Iowa Power and Light Co. v. Iowa State Commerce Com'n

• Decision Date: 22 July 1987
• Docket Number: No. 86,86
• Citation: 410 N.W.2d 236
• Parties: IOWA POWER AND LIGHT COMPANY, Iowa-Illinois Gas and Electric Company, Iowa Public Service Company, Iowa Electric Light and Power Company, Iowa Southern Utilities Company, and Union Electric Company, Petitioners-Appellees, Office of Consumer Advocate, Iowa Association of Municipal Utilities, Heartland Consumers Power District, Missouri Basin Mutual Power Agency, and 16 Iowa Municipalities, Intervenors-Appellees, v. IOWA STATE COMMERCE COMMISSION, Respondent-Appellant. Board of Water Works Trustees of the Ottumwa Water Works and Hydro-Electric Plant and Iowa Consumer Groups, Intervenors-Appellants. 599.
• Court: Iowa Supreme Court

Page 236

410 N.W.2d 236

IOWA POWER AND LIGHT COMPANY, Iowa-Illinois Gas and Electric Company, Iowa Public Service Company, Iowa Electric Light and Power Company, Iowa Southern Utilities Company, and Union Electric Company, Petitioners-Appellees Office of Consumer Advocate, Iowa Association of Municipal Utilities, Heartland Consumers Power District, Missouri Basin Mutual Power Agency, and 16 Iowa Municipalities, Intervenors-Appellees, v. IOWA STATE COMMERCE COMMISSION, Respondent-Appellant Board of Water Works Trustees of the Ottumwa Water Works and Hydro-Electric Plant and Iowa Consumer Groups, Intervenors-Appellants.

No. 86 599.

Supreme Court of Iowa.

July 22, 1987.

Rehearing Denied Aug. 21, 1987.

Susan Allender, David J. Lynch, and Diane Munns, Office of Gen. Counsel, for appellant Com'n.

Michael R. May of Barrett & Trott, Des Moines, for appellant Bd. of Water Works Trustees of the Ottumwa Water Works and Hydro-electric Plant.

Roger D. Colton, Boston, Mass., for appellant Iowa Consumer Groups.

Terry C. Hancock and Sheila K. Tipton of Bradshaw, Fowler, Proctor & Fairgrave, Des Moines, for petitioner-appellees.

James R. Maret and Daniel J. Fay, for appellee Consumer Advocate Div., Iowa Justice Dept.

David P. Yaffe and Sharon K. Ochs of Duncan, Allen & Mitchell, Washington, D.C., Robert Pflueger of Pflueger, Kunz & McLaughlin, P.A., Ortonville, Minn., and

LeRoy R. Voigts and Randall G. Horstmann of Nyemaster, Goode, McLaughlin, Emery & O'Brien, Des Moines, for intervenor-appellee Missouri Basin, et al.

Considered en banc.

HARRIS, Justice.

The question here is whether respondent Iowa state commerce commission ¹ properly discharged its statutory mandate in setting rates for alternate energy production facilities [AEP's] and small hydro facilities. The commission's action in setting a statewide, fixed, minimum rate was challenged by seven investor-owned public utilities. The district court found the challenge was valid. We agree.

Both congress ² and the Iowa legislature have enacted legislation intended "to encourage the development of alternate energy production facilities and small hydro facilities." Iowa Code § 476.41. ³ Enacted by the Seventieth General Assembly, the legislation now appears as Code sections 476.41 through 476.45. Its stated purpose is "to conserve our finite and expensive energy resources and to provide for their most efficient use." Iowa Code § 476.41.

Under the scheme the commission must require electric utilities (1) to purchase electricity from the alternate sources mentioned, and (2) to provide supplemental or backup power for the alternate sources at a reasonable rate.

The focal point of this suit is Iowa Code section 476.43. Under section 476.43(2) the commission is required, upon the application of an AEP owner or of any interested party, to establish "just and economically reasonable rates for electricity" at levels that stimulate the development and continuation of AEP and small hydro energy technology. In setting rates the board (here commission) is directed to consider the following factors:

a. The estimated capital cost of the next generating plant, including related transmission facilities, to be placed in service by the electric utility serving the area.

b. The term of the contract between the electric utility and the seller.

c. A levelized annual carrying charge based upon the term of the contract and determined in a manner consistent with both the methods and the current interest or return requirements associated with the electric utility's new construction program.

d. The electric utility's annual energy costs, including current fuel costs, related operation and maintenance costs, and other energy-related costs considered appropriate by the [commission].

Iowa Code § 476.43(3). Section 476.43(4) accords the commission discretion to consider additional factors in setting rates.

The commission promptly responded to this mandate. In order to set rates it undertook a rulemaking proceeding and published notice. After comment was invited and received from the public the commission promulgated and published a proposed regulation. It established a fixed, minimum purchase, statewide rate of 6.5cents per kWh for electricity purchased from the AEP's and from the small hydro generating plants.

Unsuccessful in protesting the regulations before the commission, the utilities brought this action for judicial review. Other litigants joined the dispute, one by way of a separate petition for judicial review, the rest by intervention. Issues were joined on a number of contentions and were decided by the district court. The district court invalidated the challenged regulation in a decision which is challenged by various parties by appeal and cross-appeal. To the extent we find they were preserved and are material to our resolution of the case the various challenges will be described in subsequent divisions.

I. The scope of a district court's review of agency action is prescribed by Iowa Code section 17A.19. On appeal to us under section 17A.20: "our review is confined to the correction of errors of law made by that court." Polk County Drainage Dist. Four v. Iowa Natural Resources Council, 377 N.W.2d 236, 239 (Iowa 1985). In determining "whether an agency violated its duty to consider all relevant factors in arriving at its decision, the entire record before the agency must be examined." Iowa Citizen/Labor Energy Coalition, Inc. v. Iowa State Commerce Comm'n, 335 N.W.2d 178, 181 (Iowa 1983). An agency rule is presumed valid; the burden is on the party challenging it to demonstrate that a "rational agency" could not have concluded the rule was within its delegated authority. Iowa-Illinois Gas & Elec. v. Iowa State Commerce Comm'n, 334 N.W.2d 748, 751 52 (Iowa 1983) (citing Milholin v. Vorhies, 320 N.W.2d 552, 554 (Iowa 1982)). To be valid, "a rule adopted by an agency must be within the scope of powers delegated to it by statute." Iowa-Illinois Gas & Elec., 334 N.W.2d at 752 (citing Haesemeyer v. Mosher, 308 N.W.2d 35, 37 (Iowa 1981)).

II. The district court correctly rejected a threshold challenge asserted by a number of intervening Iowa consumer groups. We agree that the utilities and the intervenor Missouri Basin Group ⁴ have standing to question the regulation. According to the intervenors, Missouri Basin Group should not be allowed to challenge commission rules because, as local governmental entities, its members are precluded from mounting a "constitutional attack upon state legislative enactments," and because they failed to plead or prove any legal interest in the relief they seek. The consumer groups claim the utilities were not "aggrieved" or "adversely affected" by the challenged agency action because the proposed rules have no specific or injurious effect upon their interests.

We think the district court correctly concluded that the utilities and Missouri Basin Group have sufficient stake in the outcome of these proceedings for standing. According to Iowa Code section 17A.19(1), parties who have "exhausted all adequate administrative remedies" may seek judicial review of final agency action upon showing that they are "aggrieved or adversely affected" thereby. In order to make such a showing

a party must [demonstrate] (1) a specific personal and legal interest in the subject matter of the agency decision and (2) a specific and injurious effect on this interest by the decision.

Iowa-Illinois Gas & Elec. Co. v. Iowa State Commerce Comm'n, 347 N.W.2d 423, 426 (Iowa 1984) (citing Iowa Bankers Ass'n v. Iowa Credit Union Dep't, 335 N.W.2d 439, 445 (Iowa 1983)). The specific interest required for standing needs only to be distinguishable from "a general interest, such as is the concern ... of the community as a whole." Iowa-Illinois Gas & Elec. Co., 347 N.W.2d at 426 (citing City of Des Moines v. Public Employment Relations Bd., 275 N.W.2d 753, 759 (Iowa 1979)). We said in Iowa Bankers Ass'n, 335 N.W.2d at 444, that a party only needs to show some injury to an interest which is distinguishable from that of the general public; a party may have standing without being the primary object of the agency action.

Local governments lack standing to challenge the constitutionality of their sovereign's enactments. Board of Supervisors of Linn County v. Iowa Dept. of Revenue, 263 N.W.2d 227, 232 (Iowa 1978) (citing Warren County v. Judges of the Fifth Judicial Dist., 243 N.W.2d 894, 897 (Iowa 1976); see also Hunter v. City of Pittsburgh, 207 U.S. 161, 28 S.Ct. 40, 52 L.Ed. 151 (1907)). But Missouri Basin Group cannot be excluded here on this principle. At least one of its members is not an Iowa municipality or entity. Western Minnesota Municipal Power Agency is a municipal corporation and political subdivision of Minnesota, a member of the non-rate-regulated utilities forming Missouri Basin Group, and a party to all S 1 contracts involving the Iowa municipalities joined in these proceedings.

The utilities and Missouri Basin Group have specific personal and legal interests in the challenged regulations which are sufficient for standing. Missouri Basin Group is forced by the proposed regulations to choose between violating the exclusivity provisions of its S 1 contracts, thus facing the legal consequences flowing from a breach, and violating the express terms and provisions of the challenged statutes, with consequent likelihood of incurring civil penalties. This conflict between the Basin's pecuniary and penal interests is clearly distinguishable from any threat the agency's action poses to the general public. The utilities also have interests which are inextricably tied to the subject matter of the suit. The commission's proposed regulations would require the utilities to enter into binding contracts to buy AEP electricity at a price set by the state. Missouri Basin Group and the utilities have standing.

III. In setting the statewide, fixed, minimum rate, the...