Sz Enterprises, LLC D/B/A Eagle Point Solar v. Iowa Utilities Board, a Division of the Department of Commerce, State of Iowa

IN THE SUPREME COURT OF IOWA
No. 13–0642
Filed July 11, 2014
SZ ENTERPRISES, LLC d/b/a EAGLE POINT SOLAR,
Appellee,
vs.
IOWA UTILITIES BOARD, A DIVISION OF THE DEPARTMENT OF
COMMERCE, STATE OF IOWA,
Appellant,
INTERSTATE POWER AND LIGHT COMPANY, IOWA ASSOCIATION
OF ELECTRIC COOPERATIVES, and MIDAMERICAN ENERGY
COMPANY,
Intervenors-Appellants,
OFFICE OF CONSUMER ADVOCATE, ENVIRONMENTAL LAW &
POLICY CENTER, IOWA ENVIRONMENTAL COUNCIL, IOWA
SOLAR/SMALL WIND ENERGY TRADE ASSOCIATION, IOWA
RENEWABLE ENERGY ASSOCIATION, SOLAR ENERGY INDUSTRIES
ASSOCIATION, and VOTE SOLAR INITIATIVE,
Intervenors-Appellees.
Appeal from the Iowa District Court for Polk County, Carla
Schemmel, Judge.
Utility board appeals district court judgment reversing declaratory
ruling of Iowa Utilities Board finding that a solar rooftop company is a
public utility, as defined in Iowa Code section 476.1. AFFIRMED.
David J. Lynch and Gary D. Stump, Des Moines, for appellant Iowa
Utilities Board.
2
Scott M. Brennan, Deborah M. Tharnish, and Sarah E. Crane of
Davis Brown Law Firm, Des Moines, Paula N. Johnson, Cedar Rapids,
and Suzan M. Stewart, Sioux City, for appellants Interstate Power and
Light Company and MidAmerican Energy Company.
Dennis L. Puckett and Elizabeth N. Overton of Sullivan & Ward,
P.C., West Des Moines, for appellant Iowa Association of Electric
Cooperatives.
Philip E. Stoffregen, James L. Pray, and Jonathan M. Gallagher of
Brown, Winick, Graves, Gross, Baskerville and Schoenebaum, P.L.C.,
Des Moines, for appellee SZ Enterprises, LLC.
Mark R. Schuling, Consumer Advocate, and Jennifer C. Easler,
Des Moines, for appellee Office of Consumer Advocate.
Bradley D. Klein, Chicago, Illinois, and Joshua T. Mandelbaum,
Des Moines, for appellee intervenors Solar Coalition.
3
APPEL, Justice.
In this case, we consider whether SZ Enterprises, LLC, d/b/a
Eagle Point Solar (Eagle Point) may enter into a long term financing
agreement related to the construction of a solar energy system on the
property of the city of Dubuque under which the city would purchase
from Eagle Point, on a per kilowatt hour (kWh) basis, all of the electricity
generated by the system. Prior to proceeding with the project, Eagle
Point sought a declaratory ruling from the Iowa Utilities Board (the IUB)
that under the proposed agreement (1) Eagle Point would not be a “public
utility” under Iowa Code section 476.1 (2011), and (2) Eagle Point would
not be an “electric utility” under Iowa Code section 476.22. If Eagle Point
was a public utility or an electric utility under these Code provisions, it
would be prohibited from serving customers, such as the city, who were
located within the exclusive service territory of another electric utility,
Interstate Power and Light Company (Interstate Power). See Iowa Code
§ 476.25(3).
The IUB concluded that under the proposed business
arrangement, Eagle Point would be a public utility and thus was
prohibited from selling the electricity to the city under the proposed
arrangement. Because of its ruling on the public utilities question, the
IUB found it unnecessary to address the question of whether a party who
was not a public utility could nevertheless be an electric utility under the
statute.
Eagle Point brought a petition for judicial review. See id.§ 17A.19(1). The district court reversed. According to the district court,
Eagle Point’s provision of electric power through a “behind the meter”
solar facility was not the type of activity which required a conclusion that
Eagle Point was a public utility. The district court further found that
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although it was conceivable under some circumstances that an entity
that was not a public utility could nevertheless be an electric utility
under the applicable statutory provisions, Eagle Point’s proposed
arrangement with the city did not make it an electric utility for purposes
of the statutes. The IUB and intervenors MidAmerican Energy Company,
Interstate Power, and Iowa Association of Electric Cooperatives,
appealed. Eagle Point filed a cross-appeal challenging the reasoning, but
not the result, of the district court’s electric utility holding.
For the reasons expressed below, we affirm the decision of the
district court.
I. Factual Background and Proceedings.
A. Introduction. Eagle Point is in the business of providing
design, installation, maintenance, monitoring, operational, and financing
assistance services in connection with photovoltaic solar electric (PV)
generation systems. The city of Dubuque desires to develop renewable
energy for the use of the city.
Eagle Point proposed to enter into a business relationship known
as a third-party power purchase agreement (PPA) with the city that would
provide the city with renewable energy. Under the PPA, Eagle Point
would own, install, operate, and maintain an on-site PV generation
system at a city-owned building to supply a portion of the building’s
electric needs. The city would purchase the full electric output of Eagle
Point’s solar power generation facility on a per kWh basis, which
escalated at a rate of three percent annually. The payments by the city
would not only provide consideration for the electricity provided by the
project, but would also finance the cost of acquiring the generation
system, monetize offsetting renewable energy incentives related to the
system, and cover Eagle Point’s costs of operating and maintaining the
5
system. Eagle Point would also own any renewable energy credits
associated with the generation system but would credit to the city one
third of any revenues received from the sale of those credits. At the
conclusion of the agreement, Eagle Point would transfer all ownership
rights of the PV generation system to the city.
The PV generation system constructed by Eagle Point would be on
the customer side of the electric meter provided by the city’s electric
utility, Interstate Power. This means that electricity generated by the
system would not pass through Interstate Power’s electric meter. Due to
size limitations, Eagle Point’s PV generation system would not be able to
generate enough electricity to power the entire building. The city would
remain connected to the electric grid and continue to purchase electric
power from Interstate Power to meet its remaining needs at the premises.
B. Proceedings Before the IUB. Eagle Point filed a petition for a
declaratory ruling with the IUB. 1 See id. § 17A.9(1)(a). Eagle Point
sought a declaration from the IUB that it was not a public utility under
Iowa Code section 476.1 and was not an electric utility under Iowa Code
section 476.22. If Eagle Point was not a public utility or an electric
utility under these Code provisions, its proposed relationship with the
city would not run afoul of Iowa’s statutory scheme that provides for
1In light of anticipated interest in the issues, the IUB electronically served a
notice of the pending proceeding to MidAmerican Energy Company (MidAmerican),
Interstate Power, all electric cooperatives, all municipal electric utilities, the Iowa Utility
Association, the Iowa Association of Municipal Utilities, and the Iowa Association of
Electric Cooperatives. Interstate Power, MidAmerican, the Consumer Advocate Division
of the Iowa Department of Justice, the Iowa Association of Electric Cooperatives, the
Iowa Association of Municipal Utilities, the Environmental Law & Policy Center, the
Iowa Environmental Council, the Iowa Solar/Small Wind Energy Trade Association, the
Iowa Renewable Energy Association, the Interstate Renewable Energy Council, Solar
City Corporation, Solar Energy Industries Association, Sunrun, Inc., Suntech America,
the Vote Solar Initiative, and Winneshiek Energy District all intervened in the
administrative proceedings.
6
exclusive service territories for Iowa’s electric utilities. See id.
§ 476.25(3). On the other hand, if Eagle Point were operating as a public
utility and an electric utility under these Code provisions, its proposed
arrangement with the city would be an unlawful incursion into the
exclusive service territory of Interstate Power. See id.
The IUB held that under the proposed arrangement, Eagle Point
would be acting as a public utility under Iowa Code section 476.1. The
IUB recognized that in Iowa State Commerce Commission v. Northern
Natural Gas Co. [Northern Natural Gas I], this court held that in order to
be a public utility under Iowa Code section 476.1, the record must show
“sales to sufficient of the public to clothe the operation with a public
interest and . . . not . . . willingness to sell to each and every one of the
public without discrimination.” 161 N.W.2d 111, 115 (Iowa 1968). The
IUB also noted that in Northern Natural Gas I the court referred to an
eight-factor test in Natural Gas Service Co. v. Serv-Yu Cooperative, Inc.,
219 P.2d 324, 325–26 (Ariz. 1950), to help determine whether the
business was “clothed with a public interest.” Northern Natural Gas I,
161 N.W.2d at 114–16.
The IUB, however, distinguished Northern Natural Gas I by noting
that the exclusive service territorial statutes applicable to electric utilities
do not apply to gas utilities. See Iowa Code § 476.25(3). The IUB noted
that one of the purposes of exclusive territorial arrangements was to
ensure that utilities do not duplicate each other’s facilities or make
existing facilities unnecessary. See id. § 476.25. The IUB also observed
that the exception to regulation for self-generation in Iowa Code section
476.1 applies to certain electric utilities but not to gas utilities. Because
Eagle Point in the proposed PPA would be selling electricity to the city,
the IUB concluded that the requirement of self-generation was not
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present. Further, the IUB believed the limited language excluding
certain self-generation units from the definition of public utility implies
that other arrangements that do not fall within the scope of the exception
are necessarily included in the term public utility.
The IUB placed strong emphasis on the fact that unlike the usual
arrangement in an ordinary facilities lease, Eagle Point was selling
electricity on a per kWh basis. Further, the IUB observed that Eagle
Point’s promotional materials indicated that it would offer its services to
other members of the public and would not limit its activities to the city.
While recognizing that there was not always a bright line regarding what
activities constitute the activities of a public utility, the IUB concluded
that Eagle Point would cross the line if it were allowed to proceed.
Finally, the IUB recognized that it was possible that an entity could
be an electric utility without being a public utility. Nonetheless, because
the IUB had found that Eagle Point was a public utility, it was not
necessary to address the question in this case.
C. Proceedings Before the District Court. Eagle Point sought
judicial review of the IUB ruling. As a preliminary matter, the district
court ruled that IUB’s interpretation of the relevant statutes was not
entitled to deference under NextEra Energy Resources LLC v. Iowa
Utilities Board, 815 N.W.2d 30, 36–38 (Iowa 2012) and Renda v. Iowa
Civil Rights Commission, 784 N.W.2d 8, 14–15 (Iowa 2010). On the
merits, the district court concluded that Eagle Point would not be
operating either as a public utility or as an electric utility.
In reaching its conclusion that Eagle Point’s proposed activities
would not bring it within the definition of public utility, the district court
noted that the IUB did not apply the analysis of Northern Natural Gas I or
the eight-factor approach of Serv-Yu on the ground that regulation of
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electricity was different from regulation of natural gas. Additionally, the
district court found that the IUB’s analysis of the exception contained in
Iowa Code section 476.1 was flawed. According to the district court, the
exception did not simply relate to the definition of public utility but
provided that all provisions of “this chapter” shall not apply to qualifying
self-generation. Thus, the exception was not targeted to the definition of
public utility but instead to all aspects of Iowa Code chapter 476.
Further, the district court found that the exception at least suggests
some willingness on the part of the legislature to allow exceptions for
smaller providers.
The district court next considered whether the fact that electric
utilities were subject to exclusive territorial provisions provided a basis
for distinguishing the Northern Natural Gas I case. The district court
concluded that there was no basis for this distinction and held that the
exclusive territory provisions applied only with respect to electric
utilities. The district court reasoned that before the question of whether
Eagle Point was an electric utility could be considered, a threshold
determination needed to be made on the question of whether Eagle Point
was a public utility.
The district court further noted that both gas and electric utilities
were included in the same section, Iowa Code section 476.1, where the
term “to the public” appears. The district court thus believed any test for
determining the meaning of “to the public” should apply both to gas and
electric utilities.
Additionally, to the extent the exclusive territorial structure might
be considered in determining whether Eagle Point’s activities would make
it a public utility, the district court believed that the countervailing policy
of Iowa Code section 476.41 must be considered. This provision states
9
that “[i]t is the policy of this state to encourage the development of
alternate energy production facilities . . . in order to conserve our finite
and expensive energy resources and to provide for their most efficient
use.” Id. § 476.41.
The district court thus concluded that the IUB committed legal
error in failing to follow the approach of Northern Natural Gas I and its
endorsement of the eight-factor approach of Serv-Yu. In light of the legal
error and the lack of deference to be afforded to the IUB, the district
court proceeded to apply the eight Serv-Yu factors to the facts of the case.
The district court began its evaluation by noting that it should not
consider just one of the Serv-Yu factors in isolation, but should engage in
a “practical approach,” considering “the nature of the actual operations
conducted and its effect on the public interest.” Northern Natural Gas
Co. v. Iowa Utils. Bd. (Northern Natural Gas II), 679 N.W.2d 629, 633
(Iowa 2004). In order to make such an evaluation, the district court
examined each of the eight Serv-Yu factors, recognizing that the eight
factors were not necessarily controlling of the question of whether Eagle
Point was a public utility, but instructive on such question.
The first Serv-Yu factor involves consideration of “[w]hat the
corporation actually does.” Northern Natural Gas I, 161 N.W.2d at 115(quoting Serv-Yu, 219 P.2d at 325). The district court concluded that the
primary business of Eagle Point was the installation of solar panels and
the economic exchange that occurred between Eagle Point and its
customers was incidental to what the company “actually does.” Id. It
noted that a behind-the-meter solar facility had the same impact on the
customer’s demand of the utility-supplied electricity as behind-the-meter
energy efficiency technologies, a similarity which the district court
observed had previously been recognized by the IUB. See In re Interstate
10
Power & Light Co., Iowa Utils. Bd., Docket No. EEP-2008-0001 at 11
(June 24, 2009), available at https://efs.iowa.gov/cs/groups/
external/documents/docket/mdaw/mdq0/~edisp/016067.pdf (“The
Board can discern no difference between the use of renewable
technologies and classic energy efficiency measures when those activities
take place on the customers’ side of the meter.”). The district court
found the IUB’s distinction between behind-the-meter electrical
generation by a customer and by a third party as lacking the “practical”
analysis required by Northern Natural Gas II. See 679 N.W.2d at 633.
The district court believed that whether a behind-the-meter energy
project was structured as a PPA or a lease did not change the essential
character of the project or what Eagle Point “actually does.” Therefore,
the district court found this factor did not favor a finding that Eagle Point
was a public utility.
The second Serv-Yu factor involves “a dedication to public use.”
Northern Natural Gas I, 161 N.W.2d at 115 (quoting Serv-Yu, 219 P.2d at
325). The district court concluded that the case only involved a sale to a
single customer on a single site. Eagle Point did not provide service to a
large segment of the population, nor was its activities integral to the
provision of electricity to the public at large. As a result, the second
Serv-Yu factor favored a finding that Eagle Point was not a public utility.
The third Serv-Yu factor involves the “[a]rticles of incorporation,
authorization, and purposes” of the entity. Id. (quoting Serv-Yu, 219 P.2d
at 325). The district court found this factor to be unhelpful and
somewhat irrelevant, concluding that there was no evidence of any intent
to act as a public utility to the public at large in Eagle Point’s certificate
or organization, its operating agreement, or its sales brochures.
11
The fourth Serv-Yu factor is whether the activity is “[d]ealing with
the service of a commodity in which the public has been generally held to
have an interest.” Id. (quoting Serv-Yu, 219 P.2d at 326). The district
court recognized that this factor might seem to cut in favor of a
determination that Eagle Point was a public utility but noted that the
electricity provided was not dependent upon any common facilities that
served the public and was generated and consumed behind the meter on
the customer’s premises. A shutdown of Eagle Point facilities would be
far less serious than the effects of a shutdown of services by electric
utilities such as Interstate Power. The district court did not specifically
evaluate the impact of the fourth Serv-Yu factor, but seemed to suggest
that while it tipped in favor of a finding that Eagle Point would be a
public utility, the impact of the factor was substantially weakened as a
result of the behind-the-meter context.
The fifth Serv-Yu factor is “[m]onopolizing or intending to
monopolize the territory with a public service commodity.” Id. (quoting
Serv-Yu, 219 P.2d at 326). The district court found that third-party
renewable energy developers were not “natural monopolies,” like electric
and natural gas providers, and that there was ample competition in the
marketplace. Further, the fact that the host always had an electric
utility to fall back upon ensured that PPAs would not produce
unbalanced bargaining power. The district court therefore found that
this factor weighed against finding Eagle Point to be a public utility.
The sixth Serv–Yu factor is “[a]cceptance of substantially all
requests for service.” Id. (quoting Serv-Yu, 219 P.2d at 326). The district
court concluded that the record was inadequate to address this point
and made no conclusions related to it.
12
The seventh Serv-Yu factor states that “[s]ervice under contracts
and reserving the right to discriminate is not always controlling.” Id.The district court noted that the PPA involved in this case was an
individually detailed contract. Further, the district court observed that
Eagle Point certainly retained the right to discriminate with whom it
contracted. The district court found the seventh Serv-Yu factor weighed
against a finding that Eagle Point would be a public utility under the
PPA.
The last Serv-Yu factor is “[a]ctual or potential competition with
other corporations whose business is clothed with public interest.” Id.(quoting Serv-Yu, 219 P.2d at 326). Here, the district court found some
degree of competition, but noted that Eagle Point would never be able to
totally replace the electricity provided by Interstate Power. The district
court stated that Eagle Point was not trying to replace or sever the
relationship between Interstate Power and the city. The district court
thus did not believe this factor would weigh in favor of finding Eagle
Point to be a public utility.
Based on the nature of Eagle Point’s actual operations, their effect
on the public interest, an evaluation of the eight Serv-Yu factors and
Iowa’s legislative policies supporting energy conservation and renewable
energy development, the district court concluded that Eagle Point did not
furnish electricity to the public and thus was not a public utility.
The next question confronted by the district court was whether
Eagle Point nevertheless might be considered an electric utility under
Iowa Code section 476.22 even though it was not a public utility under
Iowa Code section 476.1. The relevant section of 476.22 provides that an
“ ‘electric utility’ includes a public utility furnishing electricity as defined
in section 476.1 and a city utility as defined in section 390.1.” Id. As all
13
parties agreed that Eagle Point was not a “city utility” under section
390.1, the sole issue was whether the term electric utility in context here
could have a broader meaning than public utility under Iowa Code
section 476.1. While the district court, like the IUB, recognized the
theoretical possibility that an entity could be an electric utility without
being a public utility, the district court held that nothing in this case was
sufficient to sustain the expanded interpretation. The court therefore
concluded that Eagle Point was not an electric utility as defined in
section 476.22 and as used in the exclusive service territory statutes in
sections 476.23–.26.
II. Standard of Review.
A. Introduction. Iowa Code section 17A.19(10) controls judicial
review of an agency decision. See Auen v. Alcoholic Beverages Div., 679
N.W.2d 586, 589 (Iowa 2004). In reviewing an agency interpretation of
statutory provisions, the initial question is “whether the legislature
clearly vested the agency with the authority to interpret the statute at
issue.” NextEra, 815 N.W.2d at 36. If we determine that the legislature
has vested such authority with the IUB, we defer to the agency’s
interpretation of the statute and will reverse the agency’s interpretation
only if it is “irrational, illogical, or wholly unjustifiable.” Iowa Code
§ 17A.19(10)(l); Renda, 784 N.W.2d at 10. If we determine that the
legislature did not vest the IUB with authority to interpret the statute,
then our review is for errors at law and we therefore are not bound by the
agency’s interpretation and may substitute our own to correct a
misapplication of law. Iowa Code § 17A.19(10)(c); NextEra, 815 N.W.2d
at 37; Meyer v. IBP, Inc., 710 N.W.2d 213, 219 (Iowa 2006).
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B. Positions of the Parties. The IUB 2 maintains that it is
entitled to deference in its interpretation of the terms public utility and
electric utility contained in sections 476.1 and 476.22 respectively. It
recognized that in NextEra, this court held that the IUB was not entitled
to deference with respect to the statutory interpretation questions raised
in that case. 815 N.W.2d at 38. The IUB asserts, however, that a
different result should occur here because unlike the statutory language
involved in NextEra, the terms public utility and electric utility are
substantive terms within the specific expertise of the IUB. It further
argues that the question of subject matter jurisdiction requires an
understanding of complex technical issues such as the purpose of the
exclusive service territory statute and whether Eagle Point’s proposed
project would undermine economical, efficient, and adequate electric
service to the public.
While the IUB concedes that the legislature has provided a
definition for the terms public utility and electric utility, a factor which
ordinarily cuts against a finding that the legislature vested deference
with the agency, the IUB argues that this factor alone is not
determinative. See Evercom Sys., Inc. v. Iowa Utils. Bd., 805 N.W.2d 758,
762–63 (Iowa 2011). It further draws our attention to a number of other
cases where we have granted deference to the IUB in a variety of
contexts. See, e.g., City of Coralville v. Iowa Utils. Bd., 750 N.W.2d 523,
527 (Iowa 2008) (holding the IUB’s interpretation of “rates and services”
in section 467.1(1) was entitled to deference); Office of Consumer
Advocate v. Iowa Utils. Bd., 744 N.W.2d 640, 643 (Iowa 2008)
2The IUB and parties aligned with it will collectively be referred to as the IUB in
this opinion.
15
(interpreting the “unauthorized-change-in-service” provisions in section
476.103); AT&T Commc’ns of the Midwest, Inc. v. Iowa Utils. Bd., 687
N.W.2d 554, 561 (Iowa 2004) (per curiam) (holding the IUB’s
interpretation of section 476.101(9) was entitled to deference).
Eagle Point 3 believes the IUB is not entitled to deference in its
interpretation of the statutory terms involved in this case. It points to
our statement in Renda that “ ‘[n]ormally, the interpretation of a statute
is a pure question of law over which agencies are not delegated any
special powers by the General Assembly.’ ” 784 N.W.2d at 11 (quoting
Arthur E. Bonfield, Amendments to Iowa Administrative Procedure Act,
Report on Selected Provisions to Iowa State Bar Association and Iowa
State Government 62 (1998) [hereinafter Bonfield]). In addition, Eagle
Point contends that the vesting of the IUB with rulemaking authority
does not necessarily mean that the IUB has interpretive power under the
statute. See NextEra, 815 N.W.2d at 38.
Eagle Point further notes the legislature provided specific
definitions for public utility and electric utility in the statute, an
important factor militating against a finding that the IUB is vested with
interpretive power. See Iowa Dental Ass’n v. Iowa Ins. Div., 831 N.W.2d
138, 145 (Iowa 2013); Sherwin-Williams Co. v. Iowa Dep’t of Revenue, 789
N.W.2d 417, 423–24 (Iowa 2010). In any event, Eagle Point argues that
the terms “public utility” and “electric utility” are not specialized and that
the court has already interpreted the term “public utility” without giving
deference to the agency. See Renda, 784 N.W.2d at 14. Further, Eagle
Point notes that the term “public utility” is used in other sections of the
3Eagle Point and parties aligned with it will collectively be referred to as Eagle
Point in this opinion.
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Code and that it is important to have a uniform meaning established
through judicial decision rather than a specialized and differentiated
meaning determined by the IUB. See id.C. Analysis of Deference Issue. We begin our analysis with a
recognition that principles established in Renda suggest we should not
give interpretive deference to the IUB in this case. Renda states that as a
general proposition, agencies are not given deference by this court to an
interpretation of law without some clear indication that the general
assembly intended this result. Id. at 11. In addition, we noted in Renda
and a number of other cases that where the general assembly provides
an agency with a definition of legal terms in a statutory provision, the
use of definitions is a significant factor weighing against an
interpretation requiring deference. See id. at 12; Hawkeye Land Co. v.
Iowa Utils. Bd., 847 N.W.2d ___, ___ (Iowa 2014); Iowa Dental Ass’n, 831
N.W.2d at 145; Sherwin-Williams, 789 N.W.2d at 423–24. Finally, in
Renda, we noted that the use of statutory terms that are not highly
specialized, but are used in other sections of the Code, point in the
direction of lack of deference. See 784 N.W.2d at 14.
We do not conclude that these principles mean that the IUB will
never be granted deference. We focus on the particular statutory
provision at issue in a given case. See id. at 13. Even where definitions
have been supplied by the legislature and the terms are not terms of art,
we leave open the possibility that the structure or subject matter of the
legislation is of sufficient complexity to require that this court defer to
agency legal interpretations. See id. at 14. We do believe, however, that
parties seeking to require this court to defer to legal determinations of
the IUB face an uphill battle where, as in this case, the legislature has
17
provided definitions of terms that do not on their face appear to be
technical in nature.
We do not believe that the IUB or parties arguing in support of its
decision have made the case for deference. At the outset, 4 we note that
no provision in chapter 476 explicitly grants the agency the authority to
interpret the terms “public utility” and “electric utility.” See NextEra, 815
N.W.2d at 37–38 (“[S]imply because the general assembly granted the
[IUB] 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 [IUB] to interpret all of chapter
476.”); see also Hawkeye Land Co., 847 N.W.2d at ___; Renda, 784
N.W.2d at 14 (“[B]road articulations of an agency’s authority or lack of
authority should of avoided in the absence of an express grant of broad
interpretive authority.”). Further, after reviewing the “ ‘language of the
statute, its context, . . . purpose . . . and the practical considerations
involved,’ ” we are not “firmly convinced” the legislature intended to vest
the IUB with authority to interpret the terms at issue here. Renda, 784
N.W.2d at 14 (quoting Bonfield, at 63) (emphasis added). Two sub-
conclusions lead us to this determination.
First, the legislature has provided a definition for both “public
utility” and “electric utility,” a significant factor weighing against
4“Deciding whether language contained in a statute applies to a dispute is
clearly an interpretation of law.” Burton v. Hilltop Care Ctr., 813 N.W.2d 250, 260 (Iowa
2012), see also Renda, 784 N.W.2d at 11–14.
In order to properly review the agency’s interpretation of section [476.22],
including the definition of the term ‘[public utility]’ referenced therein, we
must first determine whether the legislature has clearly vested the
[agency] with the authority to interpret section [476.22] and to determine
when and how that section applies to a given dispute.
Burton, 813 N.W.2d at 260.
18
requiring deference. See Iowa Code § 476.1; id. § 476.22; Hawkeye Land
Co., 847 N.W.2d at ___; Iowa Dental Ass’n, 831 N.W.2d at 145 (“[T]he
legislature has provided its own definition of the term at issue. This
presents an ‘insurmountable obstacle’ to a determination that the
insurance commissioner has been vested with interpretive authority over
‘covered services.’ Instead, it indicates we ought to apply the legislative
definition ourselves.” (quoting Sherwin-Williams Co., 789 N.W.2d at 422–
24)); Sherwin-Williams Co., 789 N.W.2d at 423–24 (“The insurmountable
obstacle to finding the department [of revenue] has authority to interpret
the word ‘manufacturer’ in this context is the fact that this word has
already been interpreted, i.e., explained, by the legislature through its
enactment of a statutory definition.”). Additionally, in interpreting
former chapter 490A, now chapter 476, the court gave no deference to
the agency’s interpretation of “public utility.” See Northern Natural Gas I,
161 N.W.2d at 113 (“The legislature has defined public utility for the
purposes of Chapter 490A . . . . We therefore start with the familiar
statement that the legislature is its own lexicographer when it deems it
advisable to define a word or phrase.”).
Second, the terms “public utility” and “electric utility” are not very
complex and are not “uniquely within the subject matter expertise of the
agency”, as they are used elsewhere in the Code. See Renda, 784 N.W.2d
at 14; Gartner v. Iowa Dep’t of Pub. Health, 830 N.W.2d 335, 344 (Iowa
2013). While the IUB decides some highly complex and technical terms
under Iowa Code chapter 476 that require this court to defer with respect
to the IUB’s legal interpretations, see, e.g., City of Coralville, 750 N.W.2d
at 527 (“rates and services” in section 476.1); Office of Consumer
Advocate, 744 N.W.2d at 643 (“unauthorized-change-in-service” in
19
section 476.103), we can determine the scope of the legislatively defined
terms in this case without any unusual expertise.
Additionally, as the Gartner court explained, “[t]hese terms are not
exclusively within the expertise of the [IUB].” 830 N.W.2d at 344.
“Instead, the legislature utilized these terms throughout the Iowa Code.”
Id. “For instance, the term [‘public utility’] appears in statutes that the
[IUB] has no role in enforcing.” Id.; see, e.g., Iowa Code §§ 412.5,
422.93, 480A.2(4).
Further, in our recent decision Hawkeye Land Co., we concluded
that the IUB was not entitled to deference with respect to its
determination that a company involved in electrical transmission lines
was a public utility under Iowa Code section 476.1. 847 N.W.2d at ___.
We see no basis to depart from that approach here.
For these reasons, we conclude that under Renda principles as
applied in Hawkeye Land Co. and other cases, the legal interpretations of
the IUB in this case are not subject to deference by this court. See
Hawkeye Land Co., 847 N.W.2d at ___; Renda, 784 N.W.2d at 14. As a
result, the legal issues presented in this appeal must be decided by us
de novo. See Iowa Code § 17A.19(10)(c ); Renda, 784 N.W.2d at 14–15.
III. Background of Third-Party PPAs and Public Utility
Regulation.
A. Introduction to the Third-Party PPA. Traditionally,
electricity has been provided in the United States by large enterprises
that made heavy capital investments to provide power over transmission
lines to customers. See Gregory C. Jantz, Note and Comment, Incentives
for Electric Generation Infrastructure Development, 2 Tex. J. Oil, Gas, &
Energy L. 373, 373–77 (2007) (describing the country’s electricity market
before the 1990s). Over time, the utilities providing electric service came
20
to be highly regulated in order to advance the public interest and to limit
the effects of monopoly or near monopoly power on consumers. See id.at 375–77 (describing regulatory developments in the last quarter of the
twentieth century).
In recent decades, however, the traditional approach has been
challenged by several developments. First, there has been an increased
belief in deregulation and competitive marketplaces generally. See
Consumer Energy Council of America Research Foundation,
Restructuring the Electric Utility Industry: A Consumer Perspective 3
(1998). Deregulation in the airline, natural gas, telephone, trucking, and
railroad industries has been largely accomplished, and although
deregulation of public utilities providing energy has not proceeded in a
similar fashion, support for the regulated monopoly approach has been
questioned more recently than in the past decades. Id.In addition, the desire to promote alternate energy sources seen as
more environmentally friendly has contributed to the search for alternate
models of energy delivery. The federal government has promoted
investment in alternate energy facilities by providing powerful tax
incentives, including a thirty-percent investment tax credit in certain
types of “energy property” and accelerated tax depreciation deductions
for alternate energy projects. See Mark Bolinger, Lawrence Berkeley Nat’l
Lab., Financing Non-Residential Photovoltaic Projects: Options and
Implications i (2009), available at http://emp.lbl.gov/sites/
all/files/REPORT%20lbnl-1410e.pdf [hereinafter Bolinger] (noting the
thirty-percent investment tax credit and accelerated tax depreciation
provided to commercial PV generation systems); Richard Martinson,
Federal Tax Legislation Favors Alternative Energy Development and
Energy Efficiency Initiatives, N.J. Law., June 2011, at 22–24. See
21
generally James W. Moeller, Of Credits and Quotas: Federal Tax
Incentives for Renewable Resources, State Renewable Portfolio Standards,
and the Evolution of Proposals for a Federal Renewable Energy Portfolio
Standard, 15 Fordham Envtl. L. Rev. 69 (2004).
Finally, in the field of PV generation, technological advances have
made it increasingly feasible to install generation capacity at the source
of consumption without use of centralized power generation and
extended transmission lines. See Samual Farkas, Student Comment,
Third-Party PPAs: Unleashing America’s Solar Potential, 28 J. Land Use &
Envtl. L. 91, 92–93 (2012) [hereinafter Farkas]. These decentralized
retail generation projects are located “on the customer’s side of the
meter.” Id. at 93. The sheer number of such solar energy facilities has
thus grown rapidly in recent years. See Bolinger, at i. (noting compound
annual growth rate between 2000 and 2007 of fifty-nine percent for grid-
connected PV systems).
As detailed in a recent technical report published by the United
States Department of Energy, however, there are significant barriers to
the installation of on-site solar energy facilities. See Katharine Kollins, et
al., Nat’l Renewable Energy Lab., U.S. Dep’t of Energy, Solar PV Project
Financing: Regulatory and Legislative Challenges for Third-Party PPA
System Owners 1, 3, 33–35 (2010), available at http://www.nrel.gov/
docs/fy10osti/46723.pdf [hereinafter Kollins]. Most prominently, the
initial capital costs remain quite high, often in the millions of dollars or
more. See id. at 3; Farkas, 28 J. Land Use & Envtl. L. at 93, 98. Entities
that do not pay taxes, such as government or nonprofit organizations,
cannot even offset these costs by realizing the economic benefits of
favorable tax treatment of alternative energy investments. See Farkas,
28 J. Land Use & Envtl. L. at 100. Additionally, some potential PV
22
investors are weary of unpredictable fluctuations in electricity prices and
are concerned about their ability to provide maintenance and upkeep for
facilities driven by unfamiliar technology. See Kollins, at 34.
In order to overcome these barriers, proponents of alternate energy
facilities have developed a method of financing construction of solar
facilities called third-party power purchase agreements, or PPAs. See id.
at 3, 33–35. Under the PPA model, the developer builds and owns the PV
generation system, which is constructed on the customer’s site. Id. at 3.
The developer–owner then sells the electric power to the consumer at a
preestablished fixed rate, thereby providing the customer with a hedge
against price increases from the traditional electric utility serving the
location. See id. at 33–34. PPAs thus minimize the up-front cost barrier,
see id. at 33, and greatly stabilize, if not reduce, costs for the consumer
thereafter, Farkas, 28 J. Land Use & Envtl. L. at 99. In addition, the
developer–owner is ordinarily a private income-generating entity able to
take advantage of the tax benefits afforded to alternative energy
development. See Kollins, at 33–34. Moreover, the developer–owner,
who maintains the system, is an expert with PV technology. Id. at 34.
Thus, under a PPA, the developer–owner absorbs the high initial costs,
retains the responsibility of maintenance of the system, and is
compensated based on electricity actually produced by the system.
A fundamental legal question, however, is whether PPAs may
coexist with traditional public utilities within the existing state regulatory
environment. A threshold question is often whether the developer–owner
in a third-party PPA is a public utility or electric supplier subject to state
regulation. This definitional question often turns on whether the
developer–owner in a third-party PPA is regarded as furnishing or
supplying electricity “to the public.”
23
The consequences of this threshold determination are critical to
the viability of third-party PPAs. In states where public utilities have
exclusive service areas, a finding that a PPA is a public utility generally
means that a PPA violates the exclusive territory provisions of state law
and is thus unlawful. See, e.g., Iowa Code §§ 476.1, .22, .25(3). In
states where public utilities do not have exclusive service areas, the
consequence is that PPAs may be subject to substantial regulation as a
public utility, including requirements to submit tariffs and to provide
service to all who desire it. See, e.g., N.H. Rev. Stat. Ann. § 374-F:4(111)
(LexisNexis 2008).
B. State Caselaw on What Constitutes a “Public Utility”
Providing Services “to the Public.” The notion that private entities
may be so affected by the public interests that public duties arise from
their activities has ancient common law origins. For example, at
common law, mills provided essential services to medieval inhabitants
and gave rise to a common law duty to serve. See Jim Rossi, The
Common Law “Duty to Serve” and Protection of Consumers in an Age of
Competitive Retail Public Utility Restructuring, 51 Vand. L. Rev. 1233,
1244–45 (1998). Medieval subsistence farmers without access to the mill
went hungry and, as a result, duties to serve were imposed. See id. The
common law duty to serve was later extended to ferries, markets and
other essential enterprises. Id. at 1245.
The common law tradition has influenced some state courts when
construing statutes defining public utilities or service to the public. One
line of authority relies on the notion that in order to be a public utility
serving the public generally, the entity must directly or indirectly hold
itself out as providing service to all comers. See, e.g., City of Englewood
v. City & Cnty. of Denver, 229 P.2d 667, 672–73 (Colo. 1951), abrogated
24
by statute, as recognized in Bd. of Cnty. Comm’rs v. Denver Bd. of Water
Comm’rs, 718 P.2d 235, 244 (Colo. 1986). Under this theory, a business
that provides sporadic services of a commodity that might ordinarily be
associated with a public utility might not be drawn within the ambit of
regulation. See id. at 673 (“The nature of the service must be such that
all members of the public have an enforceable right to demand it.”);
Mississippi River Fuel Corp. v. Ill. Commerce Comm’n, 116 N.E.2d 394,
399 (Ill. 1953) (“Selling gas to a limited group of industrial customers
cannot properly be characterized as devoting property to a ‘public use.’ ”).
On the other hand, a different line of authority has developed a
more flexible notion of what amounts to a public utility. These cases use
a functional approach and concentrate on the nature of the underlying
service and whether there is a sufficient public need for regulation. See,
e.g., Indus. Gas Co. v. Pub. Utils. Comm’n, 21 N.E.2d 166, 168 (Ohio
1939) (holding “[a] corporation that serves such a substantial part of the
public as to make its rates, charges, and methods of operations a matter
of public concern, welfare and interest subjects itself to regulation”);
Serv-Yu, 219 P.2d at 325–26 (applying eight factors to assist in
determination of whether public interest requires regulation).
C. Iowa Caselaw on What Constitutes a “Public Utility”
Providing Services “to the Public.” The current Iowa public utilities
regime was enacted in 1963. 1963 Iowa Acts ch. 286 (codified as
amended at Iowa Code ch. 476 (2011)); see Iowa-Illinois Gas & Elec. Co.,
125 Iowa 1029, 1034, 129 N.W. 832, 835 (1964). Our first case
considering the meaning of public utility for purposes of the statute was
Northern Natural Gas I. In Northern Natural Gas I, we considered whether
a gas company with more than five thousand miles of pipeline within the
state and with almost 1800 retail customers was a public utility. 161
25
N.W.2d at 112, 113–15. We held that it was. Id. at 115. In doing so, we
favorably cited Serv-Yu and its eight factors. See id. We concluded that
the term “to the public” as used in the statute meant “sales to sufficient
of the public to clothe the operation with a public interest and does not
mean willingness to sell to each and every one of the public without
discrimination.” Id. We specifically rejected what we called the “rigid
test” of the Colorado cases. Id. at 116.
In finding the plaintiff to be furnishing gas to the public, we noted
in Northern Natural Gas I that
(1) [p]laintiff [dealt] in a commodity in which the public as a
whole is generally interested, (2) it [was] actually engaged in
supplying its commodity to some of the public[, and] (3) [i]t
served a substantial portion of the public.
Id. Yet, we suggested in Northern Natural Gas I that anticipated
expansion to large numbers may determine the outcome. See id.
Three justices dissented in Northern Natural Gas I. Id. at 119
(Stuart, J., dissenting). The dissenters argued that the phrase “to the
public” meant to the public and not individualized contractual sales. Id.
at 121. The dissenters asserted that the approach to the phrase “to the
public” was not consistent with the commonly accepted meaning of
public sales and public service. Id. at 119. The dissenting justices
embraced the traditional common law view that a public utility had a
duty to serve members of the public. Id. at 121.
Ten years ago we revisited the issue in Northern Natural Gas II. In
that case, we recognized that while the traditional approach may have
been construed as requiring indiscriminate offer of services to the public,
the court took a different path in Northern Natural Gas I. Northern
Natural Gas II, 679 N.W.2d at 633. We reaffirmed that in order to resolve
the question of whether a certain activity was clothed with sufficient
26
public interest to qualify as sales “to the public,” a “practical,”
multifactored approach was required to determine the issue. Id.; see
also State ex rel. Utils. Comm’n v. Simpson, 246 S.E.2d 753, 757 (N.C.
1978) (noting the Iowa Supreme Court’s approach in Northern Natural
Gas I, “[i]s [the] type of flexible interpretation that is necessary to
comport legislative purpose with the variable nature of modern
technology”). We expressed the conservative principle, however, that to
the extent there might be a sufficient public interest to support
regulation, jurisdiction should be extended “only as necessary to address
the public interest implicated.” Northern Natural Gas II, 679 N.W.2d at
633.
D. State Precedents on Whether Third-Party PPAs Are Subject
to Regulation as “Public Utilities.”
1. Decisions holding PPAs are public utilities subject to state
regulation. In PW Ventures, Inc. v. Nichols, the Florida Supreme Court
considered whether a cogeneration project proposed by PW Ventures for
an industrial site amounted to a public utility under a Florida statute.
533 So. 2d 281, 283–84 (Fla. 1988). The statutory provision defined a
“ ‘public utility’ ” as “ ‘every person . . . supplying electricity . . . to or for
the public within this state.’ ” Id. at 282–83 (quoting Fla. Stat.
§ 366.02(1) (1985)). Under the proposed agreement, PW Ventures would
construct, own, and operate the project on land leased from the site. Id.
at 282. PW Ventures would then sell its output to the industrial site
under a long-term contract. Id. The Florida Public Service Commission
held that PW Ventures would be a public utility under the proposed
contract. Id. at 283. PW Ventures appealed.
The Florida Supreme Court characterized the question of whether
PW Ventures would be a public utility as “not without doubt.” Id. The
27
court noted, however, that under applicable law, it applies a deferential
review to Public Service Commission decisions and would not depart
from them unless “clearly unauthorized or erroneous.” Id.Applying the “clearly unauthorized or erroneous” standard, the
Florida Supreme Court upheld the decision of the Public Service
Commission. Id. at 284. It noted that the legislature had granted
express exemptions from regulation for natural gas suppliers who market
wholesale or direct to industrial customers and for water and sewer
systems that serve fewer than one hundred persons, but that the
legislature did not provide a similar exemption for electrical suppliers.
Id. at 283.
The Florida Supreme Court also noted that the decision of the
Public Service Commission was consistent with “the granting of
monopolies in the public interest.” Id. The Florida Supreme Court
emphasized that PW Ventures proposed “to go into an area served by a
utility and take one of its major customers.” Id. The court observed that
“[t]he effect of this practice [is] that revenue that otherwise would have
gone to the regulated utilities which serve the affected areas would be
diverted to unregulated producers.” Id. Further, according to the court,
if PW Ventures were to prevail, nothing would prevent “one utility
company from forming a subsidiary and raiding large industrial clients
within areas served by another utility.” Id. at 283 n.5.
One Florida justice dissented. Id. at 284 (McDonald J.,
dissenting). According to the dissent, the phrase “to the public” in the
applicable Florida statute did not mean a sale to a single industrial host,
but instead to the people as a whole. Id. According to the dissent,
providing electricity to a single industrial customer was plainly
insufficient. Id. at 284–85.
28
2. Decisions holding PPAs are not public utilities subject to state
regulation. Aside from PW Ventures, the parties have not cited, and we
have not found, appellate caselaw on the question of whether the
developer-owner under a PPA is a public utility within the scope of
regulatory statutes. There are, however, a number of regulatory
decisions that address the issue. Several of them—Arizona, Nevada, New
Mexico, and Oregon—have come to the conclusion that the developer–
owners of PPAs are not public utilities under applicable statutes or
constitutional provisions. See In re Application of SolarCity Corp., Ariz.
Corp. Comm’n, Docket No. E-20690A-09-0346, at 69–70 (July 12,
2010), available at http://images.edocket.azcc.gov/docketpdf/
0000114068.pdf; Order, Pub. Utils. Comm’n of Nevada, Docket No. 07-
06027, at 12 (Nov. 26, 2008); In re A Declaratory Order Regarding Third-
Party Arrangements for Renewable Energy Generation, N.M. Pub. Reg.
Comm’n, Case No. 09-00217-UT, at 13 (Dec. 30, 2009), available at
http://www.nmprc.state.nm.us/commissioners/jasonmarks/docs/Third
%2520Party%2520Order.pdf; Honeywell Int’l, Inc. v. PacifiCorp, Pub. Util.
Comm’n of Oregon, Docket No. DR 40, Order No. 08-388, at 15 (July 31,
2008), available at http://apps.puc.state.or.us/orders/2008ords/08-
388.pdf; see also Kollins, at 11–13 (cataloging state administrative
decisions).
We begin with a review of the decision of the Arizona Corporation
Commission in SolarCity. In SolarCity, a developer sought a declaratory
ruling that its method of providing solar facilities to the Scottsdale United
School District did not amount to a “public service corporation” under
article 15, section 2 of the Arizona Constitution. Solar City, Docket No.
E-20690A-09-0346, at 3. Under the stated facts, SolarCity proposed to
enter into what it called a solar services agreement (SSA) whereby it
29
would pay the upfront expenses associated with construction of the solar
facility. Id. at 5–6. The customer would pay SolarCity “for the design,
installation, and maintenance of the system based on the amount of
electricity produced.” Id. at 6. Unlike ordinary PPAs, the SSA explicitly
provided that the customer was the “owner” of all electricity produced by
the system. Id. SolarCity structured the agreement in order to comply
with federal tax law and allow SolarCity to take advantage of available
tax benefits. Id. The question posed was whether under the proposed
transaction SolarCity would come within the scope of article 15, section
2 of the Arizona Constitution, which provides that a “corporation[] . . .
engaged in furnishing . . . electricity . . . shall be deemed [a] public
service corporation[].” Id. at 7.
Arizona appellate court precedent provides that analysis under
article 15, section 2 involves a two-step process. Sw. Transmission
Coop., Inc. v. Ariz. Corp. Comm’n (SWTC), 142 P.3d 1240, 1243 (Ariz. Ct.
App. 2006). The first step is to determine whether an entity meets the
textual definition of a “public service corporation.” Id. Merely meeting
the textual definition is not enough. Id. at 1244. In addition, an entity’s
business and activities
must be such as to make its rates, charges and methods of
operation, a matter of public concern, clothed with a public
interest to the extent contemplated by law which subjects it
to governmental control—its business must be of such a
nature that competition might lead to abuse detrimental to
the public interest.
Id. at 1244–45.
On the first question, the Arizona Corporation Commission
determined that SolarCity was “furnishing electricity” to its customer.
SolarCity, Docket No. E-20690A-09-0346, at 24–25. It noted that the
purpose of the relationship was to sell or provide electricity. Id. at 24. It
30
rejected the notion that the contractual language relating to ownership of
electricity was material to evaluation of the transaction, noting that
SolarCity cannot “own” the equipment for tax purposes and then claim it
did not “own” the electricity for purposes of regulation. Id. The
commission found that at first, “the SSA transaction may appear to meet
the textual definition of a public service corporation under the
Constitution.” Id. at 25. “However, SolarCity is not in the business of
selling electricity, but rather, is in the business of designing, financing,
installing, and monitoring solar systems for residential and commercial
customers” and therefore “[f]urther consideration must be given to the
public interest and the entity’s primary business purpose, activities and
methods of operation.” Id.
The commission next turned to considering the second question in
its analysis, namely, whether the entity’s business and activities were
sufficiently “clothed with the public interest” to trigger regulation. Id. at
25–53. Here, the commission applied the Serv-Yu Factors. Id. In SWTC,
the Arizona Supreme Court acknowledged that in Serv-Yu, the Arizona
Supreme Court announced eight factors to be considered in determining
whether an entity was “clothed with a public interest” and subject to
regulation because they were “indispensible to [the] population.” 142
P.3d at 1244, 1245. The eight factors are:
(1) What the corporation actually does.
(2) A dedication to public use.
(3) Articles of incorporation, authorization, and purposes.
(4) Dealing with the service of a commodity in which the
public has been generally held to have an interest.
(5) Monopolizing or intending to monopolize the territory
with a public service commodity.
31
(6) Acceptance of substantially all requests for service.
(7) Service under contracts and reserving the right to
discriminate is not always controlling.
(8) Actual or potential competition with other corporations
whose business is clothed with the public interest.
Id. at 1244.
Applying the Serv-Yu factors, the Arizona Corporation Commission
concluded that SolarCity was not “clothed with a public interest”
sufficient to draw it within the scope of regulation. SolarCity, Docket No.
E-20690A-09-0346, at 52–53. In reaching this conclusion, the
Commission noted that (1) SolarCity did not “affect so considerable a
fraction of the public,” did not seek to “stand in the place of the
underlying utility,” and did not provide continued service to the customer
(Serv-Yu factor 1); (2) the activity of SolarCity was “not integral to the
public at large” (Serv-Yu factor 2); (3) SolarCity’s articles of incorporation
did “not reflect an intent to act as a public service corporation” (Serv-Yu
factor 3); (4) SSAs never generated more than fifty percent of the power of
the host and the ramifications of a shutdown were far less than that of a
regulated utility (Serv-Yu factor 4); (5) SolarCity did not hold itself out to
all customers and was not capable of providing comprehensive service
that could expand into a monopoly (Serv-Yu factor 5); (6) SolarCity must
compete with other suppliers and thus did not accept most, if not all
requests for service (Serv-Yu factor 6); (7) SolarCity used individualized
contracts counterbalanced by broad business solicitation (Serv-Yu factor
7); and (8) although SolarCity providers displaced power sales by
incumbent utilities, they did not replace existing utilities and assist them
to reach distributed generation goals (Serv-Yu factor 8). See id. at 30–31,
36, 37, 42, 46, 48, 49–50, 52.
32
The question of whether a PPA involving solar energy was subject
to regulation as a “public utility” was also confronted by the New Mexico
Public Regulation Commission. See generally In re a Declaratory Order
Regarding Third-Party Arrangements for Renewable Energy Generation,
N.M. Pub. Reg. Comm’n, Case No. 09-00217-UT. In this request for a
declaratory order, the New Mexico Public Regulation Commission
considered “under what circumstances . . . a developer contracting with
an electric utility customer to provide supplemental electricity become[s]
an electric utility within the meaning of the [New Mexico Statute
Annotated section 62-3-3(G)(1) (2009)].” Id. at 7. The commission
determined the key to this question was the meaning of the phrase “to
the public” in the statute, which provided that a “ ‘public utility’ or
‘utility’ means every person . . . that may own, operate, lease or control
. . . any plant, property or facility for generation, . . . sale or furnishing to
or for the public of electricity.” Id. The commission rejected a bright-line
test based on the number of customers. Id. at 7–8.
Relying on a case of the Supreme Court of New Mexico (which itself
relied heavily on Northern Natural Gas I), the commission stated that in
order to be considered a public utility under the statute, the sales must
involve “ ‘sufficient of the public to clothe the operation with a public
interest.’ ” Id. at 9 (quoting Griffith v. N.M. Pub. Serv. Comm’n, 520 P.2d
269, 272 (N.M. 1974)). It relied on New Mexico caselaw, however, to
conclude that in order to be clothed with a public interest, creating an
expectation of “a legal right to demand and receive . . . services” is the
principle determinative feature of a public utility. Id. at 10 (quoting
El Vadito de los Cerrillos Water Ass’n v. New Mexico Pub. Serv. Comm’n,
858 P.2d 1263, 1269 (N.M. 1993) (emphasis removed)). Further, the
commission noted that PPAs were only providing a supplemental service.
33
Id. at 11. Additionally, the commission noted that the fact that
developers placed advertisements in the Albuquerque Journal and
elsewhere did not constitute “holding out” to the general public and was
therefore insufficient to clothe their operations with the public interest.
Id. at 12.
Finally, the commission held that a “third party developer who
owns renewable generation equipment, which is installed on a utility
customer’s premises, and uses this equipment to serve multiple
customers for a portion of each customer’s electricity use and, payments
for which are based on a kilowatt-hour charge, is not a public utility
subject to regulation by the Commission.” Id. at 13.
3. States resolving the issue through legislative action. A number
of states have resolved the status of third-party PPAs by enacting
legislation explicitly addressing the issue. For example, in California,
Public Utilities Code section 218 specifically exempts from regulation
a corporation or person employing cogeneration technology
or producing power from other than a conventional power
source for the generation of electricity solely for . . . . [t]he
use of or sale to not more than two other corporations or
persons solely for use on the real property on which the
electricity is generated.
Cal. Pub. Util. Code § 218(b)(2) (West 2004). California has been a leader
in the development of third-party PPAs, including significant
government-owned projects, like the Moscone Center in San Francisco.
See Moscone Center, Sustainability, https://www.moscone.com/
community/sustain.html (2009) (last visited July 10, 2014) (“One of the
nation’s largest municipally-owned solar generation installations now
operates from the roof of the Moscone Center.”).
New Jersey has also legislated in this area. Under its public utility
statutes, a “basic generation service provider” is an electric generation
34
service provided “to any customer that has not chosen an alternative
electric power supplier.” N.J. Stat. Ann. § 48:3-51 (West Supp. 2014).
“Electric generation service” is the “provision of retail electric energy and
capacity which is generated off-site from the location at which the
consumption of such electric energy and capacity is metered for retail
billing purposes.” Id. (emphasis added).
Similarly, Colorado Revised Statute section 40-1-103 provides that
[t]he supply of electricity . . . from solar generating
equipment located on the site of the consumer’s property,
which is owned or operated by an entity other than the
consumer, [is not a public utility provided that the supply
generated is] no more than one hundred twenty percent of
the average annual consumption of the electricity [from that
site].
Colo. Rev. Stat. § 40-1-103(2)(c) (2013).
In Iowa, there has been recent legislative activity related to the
issue. In 2013, H.F. 226 was introduced which explicitly stated that
third-party PPAs related to “alternate energy aggregation projects” would
not be considered “public utilities” and would not violate the exclusive
territory provisions of section 476.25. H.F. 226, § 1, 85th Gen. Assemb.,
Reg. Sess. (Iowa 2013). The legislation, however, was not enacted.
E. Overview of Legal Issues in This Case. There are three legal
issues presented in this case for our de novo review. As is often the case,
the issues are layered and interconnected.
The first legal issue is whether Eagle Point should be considered a
public utility under Iowa Code section 476.1. This Code section
provides:
As used in this chapter, “public utility” shall include
any person, partnership, business association, or
corporation, domestic or foreign, owning or operating any
facilities for:
35
1. Furnishing gas by piped distribution system or
electricity to the public for compensation.
Id. § 476.1. If we conclude that the facts presented in the declaratory
proceeding establish that Eagle Point is a public utility, we must next
consider whether it escapes regulation as a result of an exception
provided in Iowa Code section 476.1. This exception removes from
chapter regulation certain types of electric utilities:
This chapter does not apply . . . to a person furnishing
electricity to five or fewer customers either by secondary line
or from an alternate energy production facility or small hydro
facility, from electricity that is produced primarily for the
person’s own use.
Id. § 476.1 (emphasis added). If Eagle Point is a “public utility” and does
not come within the scope of the exemption, its proposed arrangement
will run afoul of the exclusive territory provisions of section 476.25(3):
An electric utility shall not serve or offer to serve electric
customers in an exclusive service area assigned to another
electric utility, nor shall an electric utility construct facilities
to serve electric customers in an exclusive service area
assigned to another electric utility.
Id. § 476.25(3). The exclusive-territory provision is designed “to
encourage the development of coordinated statewide electric service at
retail, to eliminate or avoid unnecessary duplication of electric utility
facilities, and to promote economical, efficient, and adequate electric
service to the public.” Id. § 476.25.
If we determine that Eagle Point should not be considered a public
utility or qualifies for the applicable exemption, we must then next
consider whether Eagle Point is an electric utility under Iowa Code
section 476.22. This section provides:
As used in sections 476.23 to 476.26 (exclusive territory
provisions), unless the context otherwise requires, “electric
utility” includes a public utility furnishing electricity as
36
defined in section 476.1 and a city utility as defined in
section 390.1.
Id. The argument is that electric utility could be broader than the term
public utility because the context of the exclusive territorial provisions
compels a broader gloss on the term than is generally applied. If Eagle
Point is an electric utility under Iowa Code section 476.22, its proposed
third-party PPA would run afoul of the exclusive territory provisions of
Iowa Code section 476.25.
IV. Is Eagle Point a Public Utility Under Iowa Code Section
476.1?
A. Positions of the Parties
1. The IUB.
a. Plain language analysis. The IUB maintains Eagle Point is a
public utility under the plain language of Iowa Code section 476.1. It
notes that Eagle Point, under its proposed agreement with the city, will
“operate, install, own, maintain, and finance” the solar facility. It further
notes that Eagle Point is compensated based upon the production of
electricity arising from the solar facility. According to the IUB, that
should be the end of the story under the terms of the statute: Eagle Point
is “furnishing” electricity “to the public for compensation.” See Iowa
Code § 476.1. It asserts that the district court erroneously focused on
the end results of energy efficiency rather than the nature of the
transaction itself, which plainly involves the sale of electricity.
b. Potential for expansion. The IUB takes the position that even
one transaction involving the sale of electricity makes Eagle Point a
public utility. In any event, the IUB notes that there is no limitation to
the potential activities of Eagle Point and that its marketing materials
indicate a desire to expand its business. The IUB stresses that
37
commercial retailers as well as government entities may use the PPA
model to reduce energy costs and reduce their environmental footprint.
The IUB believes the green light in the district court order could lead to a
dramatic expansion of third-party PPAs that would be “clothed with the
public interest.” Further, the district court order could even allow back
door deregulation by allowing behind-the-meter fossil fuel generation.
c. Misapplication of Serv-Yu’s factors. The IUB maintains that the
district court erred in its application of the Serv-Yu factors. According to
the IUB, selling electricity on a per kWh basis is an understandable test
superior to the vague application of the Serv-Yu factors. The IUB
recognizes that in Northern Natural Gas I, this court cited the Serv-Yu
factors in determining whether sales of nature gas came within the scope
of the term “public utility.” See Northern Natural Gas I, 161 N.W.2d at114–15. The IUB claims, however, that the utilities furnishing electricity
have exclusive territories while providers of natural gas do not. The IUB
thus seeks to sever Serv-Yu factors from consideration of what a public
utility is in the context of providing electricity under Iowa Code section
476.1.
In any event, the IUB argues that the Serv-Yu factors were
misapplied by the district court. For example, the IUB claims the district
court’s analysis ignored the fact that the activities of PPAs reduce the
demand for the product of regulated monopolies, thereby reducing the
utilities’ ability to recover the reasonable costs of providing service to the
public. As a result, they contend, the shortfall must be recovered from
other retail customers in the form of higher rates.
d. Exception demonstrates coverage. The IUB notes that the
exception to the definition of public utility in Iowa Code section 476.1
supports its position. It argues that the exception excludes from the
38
definition of public utility a person furnishing electricity to five or fewer
customers if the power is produced “for the person’s own use.” See Iowa
Code § 476.1. The IUB asserts that this exception demonstrates that the
legislature considered the question of whether on-site generation should
be regulated, and deliberately crafted a narrow provision that does not
include on-site generation where the electricity is sold to the host.
Further, it is suggested that if on-site, behind-the-meter facilities were
excluded from the definition of public utilities, there would be no need for
the exception.
e. Public interest in exclusive territories. In addition to these
arguments, the IUB notes that the regulatory regime under chapter 476
would be compromised if Eagle Point were found not to be a public
utility. It argues that if Eagle Point were allowed to proceed with its
third-party PPA, it could “cherry pick” large commercial customers, thus
upsetting the settled expectations of Interstate Power, which has been
granted exclusive territory as part of the regulation of electric power by
the IUB. The IUB notes that the purpose of the granting of exclusive
territory is to establish the basis for the creation of a stable electric grid
and to ensure that all customers, large and small, receive reliable electric
power at an affordable price. Further, Interstate Power, as the exclusive
provider of electric power in the territory, which includes the city, has
made investment decisions based upon its status as a regulated
monopoly. In addition, allowing the third-party PPA arrangement would
lead to an unnecessary duplication of services, with both the exclusive
territorial provider and the PPA providing facilities for the generation of
electric power to the same customer.
In support of the argument that the Eagle Point project offends the
exclusive territory policy underlying Iowa Code section 476.25, the IUB
39
and parties supporting it, point to PW Ventures, Inc., 533 So. 2d at 281.
In that case, PW Ventures proposed to construct, own, and operate a
“cogeneration project” 5 on land leased from Pratt and sell the resulting
electric power to the company. 533 So. 2d at 282. As in this case, PW
Ventures sought a declaratory ruling in advance that it would not be
subject to the regulatory jurisdiction of the Florida Public Service
Commission. Id. The relevant legislation defined public utility as any
entity “supplying” electricity to or for the public within the state. Id. at
282–83. The Florida Supreme Court found that even the sale of
electricity to one customer was sufficient to establish sale “to the public.”
Id. at 283. The Florida Supreme Court further upheld a determination
by the Florida Public Service Commission that PW Ventures would be a
public utility, noting among other things that the Commission’s
interpretation was consistent with a legislative scheme which
contemplated the granting of monopolies in the public interest. Id.f. Impermissible consideration of independent promotion of
alternative energy. The IUB argues that the ruling of the district court in
this case was based not upon the language and structure of Iowa Code
chapter 476, but instead upon (1) a general desire to further renewable
energy options, and (2) a desire to allow the city to take advantage of
certain tax incentives that are not otherwise available.
The IUB recognizes that under Iowa Code section 476.41, the state
has embraced a policy of encouraging the development of alternate
energy. The IUB argues, however, Iowa Code section 476.41 is not a
general stand alone provision authorizing any and all kinds of alternate
energy projects. Instead, in order to advance the important policy goal
5“Cogeneration involves the use of steam power to produce electricity, with some
of the energy from the steam being recaptured for further use.” Id. at 282 n.3.
40
embraced in Iowa Code section 476.41, the IUB maintains that the
legislature enacted Iowa Code sections 476.42 through 476.48. For
example, section 476.44 requires rate-regulated utilities to purchase 105
megawatts of electricity “from alternate energy production facilities or
small hydro facilities.” See Iowa Code § 476.44(2)(a). There is a
difference, the IUB claims, between alternate energy acquired pursuant
to section 476.44 and by the regulated public utilities. Public utilities
must coordinate their overall production strategy, and independent
alternate energy efforts, that may undermine the planning inherent in a
regulated monopoly setting. In short, energy conservation proposals
arising from alternate energy, according to the IUB, must generally be
integrated with the regulated monopoly in order to allow for the
coordinated, planned provision of electricity to customers.
2. Eagle Point.
a. Emphasis on practical evaluation of nature of “sales to the
public” requiring protection of customers rather than “furnishing
electricity”. Eagle Point suggests that the key element in determination of
whether an entity is operating as a public utility under Iowa Code section
476.1 is the nature of sales and not merely the fact that the entity might
be supplying a commodity subject to regulation. The focus, they argue,
citing United States Supreme Court precedent, is on “the nature of the
business, on the feature which touches the public, and on the abuses
reasonably to be feared.” Charles Wolff Packing Co. v. Court of Indust.
Relations, 262 U.S. 522, 539, 43 S. Ct. 630, 634, 67 L. Ed. 1103, 1110
(1923). Eagle Point notes that in Northern Natural Gas I, the court did
not simply determine that the sales of gas by piped distribution was
dispositive of the issue. Instead, the court emphasized that the “real
question” was the meaning of the statutory phrase “to the public.” 161
41
N.W.2d at 115. The Northern Natural Gas I court stated that the test to
determine whether there were sufficient sales to compromise a public
utility was whether the sales were “clothed with [the] public interest.” Id.
In order to make that determination, there must be an examination of
“the nature of the actual operations conducted and its effect on the
public interest.” Northern Natural Gas II, 679 N.W.2d at 634. Eagle Point
notes that the court in Northern Natural Gas I cited the eight-factor test
in Serv-Yu to assist it in making its determination. See 161 N.W.2d at
115. It further cites administrative proceedings in Arizona, New Mexico,
and Hawaii for the proposition that such third-party financing does not
trigger regulation of the offering entity as a public utility.
Eagle Point notes that the IUB in this case focused on the “per
kWh” nature as the “key factor in determining that Eagle Point would be
a public utility under section 476.1.” But in Northern Natural Gas I,
there was no question that sales of gas were involved, but that was not
the end of the analysis. The teaching of Northern Natural Gas I and the
above authorities, according to Eagle Point, is that in order to determine
whether an entity is engaging in activities that draw it within the scope of
the statute, a broader examination is required. Eagle Point elaborates on
this theme by emphasizing that the key focus of utility regulation is to
protect customers from entities that sell indispensable products, not the
need to protect regulated utilities from competition from nonutilities.
b. Application of consumer-protection-oriented Serv-Yu factors.
Having established that a broader analysis is required, Eagle Point
argues that the district court correctly applied the Serv-Yu factors in
determining that Eagle Point was not a public utility. They march
through the Serv-Yu factors and assert that (1) the primary business of
Eagle Point is to install solar panels, not sell electricity (Serv-Yu factor 1);
42
Eagle Point’s activities are “behind the meter” and therefore are not
“dedicated” to public use and involve no public infrastructure (Serv-Yu
factor 2); the record shows no evidence of intent to be a public utility
(Serv-Yu factor 3); the provision of solar panels and equipment is not an
“indispensible service” and does not involve captive customers, but
instead involves voluntary private choices in a competitive market (Serv-
Yu factor 4); there is no natural monopoly in the market for solar
facilities (Serv-Yu factor 5); the obvious fact that Eagle Point cannot serve
all customers because of environmental and rooftop conditions (Serv-Yu
factor 6); Eagle Point provides services through individually negotiated,
private contracts with variable terms and site specific services (Serv-Yu
factor 7); and Eagle Point’s capacity to provide electricity to the city is
limited and the city will remain connected to the grid (Serv-Yu factor 8).
Eagle Point asserts that the third-party PPA structure should be
regarded as a long-term financing arrangement rather than a transaction
involving the furnishing of electricity. In support of the argument, it cites
Iowa-Illinois Gas & Elec. v. Iowa State Commerce Comm’n, 334 N.W.2d
748 (Iowa 1983). In that case, we held that the statutory predecessor of
the IUB lacked the power to promulgate rules requiring a utility to
provide financing for energy conservation and renewal resource
measures as part of the utility service. Id. Eagle Point argues that it
would be absurd to hold that public utilities cannot be required to
provide financing for energy conservation and renewal resource
measures, and then say that Eagle Point is a public utility when it
provides such services.
c. Lack of merit in Serv-Yu factor Eight: Effect on regulated utilities.
In reaching its decision, the IUB relied extensively on the impact Eagle
Point’s business could have on the regulated utility, Interstate Power.
43
Eagle Point notes that the IUB emphasized that the activities of Eagle
Point will lead to higher electric rates, backdoor reregulation, and
unnecessary duplication of services.
Eagle Point and its supporters assert that the evidence in the
record simply does not support these assertions. The dire predictions,
according to Eagle Point, have not manifested in the states that allow
PPA financing. Eagle Point asserts that there is no evidence in the record
to show that PPAs cause higher utility rates. On the contrary, Eagle
Point suggests that rooftop solar provides significant benefits to the grid
because it provides power during “peak” periods when the sun is shining
and air conditioning is running.
d. Experience in other states. Eagle Point argues that the
experience in other states allowing PPAs supports its position. It notes
the regulatory commissions in Arizona and New Mexico support its view
that approval of PPAs does not destabilize the regulated electric industry.
e. Promotion of energy efficiency. Eagle Point argues that Iowa
Code section 476.41 expresses a strong Iowa public policy in favor of
promoting energy conservation. It notes that the IUB itself in
administrative proceedings and in its brief in this case has recognized
that “reducing energy and capacity demands on [Iowa Power & Light’s]
system is the core of energy efficiency.”
B. Failure to Apply Northern Natural Gas and Serv-Yu
Factors. We now consider whether the IUB applied the correct legal
standard when it determined that Eagle Point’s proposed third-party PPA
with the city would bring it within the term public utility under Iowa
Code section 476.1.
We begin with observing that we believe the standard for
determining whether a gas or electric provider is a public utility under
44
the statute must be the same. The definition of “public utility” in Iowa
Code section 476.1 from its inception in 1963 applied both to gas and
electric providers. See 1963 Iowa Acts ch. 286. We see no basis in the
statute for applying one test for gas suppliers and another for providers
of electricity.
It is true, of course, as the IUB points out, that electric utilities are
subject to the exclusive territorial provisions of Iowa Code sections
476.22–.26, while gas suppliers are not. We note, however, that the
definition of public utility was part of the original 1963 legislation while
the provisions relating to exclusive territories for electric providers was
added in 1977. Compare 1963 Iowa Acts ch. 286, with Iowa Code
§ 476.22–.26 (1977). At the time the exclusivity language was added to
the code, no change was made in the definitional provision of Iowa Code
section 476.1. Compare Iowa Code § 476.22–.26 (1977), with Iowa Code
§ 476.1 (1977). We do not believe the adding of additional language in
1977 related to exclusivity altered the meaning of the statutory
definitions which preexisted in the Code.
In Northern Natural Gas I, we emphasized that “to the public”
meant “sales to sufficient of the public” to “clothe the operation with a
public interest.” 161 N.W.2d at 115. In order to determine whether the
sales were clothed with the public interest, we utilized the eight-factor
Serv-Yu test. See id. at 114–15.
Past precedent of the IUB reveals that the IUB too has endorsed
the Northern Natural Gas I test. In Hawkeye Land Co. v. ITC Midwest,
the IUB cited Northern Natural Gas I as the “appropriate” test in a case
involving the construction of electric transmission lines. In re Hawkeye
Land Co. v. ITC Midwest LLC, Iowa Utils. Bd., Docket No. FCU-2009-
0006, at 38 (Sept. 30, 2011), available at https://efs.iowa.gov/cs/
45
groups/external/documents/docket/mdaw/mte2/~edisp/079153.pdf.
This court subsequently applied the Northern Natural Gas I test when the
decision of the IUB was appealed. Hawkeye Land Co., 847 N.W.2d at
___.
A review of the IUB decision in this case reveals that the IUB did
not undertake the analysis required by Northern Natural Gas I and the
Serv-Yu factors, but instead sought to apply a different bright-line test,
namely, a test that whenever an entity sold electricity on a per kWh
basis, it would be, as a matter of law, a public utility.
We decline to introduce such an innovation into our established
law. The very purpose of Northern Natural Gas I was to escape a rigid
test that required a finding that an entity was involved in providing a
commodity in a fashion that gave rise to a duty to serve all members of
the public. Having abandoned the rigid test influenced by the common
law, we do not think the proper approach is to substitute another equally
rigid test at the other end of the spectrum. Indeed, under the IUB
approach, a behind-the-meter solar generating project built by an
engineering class at Iowa State University that furnished electricity on a
per kWh basis to a nearby farm would be considered a public utility
subject to a wide gamut of regulatory requirements. Even if the students
obtained a waiver of the territorial exclusivity of the local electric utility,
students would be required to stay after class to handle the paperwork
associated with filing tariffs with the IUB.
We reject the approach of the IUB in this case. Instead, based on
our straight line of cases from Northern Natural Gas I through Northern
Natural Gas II and Hawkeye Land Co., we conclude that the proper test
is to examine the facts of a particular transaction on a case-by-case
basis to determine whether the transaction cries out for public
46
regulation. We believe the Serv-Yu factors provide a reasoned approach
when considering the question of whether the activity involved is
sufficiently clothed with the public interest to justify regulation.
C. Proper Application of Northern Natural Gas and Serv-Yu
Factors. Before examining the Serv-Yu factors individually, we note
generally two different types of considerations which could give rise to a
public interest in the transaction. On the one hand, there could be a
public interest in regulating the transaction between the developer–owner
in a third-party PPA and the consumer. This type of public interest
usually arises because the provider of the public utility, due to the
nature of the service and the barriers to entry, is often in a vastly
superior bargaining position compared to the consumer. See Chas. Wolff
Packing Co., 262 U.S. at 538, 43 S. Ct. at 634, 67 L. Ed. at 1110. On the
other hand, because the commodities involved may be essential to
commerce or everyday life, the continued provision of the service on a
reliable basis may trigger a public interest. See Iowa Code § 476.25.
We now move to consideration of the Serv-Yu factors. The first
factor requires a pragmatic assessment of what is actually happening in
the transaction. See Northern Natural Gas I, 161 N.W.2d at 115. The
transaction may be characterized as a sale of electricity or a method of
financing a solar rooftop operation. Neither characterization is
inaccurate. But most importantly, we have little doubt that the
transaction is an arms-length transaction between a willing buyer and a
willing seller. There is no reason to suspect any unusual potential for
abuse. From a consumer protection standpoint, there is no reason to
impose regulation on this type of individualized and negotiated
transaction.
47
We also note that the IUB would not seek to regulate behind-the-
meter solar installations that are owned by the host or which operate
pursuant to a standard lease. 6 If this is true, the actual issue here is not
the supplying of electricity through behind-the-meter solar facilities, but
the method of financing. Yet, financing of renewable energy methods is
not something that public utilities are required to do. See Iowa-Illinois
Gas & Elec., 334 N.W.2d at 753–54. As pointed out by the Consumer
Advocate in this case, if providing financing for renewable energy is not
required of public utilities, the converse should also be true, namely, that
providing financing for solar activities should not draw an entity into the
fly trap of public regulation.
With respect to the second Serv-Yu factor, we agree with the
district court that it cannot be said that the solar panels on the city’s
rooftop are dedicated to public use. See Northern Natural Gas I, 161 P.2d
at 115. The installation is no more dedicated to public use than the
thermal windows or extra layers of insulation in the building itself. The
behind-the-meter solar generating facility represents a private
transaction between Eagle Point and the city. 7
On the fourth Serv-Yu factor, it seems clear that the provisions of
on-site solar energy are not an indispensable service that ordinarily cries
out for public regulation. See id. All of Eagle Point’s customers remain
connected to the public grid, so if for some reason the solar system fails,
no one goes without electric service. Although some may wish it so,
6Interestingly, the city and Eagle Point have converted their financial
relationship in connection with the behind-the-meter solar generating facility in this
case from a third-party PPA to a standard lease arrangement in order to remove the
shadow of the legal cloud raised by this case.
7Like the district court, we pass over the third Serv-Yu factor as inconclusive.
48
behind-the-meter solar equipment is not an essential commodity
required by all members of the public. It is, instead, an option for those
who seek to lessen their utility bills or who desire to promote “green”
energy. You can take it or leave it, and, so far, it seems, many leave it.
The fifth Serv-Yu factor relating to monopoly clearly cuts against a
finding that Eagle Point is a public utility. See id. There is simply
nothing in the record to suggest that Eagle Point is a six hundred pound
economic gorilla that has cornered defenseless city leaders in Dubuque.
Indeed, the nature of the third-party PPA suggests the opposite, as the
city has entered into what amounts to be a low risk transaction—it owes
nothing unless the contraption on its rooftop actually produces valuable
electricity.
The sixth and seventh Serv-Yu factors relate to the ability to accept
all requests for service and, conversely, the ability to discriminate among
members of the public. See id. These twin factors cut in favor of finding
that Eagle Point is not a public utility. Eagle Point is not producing a
fungible commodity that everyone needs. It is not producing a substance
like water that everyone old or young will drink, or natural gas necessary
to run the farms throughout the county. More specifically, Eagle Point is
not providing electricity to a grid that all may plug into to power their
devices and associated “aps,” or, more prosaically, their ovens,
refrigerators, and lights.
Instead, Eagle Point is providing a customized service to individual
customers. Whether Eagle Point can even provide the service will depend
on a number of factors, including the size and structure of the rooftop,
the presence of shade or obstructions, and the electrical use profile of the
potential customer. Further, if Eagle Point decides not to engage in a
transaction with a customer, the customer is not left high and dry, but
49
may seek another vendor while continuing to be served by a regulated
electric utility. These are not characteristics ordinarily associated with
activity “clothed with a public interest.”
The eighth Serv-Yu factor is perhaps the most interesting. Under
the eighth factor, the actual or potential competition with other
corporations whose business is clothed with the public interest is
considered. See id. Here, the IUB strenuously argues that allowing
third-party PPAs will have decidedly negative impacts on regulated
electric utilities charged with providing reliable electricity at a fair price
to the public. In support of its view, the IUB cites PW Ventures. The
fighting issue in this case is whether factor eight in the Serv-Yu litany
trumps the preceding factors and requires that Eagle Point be treated as
a public utility providing services to the public.
The position of the IUB has considerable appeal. Certainly, the
case can be made that if Eagle Point is allowed to “cream skim” the most
profitable customers, there may be impacts on the regulated utility. See
E. Shore Natural Gas Co. v. Del. Pub. Serv. Comm’n, 635 A.2d 1273, 1281
(Del. Sup. Ct. 1993) (recognizing that providing gas service to select
industrial customers affected public interest because of potentially
“destructive competition”); PW Ventures, 533 So. 2d at 283 (public
interest implicated where revenue that “otherwise would have gone to the
regulated utilities” is “diverted to unregulated producers”); In re S. Jersey
Gas Co., 544 A.2d 402, 406 (N.J. Sup. Ct. App. Div. 1988) (using a
cream-skimming analogy); Indus. Gas Co., 21 N.E.2d at 168 (finding
business that seeks to provide service to select industrial customers is a
public utility). If the third-party-PPA movement gets legs in Iowa, it is
conceivable that demand for electricity from traditional utilities will be
materially impacted in the long run. There is nothing in the record of
50
this administrative proceeding, however, to gauge the likelihood or degree
of material impact, and there was no suggestion that the integrity of the
grid or economic health of regulated providers has been adversely
affected in states such as California, Nevada, Arizona, and Colorado,
where third-party PPAs are not considered public utilities for purposes of
regulation.
There are also mitigating factors. As pointed out by Eagle Point, it
does not seek to replace the traditional electric supplier but only to
reduce demand. Although an Eagle Point sale brochure promoting its
services is in the record, there is nothing to suggest that its services will
be attractive to, or even practical to, many customers of the traditional
electric supplier. Further, the parties to third-party PPAs have the ability
to convert their business arrangements into conventional leases which
are outside the scope of regulation. Indeed, in this case, Eagle Point and
the city have done just that to avoid unnecessary legal entanglements.
In addition to mitigating factors, there are also countervailing
positive impacts. Behind-the-meter solar facilities tend to generate
electricity during peak hours when the grid is under the greatest
pressure. Further, Iowa Code section 476.8 requires regulated electric
utilities to provide reasonably adequate service, and such service must
“include[] programs for customers to encourage the use of energy
efficiency and renewable energy sources.” Thus, third-party PPAs like
the one proposed by Eagle Point actually further one of the goals of
regulated electric companies, namely, the use of energy efficient and
renewable energy sources. See, e.g., SolarCity, Docket No. E-20690A-09-
0346, at 37, 39.
In the end, whether an activity is sufficient to draw an entity
within the scope of utilities regulation is a matter of assessing the
51
strength of the Serv-Yu factors on a case-by-case basis. The weighing of
Serv-Yu factors is not a mathematical exercise but instead poses a
question of practical judgment. See Northern Natural Gas II, 679 N.W.2d
at 633. In our view, in this case, the balance of factors point away from
a finding that the third-party PPA for a behind-the-meter solar
generation facility is sufficiently “clothed with the public interest” to
trigger regulation.
V. Is Eagle Point an Electric Utility under Iowa Code Section
476.22.
A. Positions of the Parties.
1. The IUB. The IUB argues that under Renda, the legislature
intended to vest authority with the IUB to determine whether an entity is
an electric utility under Iowa Code section 476.22. The IUB notes that
this Code provision provides “unless the context provides otherwise,” an
electric utility “includes a public utility furnishing electricity as defined
in section 476.1.” Iowa Code § 476.22. The IUB notes that the statute
uses the term “includes,” therefore suggesting that there might be
situations where an entity which is not a public utility could be an
electric utility. Eyecare v. Dep’t of Human Servs., 770 N.W.2d 832, 837
(Iowa 2009) (“Generally ‘the verb “includes” imports a general class, some
of whose particular instances are those specified in the definition.’ ”
(quoting Helvering v. Morgan’s, Inc., 293 U.S. 121, 126 n.1, 55 S. Ct. 60,
62 n.1, 79 L. Ed. 232, 235 n.1 (1934))).
The IUB then reprises much of its argument regarding the
importance of exclusivity in the provision of electric power. The IUB
emphasizes the statutory goal of avoiding duplication of services, which
will occur if third-party PPAs are not considered electric utilities within
the scope of Iowa Code section 476.22. The IUB theorizes that if such
52
behind-the-meter generation is allowed, the public utility will be left with
excess generation capability which represents a cost that must be passed
on to ratepayers. The IUB argues that because of the nature and goals of
the exclusivity provisions, Eagle Point should be considered an electric
utility under Iowa Code section 476.22, even if it is not a public utility
under section 476.1.
In any event, the IUB urges that the matter be remanded to the
Commission. It notes that in its earlier ruling, the IUB did not address
the issue. The IUB argues that because its interpretation of law is
entitled to deference under Renda, it is entitled to a first crack at the
issue, which should not be decided by an appellate court on appeal.
2. Eagle Point. Eagle Point counters that there is a basis for
concluding that the definition of electric utility in Iowa Code section
476.22 is broader than public utility. Indeed, Eagle Point argues that the
purpose of the phrase “unless the context otherwise requires” is a term of
limitation. Under Eagle Point’s view, a public utility furnishing electricity
under Iowa Code section 476.1 might not be an electric utility under
Iowa Code section 476.22, depending upon context. Eagle Point notes
that various city utilities which might be drawn into Iowa Code section
476.22 are plainly not electric utilities—such as waterworks, sanitary
sewage systems, etc. The phrase “unless the context requires otherwise,”
according to Eagle Point, allows an escape for city utilities that plainly
have nothing to do with the provision of electricity. Eagle Point’s cross-
appeal challenges the language of the district court order indicating it is
conceivable, under some circumstances, that the term “electric utility” is
broader than the term “public utility.”
Eagle Point also raises an issue of issue preservation. It notes that
no one before the IUB argued that the term “electric utility” was broader
53
than “public utility.” It suggests that this court should not be swayed by
what amounts to “post hoc rationalizations” by counsel on appeal. See
Burlington Truck Lines, Inc. v. United States, 371 U.S. 156, 168, 83 S. Ct.
239, 246, 9 L. Ed. 2d 207, 216 (1962). In any event, Eagle Point sees no
basis for an extraordinary interpretation of the term “electric utility”
under the facts and circumstances of this case.
B. Discussion of the Merits. Based upon the language of the
statute, we are inclined to believe that the phrase “unless the context
otherwise requires” is a term of limitation designed to ensure that city
utilities that do not furnish electricity are not inadvertently drawn into
the statute. It is true, however, that the term “includes” can generally
imply that there are other situations outside the literal language of the
descriptors in the statute that might be within its scope.
The problem for the IUB, however, is that it has not offered a clear
explanation as to why Eagle Point should be considered an electric utility
even if it is not a public utility. The IUB asserts that the exclusive
territory provisions require that the definition of electric utility should be
broader than public utility, but we do not agree. The argument
presented by IUB seems to be an effort to evade application of the Serv-
Yu factors. We decline to adopt such an interpretation. 8
8The IUB notes that it did not rule on this issue and urges a remand if we
determine that Eagle Point is not a public utility. We would consider a remand if we
determined that the legal determinations of the IUB were entitled to deference, but
because they are not, there is no obstacle to us deciding the legal issue raised on
appeal. See Renda, 784 N.W.2d at 11 (“Normally, the interpretation of a statute is a
pure question of law over which agencies are not delegated any special powers by the
General Assembly so, a court is free to, and usually does, substitute its judgment de
novo for that of the agency . . . .” (quoting Bonfield, at 62)); Meyer, 710 N.W.2d at 219(“If the findings of fact are not challenged, but the claim of error lies with the agency’s
interpretation of the law, the question on review is whether the agency’s interpretation
was erroneous, and we may substitute our interpretation for the agency’s.”). Further,
“ ‘[w]here the [agency] has not reached certain issues because they were deemed
unnecessary to the decision under the rationale it elected to invoke, we may in the
interest of sound judicial administration decide the issues where they have been fully
54
VI. Conclusion.
For all the above reasons, the decision of the district court is
affirmed.
AFFIRMED.
All justices concur except Mansfield and Waterman, JJ., who
dissent and Zager, J., who takes no part.
_________________________
briefed and argued.’ ” IBP, Inc. v. Burress, 779 N.W.2d 210, 218 (Iowa 2010) (quoting
Chauffeurs, Teamsters & Helpers, Local Union No. 238 v. Iowa Civil Rights Comm’n, 394
N.W.2d 375, 378 (Iowa 1986)). The additional issue here was fully briefed before the
agency and the factual record is complete.
55
#13–0642, SZ Enters., LLC v. IUB
MANSFIELD, Justice (dissenting).
I respectfully dissent and would uphold the determination of the
Iowa Utilities Board (the Board) that Eagle Point Solar (Eagle Point) is a
public utility. To my mind, the majority opinion is a good case study on
the limits of judicial competence and why the legislature wanted us to
defer, in large part, to the regulatory agency.
As I read the majority opinion, my colleagues appear to be
substituting their expertise on utility regulation for that of the Board.
Consider the following excerpts:
There are, however, significant barriers to the
installation of on-site solar energy facilities. The initial
capital costs remain quite high, often in the millions of
dollars or more. Some potential risk averse customers are
skeptical about the ability of solar facilities to provide regular
and predictable sources of energy. . . .
....
. . . There is no reason to suspect any unusual
potential for abuse. From a consumer protection standpoint,
there is no reason to impose regulation on this type of
individualized and negotiated transaction.
....
. . . [T]he provisions of on-site solar energy are not an
indispensable service that ordinarily cries out for public
regulation. All of Eagle Point’s customers remain connected
to the public grid, so if for some reason the solar system
fails, no one goes without electric service. Although some
may wish it so, behind the meter solar equipment is not an
essential commodity required by all members of the
public. . . .
....
In addition to mitigating factors, there are also
countervailing positive impacts, too. Behind the meter solar
facilities tend to generate electricity during peak hours when
the grid is under the greatest pressure.
(Citations omitted.)
56
For each of these statements, the majority provides either no
supporting authority or citations to material that the majority
presumably found in its own independent research. 9 Is it the proper role
of courts to act as experts on the delivery of electrical energy? I would
argue it is not.
The basic issue in this case is whether Eagle Point becomes a
public utility under Iowa Code section 476.1 (2011) when it goes into the
business of installing on-site solar energy facilities on various entities’
properties and selling the resulting electricity to those entities. I can see
reasonable arguments on both sides.
The Board, after extensive proceedings, concluded that Eagle Point
would become a public utility. Among other things, the Board noted that
Eagle Point would be selling electricity on a per-kilowatt-hour basis to
multiple customers; that this electricity would displace electricity
normally provided by the public utility required to serve that territory;
and that such an arrangement would undermine the trade-off whereby
the local regulated utility has the obligation to serve every customer that
wants service but in return receives an exclusive territory. As the Board
points out on appeal, if Eagle Point is allowed to take electricity sales
away from Interstate Power and Light (Interstate Power), which has made
long-term investments based on projections of customer demand and
which is authorized by law to recover its costs plus a reasonable rate of
return, Interstate Power’s other ratepayers could be forced to make up
the difference.
9The majority opinion has many citations to nonlegal sources. These sources do
not come from the record or the parties’ briefs.
57
These arguments could be wrong. My colleagues believe they are
wrong. But I do not believe we should be deciding them.
In Renda v. Iowa Civil Rights Commission, we undertook a
comprehensive review of the administrative law question that underlies
this appeal. See 784 N.W.2d 8, 10–15 (Iowa 2010). Thus, we discussed
at length when courts should and should not defer under Iowa Code
section 17A.19 to an agency’s interpretation of statutory terms. Id.As we emphasized in Renda, “when the statutory provision being
interpreted is a substantive term within the special expertise of the
agency, we have concluded that the agency has been vested with the
authority to interpret the provisions.” Id. at 14. In fact, among the cases
we cited with approval in Renda after making this statement was City of
Coralville v. Iowa Utilities Board. Renda, 784 N.W.2d at 12, 14 (citing
City of Coralville v. Iowa Utils. Bd., 750 N.W.2d 523, 527 (Iowa 2008)). In
City of Coralville, we held that public utility “rates and services” as used
in Iowa Code section 476.1 was clearly vested in the Board’s interpretive
discretion. See City of Coralville, 750 N.W.2d at 527.
Applying this standard from Renda, I think it would be hard to
conceive of a substantive term more within the special expertise of the
Board than whether a company providing electric service is operating as
a “public utility.”
Renda also discussed another situation where agency deference
has historically been granted by courts. This is when an agency has
been given rulemaking authority and the term in question is one which
the agency “must necessarily interpret . . . in order to carry out its duties
. . . .” See Renda, 784 N.W.2d at 12 (citing, inter alia, City of Coralville,
750 N.W.2d at 527).
58
Those circumstances exist here as well. The Board has rulemaking
authority, see Iowa Code section 476.2(1), and it must determine what a
public utility is in order to carry out its duties. Hence, we have an
additional Renda ground favoring deference to the agency.
Furthermore, in a number of instances in recent years, we have
deferred to Board interpretations of terms within the Board’s bailiwick.
See Evercom Sys., Inc. v. Iowa Utils. Bd., 805 N.W.2d 758, 762–63 (Iowa
2011) (stating that the 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,
Inc. v. Iowa Utils. Bd., 687 N.W.2d 554, 561 (Iowa 2004) (same).
Evercom, it should be noted, was decided after Renda, but we
nonetheless deferred to the Board’s interpretation of a “ ‘substantive term
within the special expertise of the agency.’ ” Evercom, 805 N.W.2d at
762–63 (quoting Renda, 784 N.W.2d at 14).
For all these reasons, I believe the Board has been vested with
authority to interpret the term “public utility” as applied to an alternative
supplier of electrical energy under section 476.1.
True, in NextEra Energy Resources LLC v. Iowa Utilities Board, this
court declined to defer to the Board’s interpretation of the term “electric
supply needs” as used in section 476.53(4)(c)(2). 815 N.W.2d 30, 38
(Iowa 2012). We indicated broadly that “the general assembly did not
delegate to the Board interpretive power with the binding force of law.”
Id. Relying on this language, Eagle Point argued here that “this Court
has recently held that the Board is generally not entitled to deference in
interpreting any of the provisions of Iowa Code chapter 476 because the
59
legislature never intended to confer this power on the Board.” (Emphasis
added.) Likewise, the district court below ruled:
The [NextEra] court . . . concluded . . . that the “general
assembly did not delegate to the Board interpretive power
with the binding force of law” with regard to interpreting
chapter 476. Accordingly, here the Court will examine the
Board’s interpretation of the relevant sections of chapter 476
for correction of errors at law and will not give deference to
the Board’s interpretation.
(Citation omitted.)
But the majority here has helpfully clarified that there is no broad
no-deference rule for chapter 476 and that the Board will be given
deference in appropriate cases. According to the majority, “We focus on
the particular statutory provision at issue in a given case.” I agree with
this clarification of the NextEra decision. See NextEra, 815 N.W.2d at
50–52 (Mansfield, J., specially concurring).
So why does the majority decline to give deference to the Board in
this case? The majority offers two reasons why expertise is not needed
and why we should not defer to the Board’s interpretation of “public
utility,” neither of which I find persuasive. First, the majority asserts the
term is not complex or technical. Second, the majority asserts the term
has a legislative definition.
As to the first point, I think my colleagues have missed the boat, or
at least stepped aboard the wrong boat. The issue under Renda is not
whether the term itself is technical or complex, in the sense that you
would not encounter it in everyday speech or would need a college-level
vocabulary to understand it. In fact, you can read all of Renda and not
find the words “technical” or “complex.” See generally, 784 N.W.2d 8.
The issue under Renda is whether the term appears across a variety of
60
legal contexts, such as “employee” did in Renda, or whether it appears to
have a “specialized” meaning. See id. at 13–14.
Public utility is such a specialized term. Significantly, when the
term is used elsewhere in the Code, chapter 476’s definition of “public
utility” is frequently incorporated by reference. See, e.g., Iowa Code
§§ 8D.13(17), 306.46(2), 352.6(2)(b), 368.1(12), 455H.304(2)(d),
499.30(5), 499.33(2), 714H.4(1)(e), 716.6B(1)(a); 2013 Iowa Acts ch. 66,
§ 4 (codified at Iowa Code Ann. § 89.14(10) (West, Westlaw through 2014
Reg. Sess.)); 2013 Iowa Acts ch. 140, § 77 (codified at Iowa Code Ann.
§ 716.7(1)(b) (West, Westlaw through 2014 Reg. Sess.)). “Public utility” is
not a legal concept that cuts across various fields of law; it is a concept
embedded in the law relating to the supply and regulation of energy,
communications, and water services. 10
10Attempting to demonstrate that “public utility” is a more general concept
extending into other fields of law, the majority cites three Iowa Code provisions that do
not expressly incorporate chapter 476’s definition. See Iowa Code §§ 412.5, 422.93,
480A.2. However, when you examine these three cited provisions, the majority’s effort
to separate “public utility” from the chapter 476 context proves unsuccessful.
By any plausible reading, Iowa Code section 422.93 implicitly incorporates
chapter 476’s definition of public utility. It explains that nothing in chapter 422 “shall
be construed to require the [Board] to allow or require the use of any particular method
of accounting by any public utility” for rate-regulation purposes. See id. § 422.93. This
is, in effect, a reference to the Board’s authority under chapter 476 and a savings
clause for that authority. It is not a potential source of a different definition.
Further, Iowa Code section 480A.2 largely replicates section 476.1’s preexisting
language. Compare Iowa Code § 476.1, with id. § 480A.2(4). This suggests that when
the legislature enacted chapter 480A in 1998, see 1998 Iowa Acts ch. 1148, §§ 3–8, it
did not intend to establish an independent definition.
Lastly, Iowa Code section 412.5 simply clarifies that chapter 412, which deals
with municipal utility retirement systems, is limited to public utilities “managed,
operated, and owned by a municipality.” See Iowa Code § 412.5. Rather than
demonstrating that public utility has other accepted meanings outside the chapter 476
context, section 412.5 indicates the legislature believed the normal chapter 476
definition needed to be qualified.
61
Let’s look at the standard the majority applies for determining
whether Eagle Point is a public utility. The majority pulls eight factors
from Iowa State Commerce Commission v. Northern Natural Gas Co., 161
N.W.2d 111, 115 (Iowa 1968), a case we decided before the Iowa
Administrative Procedures Act was adopted, see 1974 Iowa Acts ch.
1090. After reviewing the factors and making the statements I quoted at
the beginning of this dissent, the majority renders what it calls a
“practical judgment.” The majority’s practical judgment is that Eagle
Point is not a public utility.
If we are talking about practical judgments, shouldn’t we defer to
the Board? Reading part IV(C) of the majority opinion merely reinforces
in my mind that we are trying to act as experts ourselves.
Furthermore, in Northern Natural Gas, we emphasized that the
eight factors in the test really boil down to one:
The real question is: What does the statutory phrase “to the
public” mean? We conclude it means sales to sufficient of
the public to clothe the operation with a public interest and
does not mean willingness to sell to each and every one of
the public without discrimination.
161 N.W.2d at 115. 11 Is the entity selling enough energy (gas or
electricity) to “clothe the operation with a public interest”? This seems to
11The majority says, “In order to determine whether the sales were clothed with
the public interest, we utilized the eight factor . . . test.” I disagree and would
encourage the reader to look at Northern Natural Gas, 161 N.W.2d at 115. We actually
recited the eight factors but then turned to the “clothed with a public interest”
standard. Id.Notably, in the subsequent case of Northern Natural Gas Co. v. Iowa Utilities
Board, we relied primarily on the “clothed with a public interest” standard, not the
eight-factor test. See 679 N.W.2d 629, 633 (Iowa 2004). We said, “We have generally
interpreted [section 476.1] to mean that the Utilities Board has jurisdiction to regulate a
business entity that furnishes gas by piped distribution to the public in such a manner
that the public interest is affected.” Id. Although we mentioned the “variety of factors”
from the previous Northern Natural Gas case, we did not apply those factors but instead
followed a “practical approach” that jurisdiction of the commission should be extended
62
me the paradigm of something that should be decided by the regulatory
agency that sees such matters every day and is in a better position to
assess “the public interest.”
Another assertion in the majority opinion with which I disagree is
the following:
We begin with observing that we believe the standard
for determining whether a gas or electric provider is a public
utility under the statute must be the same. The definition of
public utility in Iowa Code section 476.1 from its inception in
1963 applied both to gas and electric providers. We see no
basis in the statute for applying one test for gas suppliers
and another for providers of electricity.
(Citations omitted.) Why cannot the standard be different for gas and
electricity? Contrary to the majority’s claim that there is “no basis in the
statute” for treating gas and electricity differently, the Board noted in its
ruling two “significant” statutory differences. First, chapter 476 provides
for exclusive territories for electric utilities but not gas utilities, based on
a legislative determination that there should not be duplication of electric
facilities. See Iowa Code § 476.25. 12 Second, section 476.1 contains a
specific exclusion limited to certain providers of electricity. See id._________________________
“only as necessary to address the public interest implicated.” Id. On these grounds, we
upheld the Board’s assertion of its own jurisdiction. Id. at 634–35. Again, I question
the qualifications of courts to apply a “practical approach” to regulation of electricity.
We should leave this job to the experts at the Board.
12This section provides in part:
It is declared to be in the public interest to encourage the
development of co-ordinated statewide electric service at retail, to
eliminate or avoid unnecessary duplication of electric utility facilities,
and to promote economical, efficient, and adequate electric service to the
public. In order to effect that public interest, the board may establish
service areas within which specified electric utilities shall provide electric
service to customers on an exclusive basis.
Iowa Code § 476.25.
63
§ 476.1. Both these differences favor the treatment of small-scale
competitive suppliers of electricity as public utilities.
As noted by the Board, the statutory definition of public utility
excludes “a person furnishing electricity to five or fewer customers either
by secondary line or from an alternate energy production facility or small
hydro facility, from electricity that is produced primarily for the person’s
own use.” Id. Eagle Point, it seems clear, intends to furnish electricity to
more than five customers (the City of Dubuque is just its first), with the
electricity not produced primarily for Eagle Point’s own use. Hence, Eagle
Point’s operations will be on a larger scale than anything covered by the
section 476.1 exclusion. That being the case, it is logical to regard Eagle
Point as a public utility. When the legislature spells out what it intended
to exclude, we often infer that it intended to include what remains. See
Staff Mgmt. v. Jimenez, 839 N.W.2d 640, 649 (Iowa 2013) (noting the
legislature’s list of excluded persons under a workers’ compensation
definition did not include undocumented workers and concluding, under
the doctrine of expressio unius est exlusio alterius, “[i]f the legislature
intended the definition of a worker or employee to exclude
undocumented workers, it would have done so by adding undocumented
workers to the excluded list”).
This gets me to the majority’s second argument for not deferring to
the Board. The majority points out that there is already a statutory
definition of public utility in section 476.1. See Iowa Code § 476.1. And
when the legislature defines a term, we have often found this presents an
“insurmountable obstacle” to a determination that the agency has been
vested with interpretive authority over that same term. See Iowa Dental
Ass’n v. Iowa Ins. Div., 831 N.W.2d 138, 145 (Iowa 2013).
64
But here the statutory definition is largely circular. “Public utility”
includes any entity owning or operating facilities for furnishing electricity
to the “public” for compensation. See Iowa Code § 476.1(1). It is not
disputed that Eagle Point owns facilities for furnishing electricity for
compensation. The question is whether its activities are on a large
enough scale to be considered serving the “public.” In resolving this
question, the section 476.1(1) definition offers little help.
Indeed, the majority implicitly concedes this point by relying not on
the statutory definition of public utility but rather on a “practical
approach” that features the majority’s sundry observations on economics
and energy. Contrary to the majority, I do not believe we can use the
existence of a statutory definition as a reason not to defer to an agency
interpretation unless we are prepared to apply that statutory definition.
Hawkeye Land Co. v. Iowa Utilities Board is a different case from
the present and illustrates my point. There the issue was whether a
transmission company that supplied electricity only to electrical utilities
was a “public utility” itself. See 847 N.W.2d 199, 201 (Iowa 2014). We
decided that under the “plain language” of the statute, a company that
provided power only to utilities was not serving the public. Id. at 215–16.
We also declined to defer to the Board’s interpretations of section 476.27
(the crossing statute) because (1) the legislature had provided relevant
definitions, (2) the statute operated in an area (eminent domain) that was
subject to constitutional requirements, and (3) the Board shared
decisionmaking authority under the statute with the Iowa Department of
Transportation. Id. at 208–09. None of those circumstances applies
here. There is no shared authority between the Board and anyone else,
the Board’s actions do not have constitutional implications, and we are
not relying on a legislative definition or deciding a plain language
65
question. Rather, we are substituting our own practical judgment for the
Board’s.
Thus, I would not second-guess the Board’s determination that
Eagle Point’s sales of electricity are clothed with a public interest because
of their potential to take sales away unpredictably from Interstate Power,
which is required to make long-term investments so it can serve all
customers at all times and is entitled to recoup those costs plus a
reasonable rate of return from its customers. Instead, I would reverse
the district court and affirm the Board’s declaratory ruling in this matter.
Waterman, J., joins this dissent.