Iowa-Illinois Gas and Elec. Co. v. Iowa State Commerce Com'n

• Decision Date: 23 September 1987
• Docket Number: No. 86-523,IOWA-ILLINOIS,86-523
• Citation: 412 N.W.2d 600
• Parties: GAS AND ELECTRIC COMPANY, Appellant, v. IOWA STATE COMMERCE COMMISSION, Appellee, Office of Consumer Advocate, Intervenor-Appellee. OFFICE OF CONSUMER ADVOCATE, Appellant, v. IOWA STATE COMMERCE COMMISSION, Appellee, Iowa-Illinois Gas & Electric Company, Intervenor-Appellee.
• Court: Iowa Supreme Court

Page 600

412 N.W.2d 600

IOWA-ILLINOIS GAS AND ELECTRIC COMPANY, Appellant, v. IOWA STATE COMMERCE COMMISSION, Appellee, Office of Consumer Advocate, Intervenor-Appellee.

OFFICE OF CONSUMER ADVOCATE, Appellant, v. IOWA STATE COMMERCE COMMISSION, Appellee, Iowa-Illinois Gas & Electric Company, Intervenor-Appellee.

No. 86-523.

Supreme Court of Iowa.

Sept. 23, 1987.

Rehearing Denied Oct. 22, 1987.

Brent E. Gale and Edward J. Hartman, and D.H. Sitz and Terry M. Giebelstein of Lane & Waterman, Davenport, for appellant Iowa-Illinois Gas & Elec. Co.

Susan Allender, Gen. Counsel, Patrick J. Nugent, Deputy Counsel, and David J. Lynch, Asst. Gen. Counsel, Des Moines, for appellee.

James R. Maret, Consumer Advocate, and David R. Conn, Des Moines, for Office of Consumer Advocate.

Considered en banc.

HARRIS, Justice.

All parties appealed from a judicial review proceeding. The district court for the most part affirmed a state commerce commission order which rejected a utility's application for a rate increase. We affirm on all appeals.

In 1976 petitioner Iowa-Illinois Gas and Electric Company undertook a long-term study of alternate energy sources. At the time it projected a 302 megawatt deficiency in electric generation for the year 1984. After assessing its consumer needs, as well as those of other investor-owned cooperative and municipal utilities in Iowa, the company concluded it should construct a 650 megawatt generating plant. Iowa-Illinois was to use 300 megawatts for its customers. The remainder was to be used for commitments it received from other public utilities.

On January 1, 1977, before the company could actually begin construction of its proposed plant, Iowa Code chapter 476A ¹ became effective. Section 476A.2 prohibits construction of an electric power generating plant with a capacity of 100 megawatts or more in the absence of a commerce commission certificate of the proposed project's "present or future public convenience, use, and necessity." This certificate can be issued only by the commission upon public notice and hearing. The hearings must be conducted in the same manner as contested case proceedings. Iowa Code § 476A.4.

Iowa-Illinois Gas and Electric Company fully complied with chapter 476A and its accompanying administrative regulations. ² It applied for a certificate of public convenience, use, and necessity for its project with the Iowa state commerce commission. ³ Compliance was no perfunctory task. The company's seven volume application proposed the construction of a $257 million coal-fire generating facility in Louisa and Muscatine counties with $158 million of its investment allocated to Iowa consumers. After notice ⁴ and hearing Iowa-Illinois was able to satisfy the commission that the proposed project was required by present and future public convenience, use, and necessity. The company also convinced the commission that: (1) it was ready, willing, and able to construct, maintain, and operate the facility in accordance with governmental limitations and with minimal adverse environmental impact; (2) it had a comprehensive and efficient management program in effect to reduce peak loads; and (3) it had considered all other feasible alternatives and found the proposed project the most efficient and cost-effective.

On April 3, 1979, the commission issued the certificate for the project and entered an order finding:

1. The anticipated demand for electrical power provided by applicant justifies the securing of additional power sources in the 650-MW capacity proposed.

2. The alternative for meeting the need for additional electric power selected by applicant is the most economically feasible.

After receiving the certificate Iowa-Illinois obtained investor funds and began construction of its Louisa generating station. By 1979, however, a "severe economic downturn" caused a decrease in electric consumption. This prompted Iowa-Illinois to commission a consulting firm to explore "whether the lowest cost alternative for customers would be produced by continuing to construct the additional generation on the original schedule or deferring the completion." The consultants recommended that construction continue, but without incurring unnecessary overtime expenses. A 1981 study commissioned by the utility reached the same conclusion, recommending a construction schedule which would bring the addition into service in mid to late 1983.

On May 26, 1983, as the project neared completion, ⁵ Iowa-Illinois filed an application for "revised electric tariffs" with the commission. The company's primary goal in seeking nearly $44.6 million in additional annual electric revenues (a 35.5% increase) was "to recognize in rates Iowa-Illinois' $158 million investment in additional electric generation...." In this way the utility claimed it "could begin the process of obtaining from customers the return paid to investors for their investment in electric generation dedicated to public use and service."

Following the requisite notice, hearing, opportunity for public comment, and contested case proceeding, the commission issued its decision. The commission's April 25, 1984, order found the proposed tariffs and their accompanying rates "unjust, unreasonable, and unlawful," and limited the increase to $30.3 million.

The limitation on the company's request was based upon finding the company's construction of the Louisa facility created significant "excess generating capacity," not currently useful or necessary for adequate and reliable service to the company's customers. There were a number of applications for rehearing of the final order. All were denied.

I. Under the administrative law scheme nearly all disputes are won or lost at the agency level. Our review of agency action under Iowa Code section 17A.20 is carefully confined to the correction of errors of law. Polk County Drainage Dist. Four v. Iowa Natural Resources Council, 377 N.W.2d 236, 239 (Iowa 1985). We apply the standards outlined in Iowa Code section 17A.19(8). LeFebure Corp. v. Iowa Dep't of Job Serv., 341 N.W.2d 768, 770 (Iowa 1983). The burden rests squarely on the challenger to show that an agency's policy choices were unreasonable; we defer readily to the agency's expertise. Northwestern Bell Tel. Co. v. Iowa State Commerce Comm'n, 359 N.W.2d 491, 497 (Iowa 1984). The commerce commission's rate-fixing power under Iowa Code chapter 476 is legislative in nature, and courts have no authority to determine whether the commission acted "wisely" in adopting a particular policy. Davenport Water Co. v. Iowa State Commerce Comm'n, 190 N.W.2d 583, 592 (Iowa 1971). Assignments of error which present constitutional issues require an independent evaluation of the totality of evidence from which the assertion of unconstitutionality arises. Evidence relevant to that issue is reviewed de novo. State v. Snethen, 245 N.W.2d 308, 311 (Iowa 1976).

II. The first question is whether the commission's findings in issuing the April 3, 1979, certificate for the project are binding in this ratemaking proceeding that followed the project completion. Iowa-Illinois contends the commission's 1979 "finding of fact regarding the usefulness of cumulative investment" was in fact "made for ratemaking purposes" and was conclusively established for purposes of the ratemaking process now at issue.

The commission contends the 1979 determination had no such purpose or effect. In its view the earlier determination was limited to the reach of the certificate itself: authorizing construction of the facility on the site and giving Iowa-Illinois the necessary power of eminent domain.

Iowa-Illinois Gas and Electric Co. v. Iowa State Commerce Commission, 347 N.W.2d 423 (Iowa 1984), involved a due process challenge to the commission's refusal to fix a rate which would allow the utility to recapture its cost of constructing expanded generating facilities. It was shown that, when it was made, the decision to expand generating capacity was prudent. But at the ratemaking stage, when the enlarged capacity was in place, the commission found a substantial excess in usefulness and adjusted the rate to disallow recapture of the excess. We rejected Iowa-Illinois' due process challenge. 347 N.W.2d at 429.

In Office of Consumer Advocate v. Iowa State Commerce Commission, 395 N.W.2d 1 (Iowa 1986), the commerce commission had entered a declaratory ruling under Iowa Code section 17A.9. The commission ruled that the cost of a proposed purchase (25 megawatts of ownership in an electric generating plant) "shall be included in the rate base," and went on to detail the accounting treatment of the adjustment amount.

On appeal we limited our affirmance to that part of the commission's ruling which had to do with the utility's accounting practices. We reversed the commission's holding (affirmed by the district court) which would have rendered the declaratory approval of the purchase binding in later ratemaking proceedings. We said:

The order should be modified to provide that the unamortized acquisition adjustment for accounting purposes may be included in the [e]lectric [p]lant accounts in the manner prescribed by the [c]ommission's [u]niform [s]ystem of [a]ccounts; however, if Interstate wishes to include these costs in its rate base, it must file an application for a rate change and make appropriate proof under Iowa Code section 476.6.

Id. at 7 (emphasis added).

There is a question whether the present case can be distinguished from Office of Consumer Advocate v. Iowa State Commerce Commission. The declaratory ruling in that case seems to have been obtained without the widespread ratepayer participation evident here. The commission points out that, in seeking a certificate of convenience and necessity, a utility is required under section 476A.4(2) to give notice only to county and city zoning authorities from the area of the proposed site and to owners of real property located within 1000 feet of...