Opinion ID: 4249577
Heading Depth: 1
Heading Rank: 6

Heading: Commerce Clause Claim.

Text: Next, we must decide if the Commerce Clause of the United States Constitution prohibits the Board from granting MidAmerican’s application. A. Scope of Review. We review constitutional issues raised in agency proceedings regarding the Commerce Clause de novo. KFC Corp. v. Iowa Dep’t of Revenue, 792 N.W.2d 308, 312 (Iowa 2010), cert. denied, ___ U.S. ___, ___, 132 S. Ct. 97, 98, 181 L. Ed. 2d 26, ___ (2011). B. Analysis. NextEra asserts the Board’s decision violates the Commerce Clause of the United States Constitution because it unlawfully applies section 476.53 as a mechanism that allows ratepayer subsidization of MidAmerican’s wholesale market endeavors. The Commerce Clause grants Congress the power “[t]o regulate Commerce . . . among the several States.” U.S. Const., art. I, § 8, cl. 3. Although the Commerce Clause is an affirmative grant of power to Congress, since the nineteenth century the United States Supreme Court has interpreted the Clause to have a negative implication. KFC Corp., 792 N.W.2d at 313. This implication, known as the “negative” or “dormant” Commerce Clause, “limits the power of the states to erect barriers against interstate trade.” Iowa Auto. Dealers Ass’n v. Iowa State Appeal Bd., 420 N.W.2d 460, 462 (Iowa 1988). We have adopted the two-tiered approach of the United States Supreme Court to analyze state economic regulation under the Commerce Clause. Id. The approach is as follows: “When a state statute directly regulates or discriminates against interstate commerce, or when its effect is to favor instate economic interests over out-of-state interests, we have generally struck down the statute without further inquiry. When, however, a statute has only indirect effects on interstate commerce and regulates evenhandedly, we have 29 examined whether the State’s interest is legitimate and whether the burden on interstate commerce clearly exceeds the local benefits.” Id. (quoting Brown-Forman Distillers Corp. v. N.Y. State Liquor Auth., 476 U.S. 573, 579, 106 S. Ct. 2080, 2084, 90 L. Ed. 2d 552, 559–60 (1986) (citations omitted)). “Discrimination” in this context means “differential treatment of in-state and out-of-state economic interests that benefits the former and burdens the latter.” Or. Waste Sys., Inc. v. Dep’t of Environmental Quality, 511 U.S. 93, 99, 114 S. Ct. 1345, 1350, 128 L. Ed. 2d 13, 21 (1994). A discriminatory restriction on interstate commerce “is virtually per se invalid.” Id. However, if we find “the statute regulates evenhandedly to effectuate a legitimate local public interest,” then “the extent of the burden that will be tolerated depends on the nature of the local interest involved, and on whether it could be promoted as well with a lesser impact on interstate activities.” Iowa Auto. Dealers Ass’n, 420 N.W.2d at 462–63. Section 476.53 permits rate-regulated utilities to obtain advance ratemaking principles when building new facilities. Section 476.53 does not discriminate based on a company’s residency. Instead, it discriminates based on whether a company is a rate-regulated utility. NextEra argues the Board’s application of section 476.53 has the effect of favoring in-state economic interests because it allows Iowa public utilities to get a benefit in the wholesale market that is unavailable to entities that do not serve Iowa retail customers. We disagree. The Board’s decision to grant advance ratemaking principles to MidAmerican does not affect NextEra or favor in-state economic interests. The Board’s decision is entirely based on the fact MidAmerican is a rate-regulated utility in Iowa. The impact, or lack thereof, on 30 NextEra would be the same if NextEra was located wholly within Iowa or completely outside Iowa because NextEra is not a rate-regulated Iowa utility. Similarly, the Board’s decision does not affect the sale of NextEra’s products based on whether they are sold in Iowa. NextEra contends there are striking similarities between the Board’s decision and Alliance for Clean Coal v. Miller, 44 F.3d 591 (7th Cir. 1995). NextEra’s reliance on Alliance for Clean Coal is misplaced. In Alliance for Clean Coal, coal suppliers from western states sued the Illinois Commerce Commission and challenged an Illinois statute that encouraged Illinois electric utilities to continue to burn coal mined in Illinois despite the availability of cleaner, out-of-state coal. 44 F.3d at 593–94. The Illinois Coal Act encouraged the use of Illinois coal by allowing Illinois utilities to pass along the added costs of such coal to Illinois ratepayers. Id. This effectively made out-of-state coal a more expensive option for Illinois utilities. The Seventh Circuit Court of Appeals concluded the statute violated the Commerce Clause because it had “the same effect as a ‘tariff or customs duty’ ” placed on out-of-state coal that would burden the flow of commerce across state lines. Id. at 595 (quoting W. Lynn Creamery, Inc. v. Healy, 512 U.S. 186, 194, 114 S. Ct. 2205, 2212, 129 L. Ed. 2d 157, 167 (1994)). NextEra ignores the key difference between the statute at issue in Alliance for Clean Coal and section 476.53. The Illinois statute effectively discriminated against out-of-state producers by creating a tariff on outof-state coal. This tariff had the effect of “ ‘neutralizing the advantage possessed by lower cost out-of-state producers.’ ” Id. Section 476.53 is not a tariff, nor would it treat NextEra or its products differently based on whether NextEra was located wholly inside or outside of Iowa. 31 Therefore, section 476.53 does not have the effect of favoring Iowa economic interests over non-Iowa economic interests. However, because it is possible that energy produced by Wind VII will end up in the wholesale market, it is possible that the Board’s decision to grant ratemaking principles pursuant to section 476.53 will indirectly affect interstate commerce. As NextEra correctly points out, this burden would be the potential presence of state-subsidized electricity in the wholesale market. It would be in direct competition with non-state-subsidized electricity, produced by companies like NextEra. NextEra is also correct that advance ratemaking principles allow MidAmerican to shift risk to its retail customers by guaranteeing returns on equity even if the demand for electricity and the attached price fail to meet MidAmerican’s projections. We find the burden on the wholesale market, if any, would be minimal. Once completed, Wind VII will be able to produce up to 1001 megawatts of electricity. MidAmerican’s director of environmental programs, compliance, and permitting testified that “there are over 130,000 megawatts of electric generation capacity currently in the market footprint of the MidWest Independent Transmission System Operator, Inc. (MISO).” MISO is the energy market in which MidAmerican competes. The testimony revealed there are an additional 165,000 megawatts of generating capacity in the footprint of the PJM Interconnection, Inc. L.L.C., which operates as a common market with MISO. The testimony further revealed MISO’s annual growth requirements far exceeded the size of Wind VII. This means Wind VII, at most, would account for 0.76 percent of MISO. If we add the 165,000megawatt capacity of the PJM, then Wind VII only accounts for 0.34 32 percent of the market. Therefore, it seems any burden Wind VII might have on these large interstate markets would be slight. The local benefits of Wind VII, on the other hand, would be considerable. As the district court pointed out, “Wind VII would provide MidAmerican’s retail customers with a clean, renewable power source with no inherent fuel costs, and help insulate its retail customers from spikes in fossil fuel costs.” It is also reasonable to believe that MidAmerican’s retail customers will use the electricity produced by Wind VII because the wind farm will be located in Iowa. Therefore, section 476.53 does not directly regulate or discriminate against interstate commerce, and it does not have the effect of favoring in-state economic interests over out-of-state economic interests. Even though it may indirectly affect interstate commerce, any burden section 476.53 places on interstate commerce does not exceed the local benefits.