Court Opinion

ID: 9390694
Source: CourtListenerOpinion
Date Created: 2023-04-28 14:04:05.151227+00
Date Added: 2024-06-11T17:18:36.336536
License: Public Domain

IN THE SUPREME COURT OF IOWA

                                  No. 22–0385

                  Submitted March 22, 2023—Filed April 28, 2023

ENVIRONMENTAL LAW AND POLICY CENTER, IOWA ENVIRONMENTAL
COUNCIL, and SIERRA CLUB,

      Appellants,

vs.

IOWA UTILITIES BOARD,

      Appellee,

and

MIDAMERICAN ENERGY COMPANY,

      Intervenor-Appellee,

and

OFFICE OF CONSUMER ADVOCATE,

      Intervenor.

      Appeal from the Iowa District Court for Polk County, Samantha

Gronewald, Judge.

      Appeal from denial of petition for judicial review of the Iowa Utilities

Board’s order approving regulated public utility’s emissions plan and budget.

DISTRICT    COURT       JUDGMENT      REVERSED     AND    REMANDED      WITH

INSTRUCTIONS.
                                         2

      McDonald, J., delivered the opinion of the court, in which all participating

justices joined. May, J., took no part in the consideration or decision of this case.

      Joshua T. Mandelbaum (argued), Des Moines, for appellant Environmental

Law and Policy Center.

      Michael R. Schmidt, Des Moines, for appellant Iowa Environmental

Council.

      M. Gabriel Rowberry of Sodoro, Mooney, & Lenaghan, LLC, Omaha,

Nebraska, for appellant Sierra Club.

      Diana S. Machir (argued), Jon Tack, Kim Snitker, and Matthew Oetker,

Des Moines, for appellee Iowa Utilities Board.

      Bret A. Dublinske (argued) of Fredrikson & Byron, P.A., Des Moines, for

intervenor-appellee MidAmerican Energy Company.

      Jennifer C. Easler, Consumer Advocate, and Jeffrey J. Cook (until

withdrawal), Des Moines, for amicus curiae Office of Consumer Advocate.
                                         3

McDONALD, Justice.

      Iowa Code section 476.6 (2020) governs changes in rates, charges,

schedules, and regulations for rate-regulated public utilities. Subsection 19 of

this provision requires “[e]ach rate-regulated public utility that is an owner of

one or more electric power generating facilities fueled by coal” to “develop a

multiyear plan and budget for managing regulated emissions from its facilities

in a cost-effective manner.” Iowa Code § 476.6(19)(a). The utility must submit

biennially a plan and budget to the Iowa Utilities Board for approval. Id.

§ 476.6(19)(a)(1). The board “shall approve the plan” if it is “reasonably expected

to achieve cost-effective compliance with applicable state environmental

requirements and federal ambient air quality standards.” Id. § 476.6(19)(c). In

this case, the board approved a utility’s biennial plan and budget. The question

presented in this appeal is whether, in approving the utility’s plan and budget,

the board erred in failing to consider certain intervenors’ evidence that the

retirement of coal-fueled electric power generating facilities was a more

cost-effective manner of achieving compliance with applicable state and federal

environmental and air quality requirements than the utility’s plan and budget.

                                         I.

      Broadly speaking, Iowa Code section 476.6 relates to charges and rates for

rate-regulated utilities. “A public utility subject to rate regulation shall not make

effective a new or changed rate, charge, schedule, or regulation until the rate,

charge, schedule, or regulation has been approved by the board.” Id. § 476.6(1).

Section 476.6 includes specific subsections regarding cost recovery and rate
                                         4

setting in a variety of contexts. See, e.g., Id. § 476.6(11) (regarding the recovery

of costs for natural gas procurement), (12) (regarding the recovery of costs of fuel

for electric generation), (17) (regarding recovery of replacement tax costs).

      Iowa Code section 476.6(19) relates to “power generating facilities fueled

by coal.” In enacting this provision, it was “the intent of the general assembly

that the state, through a collaborative effort involving state agencies and affected

generation owners, provide for compatible statewide environmental and electric

energy policies with respect to regulated emissions from rate-regulated electric

power generating facilities . . . that are fueled by coal.” Id. § 476.6(19)(a). To

advance that purpose, covered utilities are required to “develop a multiyear plan

and budget for managing regulated emissions from [their] facilities in a

cost-effective manner.” Id. Covered utilities were required to submit an initial

plan to the Iowa Utilities Board by April 1, 2002. Id. § 476.6(19)(a)(1). Covered

utilities must file updates to the plan and budget with the board “at least every

twenty-four months” thereafter. Id. For the purposes of this appeal, we refer to

the initial plan and budget and subsequent updates as the “Emissions Plan and

Budget” (EPB).

      The board considers the EPB in a “contested case proceeding pursuant to

chapter 17A,” the Iowa Administrative Procedure Act. Id. § 476.6(19)(a)(3). The

Iowa Department of Natural Resources (IDNR) and the Office of the Consumer

Advocate (OCA) are required parties to the contested case proceeding. Id. IDNR’s

role is limited. IDNR “shall state whether” the EPB “meets applicable state

environmental requirements for regulated emissions.” Id. § 476.6(19)(a)(4). If the
                                       5

EPB does not meet these requirements, IDNR “shall recommend amendments

that outline actions necessary to bring the plan or update into compliance with

the environmental requirements.” Id. The Code is not as explicit regarding OCA’s

role in the contested case proceeding. Generally, however, OCA represents Iowa

consumers in certain matters relating to utilities. See generally id. ch. 475A

(discussing duties of the OCA). In addition to these two statutorily-required

parties, other interested parties may intervene in the contested case proceeding.

See Iowa Admin. Code r. 199—7.13(3).

      The scope of the contested case proceeding is narrow. The board “shall

approve” the EPB if it is “reasonably expected to achieve cost-effective

compliance with applicable state environmental requirements and federal

ambient air quality standards.” Iowa Code § 476.6(19)(c). “In reaching its

decision, the board shall consider whether” the EPB “reasonably balance[s]

costs, environmental requirements, economic development potential, and the

reliability of the electric generation and transmission system.” Id. If the board

approves the EPB, the utility can recover costs through rate increases to

consumers. Id. § 476.6(1). If the EPB does not meet the statutory requirements,

the board shall reject the EPB. See id. § 476.6(19)(c). If the board does not

approve the EPB, the utility cannot recover costs through rate increases to

consumers. Id. The evidence in support of or in opposition to the EPB generally

is submitted in the form of written testimony and supporting exhibits and

reports. The statute provides that the board has 180 days to approve or reject

the EPB. Id. § 476.6(19)(d).
                                        6

                                       II.

      MidAmerican Energy Company submitted the EPB at issue in this case in

April 2020. MidAmerican’s 2020 EPB did not have any additional capital

expenditures but instead requested approval for operations and maintenance

(O & M) expenditures associated with emissions controls previously approved at

four coal-fueled power plants: Walter Scott, Jr. Energy Center Unit 3, George

Neal Energy Center Unit 3, Neal Unit 4, and the Louisa Generating Station. The

EPB provided projected costs for the 2020 through 2029 period and sought

approval of O & M expenditures from January 1, 2020, through December 31,

2022. If the board approved the plan, MidAmerican could recover the

expenditures through rate increases. If the board did not approve the plan,

MidAmerican could not recover the expenditures through rate increases.

      In addition to the statutorily-required parties—IDNR and OCA—the board

granted several motions to intervene in the contested case proceeding. The

Environmental Law & Policy Center, the Iowa Environmental Council, and the

Sierra Club (collectively, “Environmental Parties”) were allowed to intervene to

assert their “interest in effective environmental compliance that appropriately

considers and implements all options that reduce emissions while maintaining

the reliability and affordability of our electric generation system.” Facebook and

Google (collectively, “Tech Customers”) were allowed to intervene to assert “an

interest in environmental compliance, as well as reliable and affordable electric

energy.”
                                       7

       The board set a contested case hearing for February 16, 2021. In accord

with the board’s orders, the parties exchanged written testimony and supporting

exhibits. Utility specialist Scott C. Bents, testifying on behalf of OCA, stated

MidAmerican failed to “perform even a basic analysis” of the relevant statutory

factors. Bents also criticized MidAmerican’s EPB for failing to consider the

retirement of coal-fueled electric power generating facilities. Environmental

Parties submitted testimony from Steven C. Guyer, an energy and climate policy

specialist with the Iowa Environmental Council, and David B. Posner, an

independent consultant. Guyer testified that MidAmerican’s request to recover

emission control expenditures for two coal-fueled generating facilities should be

denied because continued operation of the facilities, in his view, would not be

cost-effective. Posner testified two facilities fueled by coal should be retired

through the EPB process because they operate below capacity and in an

“uneconomic” way. Posner also submitted five exhibits (168 pages total)

supporting his testimony. In sum, OCA and the Environmental Parties’ evidence

purported to show the most cost-effective way to comply with ongoing

environmental obligations was to retire two MidAmerican coal-fueled generating

facilities.

       Approximately two weeks prior to the scheduled hearing, MidAmerican

and OCA filed a joint motion and nonunanimous full settlement agreement. They

requested the board cancel the scheduled contested case hearing and approve

the settlement agreement. The nonunanimous settlement agreement provided

that the parties agreed and stipulated that MidAmerican’s 2020 EPB complied
                                        8

with Iowa Code section 476.6(19). The parties further agreed “that the EPB is not

an optimal forum for review of the Electric Generating Needs Forecast due to the

narrow scope of the filing.” The parties agreed MidAmerican would provide to the

board—in an alternative proceeding—an Electric Generating Needs Forecast “to

demonstrate how MidAmerican is managing its current generation resources and

how it is planning for new resources in a manner that are cost-effective and

prudent for its Iowa customers.” The parties agreed the forecast would address

plans for existing coal facilities. Environmental Parties and Tech Customers filed

comments on the nonunanimous full settlement.

      The board continued the contested hearing date until the end of March.

Prior to the scheduled hearing, however, the board issued an order that approved

MidAmerican’s 2020 EPB, denied the joint motion to settle, and cancelled the

contested case hearing. The board stated it had “considered the evidence

presented by the parties” and decided “that there [were] no material facts about

the EPB filed by MidAmerican that [were] in dispute” because “the evidence

addressing other options, filed by OCA and the intervenors, is outside the scope

of an EPB proceeding under Iowa Code § 476.6(19).” (Emphasis added.) OCA and

Environmental Parties moved for reconsideration, which MidAmerican resisted.

The board denied the motion to reconsider and reiterated “that the evidence filed

by OCA and the Environmental Intervenors addressing these other options was

outside the scope of an EPB proceeding.” (Emphasis added.) The board did,

however, open two additional matters on separate dockets to address the issues

raised by Environmental Parties.
                                          9

      Environmental Parties filed a petition for judicial review in the district

court, and MidAmerican and OCA moved to intervene without objection. OCA

and Environmental Parties contended the board erred in failing to consider their

evidence during the EPB process. Specifically, OCA and Environmental Parties

argued the board erred in concluding that the consideration of least-cost

alternatives and retirement of coal-fueled electric generating facilities were

outside the scope of the statute. This is particularly true, they argued, because

the board had considered this type of evidence in previous EPB proceedings.

      The district court rejected the arguments and affirmed the board’s

approval of the EPB. The district court held the board correctly determined it

was not required to consider the evidence offered by OCA and Environmental

Parties. The district court concluded that OCA and Environmental Parties’

evidence—particularly the evidence regarding the retirement of coal-fueled

facilities to be replaced by renewable energy—was outside the scope of the EPB

proceeding. Lastly, the district court concluded the board correctly approved

MidAmerican’s EPB.

      Environmental Parties timely appealed, and we retained the appeal. OCA

filed a proof brief requesting oral argument. OCA did not, however, file a notice

of appeal. Because OCA failed to file a notice of appeal, we struck OCA’s brief

and denied it leave to file a reply brief. We granted OCA leave to file a brief amicus

curiae.
                                         10

                                         III.

      Iowa Code section 17A.19(10) governs our review of the board’s decision.

Iowa Code § 476.6(19)(a)(3); SZ Enters., LLC v. Iowa Utils. Bd., 850 N.W.2d 441,

449 (Iowa 2014). The standard of review differs depending on the error alleged.

Jacobson Transp. Co. v. Harris, 778 N.W.2d 192, 196 (Iowa 2010). A party’s

challenge to factual findings or the sufficiency of the evidence is subject to

substantial evidence review. Id. “Evidence is substantial if a reasonable mind

would find it adequate to reach a conclusion.” Quaker Oats Co. v. Ciha,

552 N.W.2d 143, 150 (Iowa 1996). A party’s challenge to an agency’s application

of law to fact is subject to a highly deferential standard of review, and we will

reverse only if the agency’s action is irrational, illogical, or wholly unjustifiable.

Iowa Code § 17A.19(10)(i), (m). In reviewing an agency’s interpretation of a

statute, the standard of review is contingent. “If the legislature has clearly vested

the agency with authority to interpret the relevant statute, we give deference and

reverse only if the agency’s interpretation is ‘irrational, illogical, or wholly

unjustifiable.’ ” Hawkeye Land Co. v. Iowa Utils. Bd., 847 N.W.2d 199, 207 (Iowa

2014) (quoting Iowa Code § 17A.19(10)(l)); see SZ Enters., 850 N.W.2d at 449;

NextEra Energy Res. LLC v. Iowa Utils. Bd., 815 N.W.2d 30, 36–37 (Iowa 2012);

Renda v. Iowa C.R. Comm’n, 784 N.W.2d 8, 10 (Iowa 2010). “If the agency lacks

interpretive authority, ‘we review for erroneous interpretations of law.’ ”

Hawkeye Land Co., 847 N.W.2d at 207 (quoting Iowa Dental Ass’n v. Iowa Ins.

Div., 831 N.W.2d 138, 142–43 (Iowa 2013)); see SZ Enters., 850 N.W.2d at 449;

NextEra, 815 N.W.2d at 36–37.
                                         11

      The parties spend a significant portion of their briefing disputing the

applicable   standard    of   review   with    respect   to   the   interpretation   of

section 476.6(19). The board contends that its interpretation of section 476.6(19)

is entitled to deference because the terms of the statute are highly specialized.

Environmental Parties contend the board’s interpretation of the statute is not

entitled to deference because the relevant words of the statute are not highly

specialized. The parties’ dispute regarding the standard of review is largely due

to the parties misframing the issue. While the board couches its argument as

one of deference to its interpretation of the statute, it really argues for deference

to its conclusion that the statutory standard has been met. The board contends,

in its own words, that this court should defer to “the expertise of the board to

make the determination of whether the EPB plan meets the statutory

requirements.” That does not pose a question of statutory interpretation.

Instead, that poses a question of the board’s application of law to fact, to which

the board is already entitled to deference. See Iowa Code § 17A.19(10)(i), (m). We

thus need not resolve the parties’ dispute regarding whether the board is entitled

to deference in its interpretation of section 476.6(19).

                                         IV.

      Properly framed, as MidAmerican repeatedly contended during oral

argument, the contested issue in this case is whether Environmental Parties and

OCA’s evidence was relevant. The board and MidAmerican’s position is that the

board correctly rejected Environmental Parties and OCA’s evidence as outside

the scope of the statute and thus not relevant. MidAmerican emphasizes that the
                                       12

scope of proceedings under section 476.6(19) is very narrow. MidAmerican’s view

is that the board is faced with an up or down vote: approve the EPB submitted

by MidAmerican and allow MidAmerican to recover the costs, or reject the EPB

submitted by MidAmerican and disallow MidAmerican from recovering the costs.

MidAmerican argues the statute does not impose “a least-cost requirement, a

least-emissions requirement, a requirement to consider alternative plans, [or] a

mechanism to require evaluation of the retirement of coal-fired generation of

electricity in Iowa.” In other words, according to MidAmerican, the statute

neither allows Environmental Parties and OCA to foist alternative budgets and

plans on the utility nor allows the board to consider or approve alternative

budgets and plans.

      We agree with MidAmerican’s description of the scope and operation of the

statute, but the scope and operation of the statute do not fully resolve the

question of whether Environmental Parties and OCA’s expert testimony was

nonetheless relevant to the issues before the board. “Evidence is relevant when

‘it has any tendency to make a fact more or less probable than it would be

without the evidence[] and . . . [t]he fact is of consequence in determining the

action.’ ” State v. Thoren, 970 N.W.2d 611, 622 (Iowa 2022) (alterations and

omission in original) (quoting Iowa R. Evid. 5.401).

      Three considerations lead us to conclude Environmental Parties and

OCA’s evidence was relevant and should have been considered by the board.

First, the text of the statute supports the conclusion that Environmental Parties

and OCA’s evidence was relevant. Under the statute, the board was required to
                                         13

determine whether MidAmerican’s EPB was “reasonably expected to achieve

cost-effective compliance with applicable state environmental requirements and

federal ambient air quality standards.” Iowa Code § 476.6(19)(c). In reaching its

determination, the board was required to consider whether MidAmerican’s EPB

“reasonably    balance[d]    costs,   environmental          requirements,    economic

development potential, and the reliability of the electric generation and

transmission system.” Id. “Cost-effective” means “producing optimum results for

the expenditure.” Cost-effective, Webster’s Third New International Dictionary

(unabr. ed. 2002). “Optimum” means “the amount or degree of something that is

most favorable to some end.” Optimum, Webster’s Third New International

Dictionary (unabr. ed. 2002). “Reasonable” means “fair, proper, or moderate

under the circumstances.” Reasonable, Black’s Law Dictionary (11th ed. 2019).

All of these are words of comparison or comparative value. The statutory

requirement that the board determine whether MidAmerican’s EPB was

“reasonably expected to achieve cost-effective compliance” and whether the EPB

“reasonably balance[d]” the relevant statutory factors requires, or at least invites,

comparison    of   alternative   methods      to   achieve    compliance     with   state

environmental requirements and federal ambient air quality standards.

      Second, a structural consideration points to the evidence being relevant.

The board considers the EPB in a “contested case proceeding pursuant to

chapter 17A.” Iowa Code § 476.6(19)(a)(3). A contested case is “a proceeding

including but not restricted to ratemaking, price fixing, and licensing in which

the legal rights, duties or privileges of a party” are determined by an
                                         14

administrative agency. Id. § 17A.2(5). “A contested case entitles parties affected

by the agency action to an adversarial hearing with the presentation of evidence

and arguments and the opportunity to cross-examine witnesses and introduce

rebuttal evidence.” Greenwood Manor v. Iowa Dep’t of Pub. Health, 641 N.W.2d

823, 834 (Iowa 2002). “The underlying purpose of an evidentiary hearing is to

adjudicate disputed facts pertaining to particular individuals in specific

circumstances.” Id. By calling for a contested case proceeding, the statute

presupposes the parties, including intervening parties, may contest the EPB and

may submit additional evidence relevant to the statutory considerations even

though the evidence may address items not covered in the particular EPB at

issue.

         Third, the board has previously concluded the type of evidence at issue in

this case is, in fact, relevant under section 476.6(19). In 2014, 2016, and 2018,

MidAmerican discussed the retirement of coal-fueled generation facilities in

connection with its EPB. For example, in 2014, MidAmerican witness Jennifer

A. McIvor testified that:

         MidAmerican assessed the costs of its compliance options for units
         not currently scheduled to have controls installed. MidAmerican
         determined that, based on economic and other considerations, it is
         in the best interest of its customers to comply with the MATS
         [Mercury and Air Toxic Standards] and other environmental
         requirements by discontinuing the utilization of coal as a fuel and
         not installing environmental controls on five operating units.
         Therefore, by April 16, 2016, MidAmerican will cease burning coal
         at Neal Energy Center Units 1 and 2, Walter Scott Jr. Energy Center
         Units 1 and 2, and Riverside Generating Station.
                                         15

McIvor offered similar testimony in 2016 and 2018. She explained that

“MidAmerican is retiring certain coal-fueled generating units as the least-cost

alternative” and identified several plants that “are to be retired.”

      The board argues, and the district court agreed, that the board’s past

practice of considering plant retirement is not relevant here because in those

prior cases, plant retirement was advanced by the utility rather than an

intervening party. We think the distinction is immaterial and misses the point.

If facility retirement was a relevant means of “managing regulated emissions from

its facilities in a cost-effective manner” when MidAmerican proposed it, it must

also be relevant when offered into evidence by Environmental Parties and OCA.

Iowa Code § 476.6(19)(a). We see no basis for determining relevance of this

evidence in this proceeding based on the identity of the party offering the

evidence.

      We agree with MidAmerican that the intervening parties could not force

alternative budgets and plans, including plant retirement, on MidAmerican. And

we agree with the board that it was without the authority to approve alternative

budgets and plans. We disagree, however, that Environmental Parties and OCA’s

evidence was not relevant in determining whether the EPB, as submitted, met

the statutory requirements. Steven C. Guyer, an energy and climate policy

specialist, testified that MidAmerican’s emission control expenditures were not

cost-effective. David B. Posner, an independent consultant, testified two facilities

fueled by coal should be retired because they operate below capacity and in an

uneconomic way. Utility specialist Scott C. Bents testified MidAmerican failed to
                                        16

“perform even a basic analysis” of the relevant statutory factors. Bents also

criticized MidAmerican’s EPB for failing to consider the retirement of coal-fueled

electric power generating facilities. All of this evidence is relevant and should

have been considered by the board. The board might have concluded that the

evidence is not particularly probative of the cost-effectiveness of MidAmerican’s

EPB given that the plan calls for no additional capital expenditures and contains

only O & M expenses related to previously-approved capital expenditures. Or the

board might conclude the evidence has great weight on the relevant

considerations. What weight, if any, the board gives to Environmental Parties

and OCA’s evidence is to be determined by the board.

      The deference afforded an agency in its application of law to fact is

predicated on the assumption the agency reviewed and considered all of the

relevant evidence in reaching its decision. See JBS Swift & Co. v. Hedberg,

873 N.W.2d 276, 280–81 (Iowa Ct. App. 2015). If, as here, the record discloses

the agency did not review and consider the relevant evidence, then no deference

is afforded to the agency. See id. An agency is entitled to reconcile relevant

evidence not ignore relevant evidence. See id. Where the agency fails to consider

relevant evidence, the agency’s action is unreasonable, arbitrary, capricious, an

abuse of discretion, and the product of illogical reasoning. See Iowa Code

§ 17A.19(10)(i), (j), (m), (n); Hedberg, 873 N.W.2d at 280–81; Meyer v. IBP, Inc.,

710 N.W.2d 213, 225 (Iowa 2006) (“We have said that the commissioner commits

error by failing to weigh and consider all of the evidence.”); Armstrong v. State of
                                        17

Iowa Bldgs. & Grounds, 382 N.W.2d 161, 165 (Iowa 1986) (en banc) (stating it is

reversible error for the agency to fail to “weigh and consider all the evidence”).

                                        V.

      “Because the court on judicial review of agency action has no original

authority to make findings of fact and declare the parties’ rights, the court should

remand for further specific findings when the agency’s ruling does not clearly

disclose a sound factual and legal basis for its decision.” Taylor v. Iowa Dep’t of

Job Serv., 362 N.W.2d 534, 537 (Iowa 1985). We reverse the district court’s order

affirming the board’s action and vacate the decision of the board. “We remand

this matter to the district court with instructions to remand this matter to the

agency” for further proceedings not inconsistent with this opinion. Carreras v.

Iowa Dep’t of Transp., 977 N.W.2d 438, 452 (Iowa 2022).

      DISTRICT COURT JUDGMENT REVERSED AND REMANDED WITH

INSTRUCTIONS.

      All justices concur except May, J., who takes no part.