SE IOWA CO-OP. ELEC. v. Iowa Util. Bd.

• Court: Iowa Supreme Court
• Writing for the Court: CADY, Justice.
• Citation: SE IOWA CO-OP. ELEC. v. Iowa Util. Bd., 633 N.W.2d 814 (Iowa 2001)
• Decision Date: 06 September 2001
• Docket Number: No. 99-1376.,99-1376.
• Parties: S.E. IOWA COOPERATIVE ELECTRIC ASSOCIATION, Appellant, v. IOWA UTILITIES BOARD, Appellee, Office of Consumer Advocate and Mt. Pleasant Muncipal Utilities, Intervenors-Appellees.

633 N.W.2d 814

S.E. IOWA COOPERATIVE ELECTRIC ASSOCIATION, Appellant, v. IOWA UTILITIES BOARD, Appellee, Office of Consumer Advocate and Mt. Pleasant Muncipal Utilities, Intervenors-Appellees.

No. 99-1376.

Supreme Court of Iowa.

September 6, 2001.

Michael P. Joynt, Dennis L. Puckett, and Jill Mataya Corry of Sullivan & Ward, P.C., Des Moines, for appellant.

Allan Kniep and Vicki Place, Des Moines, for appellee Iowa Utilities Board.

Gary D. Stewart and Jennifer C. Easler, Des Moines, for intervenor-appellee Office of Consumer Advocate.

Sheila K. Tipton of Dorsey & Whitney, L.L.P., Des Moines, for intervenor-appellee Mt. Pleasant Municipal Utilities.

CADY, Justice.

This appeal requires us to determine whether economic considerations may constitute the sole basis for a finding by the utilities board that proposed electric transmission lines are necessary to serve a public use pursuant to Iowa Code section 478.4 (1995). In ruling on the petition for judicial review, the district court found the utilities board appropriately relied on resulting economic benefits in granting the electric transmission line franchises. Considering the discretion accorded to the utilities board in decisions of this nature, we agree with the district court that substantial evidence supported the agency's decision. We affirm.

I. Background Facts and Proceedings.

Mt. Pleasant Municipal Utilities (MPMU) is a municipally owned electric utility serving residential and commercial electric customers in the city of Mt. Pleasant, Iowa. Instead of generating its own electricity, MPMU purchases wholesale electric power from IES Utilities Inc. (IES) and resells the power to its customers. Because MPMU does not have direct access to IES' electric transmission system, it has to obtain power through a transmission line owned by Northeast Missouri Electric Power Cooperative (NEMO). MPMU must pay a "wheeling" fee for its use of the NEMO interconnection. A "wheeling" fee is a charge imposed on a utility for the use of another utility's transmission facilities' direct interconnection to electric power.

NEMO is an electric generation and transmission cooperative, and owns a transmission line that wheels wholesale electric power from a substation directly connected to IES' transmission line. S.E. Iowa Cooperative Electric Association (S.E. Iowa) is a member and owner of NEMO. It is subject to an all-requirements wholesale power contract in which it must fulfill all of its customers' energy requirements from NEMO. S.E. Iowa's service territory surrounds Mt. Pleasant's city limits.

Associated Consultants Engineers, Inc. (ACE) conducted a power source study for MPMU in 1994, to evaluate any potential alternatives to MPMU's current wholesale power contract with NEMO. ACE found that MPMU would realize substantial cost savings if it could bypass NEMO's transmission system and receive power directly from IES. MPMU would need to construct two new transmission lines in order to establish a direct connection between its own substations and IES' transmission line. In addition, a new substation would need to be built in West Mt. Pleasant.

ACE estimated MPMU would save $1.371 million over a ten-year period. This estimate considered the construction costs of $800,000, and the projected ten-year wheeling fees of $2.171 million. In calculating the wheeling charges, ACE used the rate charged by NEMO in 1996 and assumed the rates would increase by three percent each year. Moreover, the transmission lines would be a long-term asset with a life beyond ten years. Thus, MPMU would realize additional economic benefits for an additional twenty to thirty years. Additionally, the Office of Consumer Advocate (OCA) performed a power source study, in which it also concluded the construction of the new lines would result in substantial wholesale power savings for consumers over an extended period of time.

Acknowledging the construction of additional lines would duplicate a segment of NEMO's existing lines, MPMU attempted to negotiate a plan with NEMO in lieu of construction. However, NEMO rejected MPMU's offer to purchase NEMO's existing lines, as well as MPMU's suggestion that NEMO waive or reduce the wheeling charges.

MPMU then accepted ACE's recommendation, and entered into a new wholesale power purchase contract with IES. The terms of the agreement provided that IES would bear the responsibility for the construction of the new West Mt. Pleasant substation, while MPMU would construct the new lines at its own expense.

MPMU then filed two petitions for electric transmission line franchises in accordance with Iowa Code section 478.3. One line was for 0.90 miles, while the other was for 0.62 miles. In its petitions, MPMU cited the savings that would be passed on to its customers to demonstrate the lines were necessary to serve a public use. In addition, MPMU claimed the lines represented a reasonable relationship to comprehensive electric utility planning, as the two lines would connect MPMU to IES through the new substation.

S.E. Iowa filed a petition to intervene. It contended the proposed lines did not serve a public use nor did they represent a reasonable relationship to an overall plan of transmitting electricity in the public interest as required by section 478.4. S.E. Iowa urged the administrative law judge (ALJ) to deny MPMU's petitions, arguing the lines would merely duplicate NEMO's existing facilities and would not improve service reliability.

The ALJ granted S.E. Iowa's petition to intervene and held an evidentiary hearing on MPMU's franchise petitions. The OCA entered its appearance pursuant to section 475A.2. Although the OCA supported the granting of the franchises, it proposed a modified route.

The ALJ granted MPMU's two petitions, and adopted the modified route proposed by the OCA. The ALJ based its decision on the evidence showing that MPMU would realize substantial economic benefits by means of the less expensive wholesale power it could obtain through the direct connection to the IES substation.

S.E. Iowa appealed the ALJ's decision to grant the franchises to the Iowa Utilities Board (Board), and MPMU appealed the modification of its proposed route. S.E. Iowa's motion to reopen the record was granted. At an evidentiary hearing, S.E. Iowa introduced evidence of a one-time forty percent reduction in NEMO's wheeling rates for 1997 and of the circumstances surrounding NEMO and MPMU's agreement to construct a back-up interconnection. Concluding this additional evidence did not affect the ALJ's order, the Board affirmed the ALJ's decision. In doing so, however, the Board modified the order so that the lines would be constructed in the manner requested by MPMU.

S.E. Iowa filed an application for rehearing with the Board, citing new evidence. In denying the rehearing, the Board ruled that even if new evidence existed, it supported the Board's order. S.E. Iowa then petitioned for judicial review, which the district court subsequently denied.

S.E. Iowa appeals. It claims the Board erred in considering economic benefits as a sufficient basis for granting electric transmission line franchises under section 478.4, and in denying its application for rehearing.

II. Scope of Review.

Iowa Code section 17A.19(8) governs our review of administrative agency proceedings. Second Injury Fund of Iowa v. Klebs, 539 N.W.2d 178, 179-80 (Iowa 1995). We limit our review to errors at law. Iowa Code § 17A.19(8)(e); Second Injury Fund of Iowa, 539 N.W.2d at 180. We will grant the requested relief if the petitioning party's substantial rights have been prejudiced and the agency exceeded its statutory authority or abused its discretion. Iowa Code § 17A.19(8)(b), (g); Dico, Inc. v. Iowa Employment Appeal Bd., 576 N.W.2d 352, 354 (Iowa 1998); Northwestern Bell Tel. Co. v. Iowa Utils. Bd., 477 N.W.2d 678, 682 (Iowa 1991). Likewise, we will reverse or modify the agency's decision if it is not supported by substantial evidence, considering the record in its entirety. Iowa Code § 17A.19(8)(f); Second Injury Fund of Iowa, 539 N.W.2d at 180. Evidence is substantial if a reasonable person would consider it sufficient to support the agency's conclusions. Second Injury Fund of Iowa, 539 N.W.2d at 180; Northwestern Bell Tel. Co., 477 N.W.2d at 682. Thus, even if we find the record could support a different conclusion, we must affirm the agency's decision if it is supported by substantial evidence. Northwestern Bell Tel. Co., 477 N.W.2d at 682; Eaves v. Bd. of Med. Exam'rs, 467 N.W.2d 234, 237 (Iowa 1991).

We afford considerable deference to the agency's expertise, especially when the decision involves the highly technical area of public utility regulation. Equal Access Corp. v. Utils. Bd., 510 N.W.2d 147, 151-52 (Iowa 1993); Northwestern Bell Tel. Co., 477 N.W.2d at 682. Accordingly, we typically defer to the agency's informed decision as long as it falls within a "zone of reasonableness." Equal Access Corp., 510 N.W.2d at 151-52. Consequently, the majority of "disputes are won or lost at the agency level." Northwestern Bell Tel. Co., 477 N.W.2d at 682 (citation omitted).

III. Economic Considerations.

Any person or company seeking to construct an electric transmission line must first petition the Board for permission. Iowa Code § 478.1. Iowa Code section 478.3 delineates the information that must be contained in the petition, including allegations that the proposed line is "necessary to serve a public use" and "represents a reasonable relationship to an overall plan of transmitting electricity in the public interest." Id. § 478.3. However, the Board can waive the showing of any allegations that do not apply to a particular proposed line. Id.; see Fischer v. Iowa State Commerce Comm'n, 368 N.W.2d 88, 93-94 (Iowa 1985). Before the Board may grant a petition for an electric transmission line franchise, it must find the proposed line is "necessary to serve a public use and...