retail customers will use the electricity produced by Wind
VII because the wind farm will be located in Iowa.
Therefore, section 476.53 does not directly regulate or discriminate
against interstate commerce, and it does not have the effect of favoring
in-state economic interests over out-of-state economic interests. Even
though it may indirectly affect interstate commerce, any burden section
476.53 places on interstate commerce does not exceed the local benefits.
IX. Disposition.
We affirm the judgment of the district court affirming the judgment
of the Board because in this appeal we find (1) the Board properly
interpreted and applied section 476.53, (2) substantial evidence
supported the Board’s findings, (3) section 476.43 is not applicable to
this ratemaking proceeding, and (4) section 476.53 as applied to a rate-
regulated public utility that may compete in the wholesale energy market
does not violate the Equal Protection Clauses of the Iowa or United
States Constitutions or the Commerce Clause of the United States
Constitution.
AFFIRMED.
All justices concur except Mansfield, J., who concurs specially, and
Waterman and Zager, JJ., who take no part.
33
#10–2080, NextEra Energy Res. LLC v. IUB
MANSFIELD, Justice (concurring specially).
I concur in the result only. This proceeding involves an effort by
MidAmerican Energy to have Iowa’s ratepayers shoulder the costs of a
new wind energy project even though MidAmerican does not forecast a
need for additional capacity until 2019. The majority comments at
several points on the desirability of the project. Generally speaking, I feel
less qualified to reach these conclusions but more confident about the
Iowa Utilities Board’s authority to approve the project.
I. Deference to the Iowa Utilities Board.
The first question before us is the deference we are required to give
to the Board’s interpretations of section 476.53 of the Iowa Code. I
believe the majority’s refusal to grant deference is flawed and contrary to
precedent.
Historically, we have deferred to the Iowa Utilities Board’s
interpretation of the complex and technical laws that it administers. In
doing so, we have relied upon the legislature’s grants of rulemaking
authority to the Board. See, e.g., Iowa Code §§ 476.2(1), 476.103(1)
(2009). Thus, in City of Coralville v. Iowa Utilities Board, we said that the
Board “has clearly been vested with authority to interpret the ‘rates and
services’ provision of section 476.1, and we may therefore overturn its
interpretation only if it is ‘irrational, illogical, or wholly unjustifiable.’ ”
750 N.W.2d 523, 527 (Iowa 2008) (quoting Iowa Code § 17A.19(10)(l)); see
also Evercom Sys., Inc. v. Iowa Utils. Bd., 805 N.W.2d 758, 762–63 (Iowa
2011) (stating that the utility board’s interpretation of a provision in
chapter 476 should only be reversed if it is “irrational, illogical, or wholly
unjustifiable”); Office of Consumer Advocate v. Iowa Utils. Bd., 744
N.W.2d 640, 643–44 (Iowa 2008) (same); AT&T Commc’ns of the Midwest,
34
Inc. v. Iowa Utils. Bd., 687 N.W.2d 554, 561 (Iowa 2004) (same); Office of
Consumer Advocate v. Iowa Utils. Bd., 663 N.W.2d 873, 876 (Iowa 2003)
(stating “the board’s interpretation of the applicable statutes is entitled to
‘appropriate deference’ ” (citation omitted)).
True, we held in Renda v. Iowa Civil Rights Commission that a
grant of rulemaking authority generally does not give an agency
interpretive authority over a term that “has an independent legal
definition,” such as “employee.” 784 N.W.2d 8, 14 (Iowa 2010). But I do
not believe we overturned our prior decisions requiring deference to IUB
legal interpretations within the Board’s area of expertise. Certainly we
did not say in Renda that we were overruling those cases. To the
contrary, in Renda we cited City of Coralville with approval,
acknowledging that the Board had been vested with authority to interpret
“provisions relating to the regulation of public utility rates and services.”
Id. (citing City of Coralville, 750 N.W.2d at 527).
Furthermore, less than a year ago, and after Renda, we decided
Evercom Systems. There, the Board had instituted a civil penalty against
Evercom Systems for “cramming,” a “violation based on improper billing
for collect telephone calls.” Evercom Sys., 805 N.W.2d at 760. We first
had to determine the appropriate standard of review for the “Board’s
interpretation of the term ‘unauthorized change in service’ under Iowa
Code section 476.103, and the Board’s interpretation of the definition of
‘cramming’ as that term is defined in Iowa Administrative Code rule
199—22.23(1).” We explained:
Section 476.103(3) requires the Board to “adopt rules
prohibiting an unauthorized change in telecommunication
service.” While this command from the legislature is not an
explicit grant of the authority to interpret the term
“unauthorized change in telecommunications service,” see
Renda, 784 N.W.2d at 13, we have held that the rule making
35
requirement contained in section 476.103 “evidences a clear
legislative intent to vest in the Board the interpretation of the
unauthorized-change-in-service provisions in section
476.103.” Office of Consumer Advocate, 744 N.W.2d at 643.
The term “unauthorized change in service” is a “substantive
term within the special expertise of the agency” and,
therefore, we will only reverse the agency’s interpretation of
that term if it is irrational, illogical, or wholly unjustifiable.
Renda, 784 N.W.2d at 14.
Id. at 762–63.
Unfortunately, my colleagues in the majority forsake precedent
without discussing it. Instead, the majority relies on dictionary
definitions of “govern” and “exercise” to conclude that section 476.2(1)
does not grant any interpretive authority to the Board at all. I question
the majority’s effort to “make a fortress out of the dictionary,” Cabell v.
Markham, 148 F.2d 737, 739 (2d Cir. 1945) (Hand, J.), and believe there
are multiple problems with the majority’s analysis.
For one thing, the majority does not read section 476.2(1) in its
entirety. Just before the grant of rulemaking authority is a statement
that “[t]he board shall have broad general powers to effect the purposes
of this chapter.” Iowa Code § 476.2(1). If the Board has broad powers, it
is logical to defer to the Board’s legal interpretations of technical terms,
as we have done in the past. The majority also disregards our
determination in City of Coralville that the Board had “clearly been vested
with authority” to interpret a term in section 476.1 and therefore its
interpretation might only be overturned if “irrational, illogical, or wholly
unjustifiable.” 750 N.W.2d at 527 (citing Iowa Code § 17A.19(10)(l)).
Although we did not expressly state where that authority came from, it
could only have come from section 476.2(1).
Furthermore, even the majority concedes that its dictionary
definitions do not get it as far as it needs to go. Instead, after quoting
Webster’s, the majority concludes that the sentence regarding
36
rulemaking in section 476.2(1) is merely “ambiguous” as to the extent of
the Board’s authority, so it relies on the next sentence that makes the
Board “subject to the provisions of chapter 17A.” See Iowa Code
§ 476.2(1). How this justifies the majority’s conclusion is a mystery to
me. Obviously, the Board is subject to the provisions of the Iowa
Administrative Procedure Act. This totally begs the question, however, of
which provision of the Act—section 17A.19(10)(c) (no deference required)
or section 17A.19(10)(l) (deference required)—applies here.
The majority also fails to take into account that the legal
requirements at issue—the “need” and “consideration of alternatives”
requirements of section 476.53—are technical matters as to which the
Board has more expertise than ourselves. This is not a Renda-type
situation involving the interpretation of isolated terms that “have
specialized legal meaning and are widely used in [other] areas of law.”
Renda, 784 N.W.2d at 14. The majority obscures this point by again
citing Webster’s for dictionary definitions of commonplace nonlegal words
like “consider,” “other,” “compare,” “feasible,” and “alternatives.” But as
before, this retreat into the fortress only gets it so far. Because section
476.53 combines these everyday words with “substantive term[s] within
the special expertise of the agency,” id., like “sources for long-term
electric supply,” I think we are required to defer to the Board’s
interpretations of these provisions taken as a whole, as we have done in
our prior utility cases. Iowa Code § 476.53(3).
It is true the majority ultimately sustains the Board’s action in this
case. However, its refusal to accord any deference to the Board’s
37
interpretation of utility law is troubling and, if continued, will have
adverse implications in future cases. 2
II. Whether the Project Is Needed and Other Feasible
Alternatives Were Considered.
The next question is whether the Wind VII project meets the
requirements of section 476.53(3)(c)(2). As noted by my colleagues, the
statute requires that the utility have “considered other sources for long-
term electric supply” and that the facility be “reasonable when compared
to other feasible alternative sources of supply.” Id. at (3)(c)(2). I agree
with the Board that this section “does not specifically require
consideration of the ‘capacity need’ or ‘energy need’ . . . for a proposed
facility.” Yet it is implicit in the foregoing language that there be a need
for the facility. At some point it would likely raise legal, if not
constitutional, problems if a utility built a facility simply to serve
nonretail customers while incorporating the costs of that facility into its
retail rate base. Having said that, I believe the Board has permissibly
interpreted the statute as allowing a broad consideration of the benefits
of the facility to retail customers to be taken into account in determining
need. Such benefits may include the allocation of lower-cost energy to
retail customers, the diversity of energy sources, and the avoidance of
potential environmental regulations associated with fossil fuels. In light
of this interpretation, I also believe that substantial evidence supports
2Notwithstanding my colleagues’ statements about not deferring to the Board’s
legal interpretation of section 476.53, they may be according more deference than they
let on. For example, the majority says, “The Board correctly construed section 476.53
to allow it to consider compliance with future environmental regulations, fuel diversity,
the volatility of fuel prices, and the supply of less-expensive energy to consumers.”
(Emphasis added.) I agree that the Board may, but is not required to, consider these
factors in determining whether advance ratemaking principles are appropriate. I
support the deferential tone of this statement.
38
the Board’s factual finding that “MidAmerican has established the need
for the facility and its benefits to retail customers.”
I do not agree with the Board or the majority, however, that
“promot[ing] economic development” can be cited here as a justification
for the order granting advance ratemaking principles to Wind VII. The
Board and my colleagues do not explain how Wind VII promotes
economic development other than by the fact that MidAmerican will be
making a capital expenditure. By this standard, virtually any capital
expenditure made by a utility (with the costs borne by the utility’s retail
customers) would meet the “need” requirement of section 476.53(3)(c)(2).
Notably, neither MidAmerican itself nor the Office of Consumer Advocate
cites the economic development justification in its briefing.
Turning to the feasible alternatives issue, the majority appears to
conclude that section 476.53 imposes a procedural requirement only.
That is, MidAmerican only has to perform a comparison with other
energy sources, regardless of what the comparison may show. I disagree.
The statute not only requires MidAmerican to demonstrate that it “has
considered other sources for long-term electric supply,” it also requires
MidAmerican to demonstrate that the facility “is reasonable when
compared to other feasible alternatives.” Iowa Code § 476.53(3)(c)(2)
(emphasis added). The latter is a substantive requirement. Under the
Board’s interpretation of this part of section 476.53, with which I agree
and to which I defer, the proposed facility must be a “reasonable option.”
I believe substantial evidence supports the Board’s finding that it is. 3
III. Equal Protection.
The equal protection issues here are quite simple.
3I
agree with the majority and the Board that section 476.43 does not apply here
because MidAmerican has met the statutorily required minimum of 105 megawatts.
39
Iowa law permits a regulated utility (MidAmerican) to build a wind
facility and include the costs of that facility in its rate base even though
an unregulated utility (NextEra) erecting the same facility would not have
the same privilege. See id. § 476.53. Yet NextEra appears to concede
that it would not be an equal protection violation if MidAmerican used
Wind VII only to supply its local retail customers. Rather, NextEra urges
that it violates equal protection if MidAmerican can also compete in the
wholesale market with NextEra. In that sense, NextEra is complaining
about equal treatment—i.e., the fact that both entities may sell wholesale
power—rather than unequal treatment. Notably absent from NextEra’s
briefing is any indication that it wishes to become a regulated utility in
Iowa.
In any event, MidAmerican has obligations that NextEra does not
have. MidAmerican must serve customers within its service area, and its
rates are subject to regulation. See id. §§ 476.3, 476.20, 476.22–.26.
The Board has also indicated that wholesale sales revenue from Wind VII
will be included in revenue sharing calculations for ratemaking purposes
through 2013, and thereafter, the Board has reserved the question of
how the wholesale sales revenue will be treated for ratemaking purposes.
Thus, even though both entities may compete in the wholesale market,
the legislature could still rationally conclude that the benefits of being a
regulated utility are compensated by the drawbacks. Functionally, the
constitutional question here is similar to what it was in City of Coralville.
In that case, the argument was made that some Coralville residents
would receive the benefits of MidAmerican’s undergrounding of power
lines without bearing the costs because they were not within
MidAmerican’s service area. City of Coralville, 750 N.W.2d at 530. That
was alleged to be an equal protection violation. Without much difficulty,
40
we concluded it was not. See id. at 530–31. This case presents an
arguably similar situation in that wholesale customers of Wind VII may
receive the benefits of the project without having to bear its capital costs
in their rate base.
My colleagues conclude that granting advance ratemaking
principles for Wind VII will “aid in keeping the price of electricity low for
MidAmerican’s retail customers.” I do not think it is necessary or
appropriate for us to draw this conclusion. I am not an economist, an
expert on finance, or a regulator of utilities. But I am confident that a
rational basis exists for the legislature’s determination that MidAmerican
can receive advance ratemaking principles for this project even though
some of the power will be sold on the wholesale market. See King v.
State, __ N.W.2d __, (Iowa 2012) (applying the rational basis test).
IV. Commerce Clause.
The majority’s Commerce Clause discussion is unduly complicated
and, in part, incorrect. We do follow the United States Supreme Court’s
two-tiered approach to Commerce Clause cases:
When a state statute directly regulates or
discriminates against interstate commerce, or when its effect
is to favor in-state economic interests over out-of-state
interests, we have generally struck down the statute without
further inquiry. When, however, a statute has only indirect
effects on interstate commerce and regulates evenhandedly,
we have examined whether the State’s interest is legitimate
and whether the burden on interstate commerce clearly
exceeds the local benefits.
Iowa Auto. Dealers Ass’n v. Iowa State Appeal Bd., 420 N.W.2d 460, 462
(Iowa 1988) (quoting Brown-Forman Distillers Corp. v. N.Y. State Liquor
Auth., 476 U.S. 573, 579, 106 S. Ct. 2080, 2084, 90 L. Ed. 2d 552, 559
(1986)).
41
Section 476.53 passes the first threshold because it does not
discriminate against out-of-state interests. MidAmerican and NextEra
are treated differently not because one is an in-state company and the
other is not (indeed, MidAmerican’s ultimate parent is based in Omaha),
but because one is a regulated utility and the other is not. So far, I agree
with the majority.
However, I believe the majority misapplies the second tier of the
analysis, which asks whether the statute unduly burdens interstate
commerce. The majority concludes that MidAmerican’s interstate sales
of power generated by Wind VII would be a “burden” on interstate
commerce but only a “slight” one, outweighed by the “considerable
benefits” to local consumers from Wind VII.
Again, given my lack of expertise, I hesitate to predict that Wind VII
will be a boon for Iowans served by MidAmerican. But I think we need
not reach that question because the majority’s premise is mistaken. How
are increased sales in interstate commerce a “burden” on interstate
commerce at all?
V. Conclusion.
For the foregoing reasons, I concur in the result only.