SZ Enters., LLC v. Iowa Utilities Bd., 13–0642.

• Decision Date: 14 August 2014
• Docket Number: No. 13–0642.,13–0642.
• Citation: 850 N.W.2d 441
• Parties: SZ ENTERPRISES, LLC d/b/a Eagle Point Solar, Appellee, v. 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.
• Court: Iowa Supreme Court

850 N.W.2d 441

SZ ENTERPRISES, LLC d/b/a Eagle Point Solar, Appellee,

v.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.

No. 13–0642.

Supreme Court of Iowa.

July 11, 2014.

As Corrected Aug. 14, 2014.

David J. Lynch and Gary D. Stump, Des Moines, for appellant Iowa Utilities Board.

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.

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). SeeIowa 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 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 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.¹See 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 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., 70 Ariz. 235, 219 P.2d 324, 325–26 (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. SeeIowa 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 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...