LS Power Midcontinent, LLC v. State
| Docket Number | 21-0696 |
| Decision Date | 24 March 2023 |
| Citation | 988 N.W.2d 316 |
| Parties | LS POWER MIDCONTINENT, LLC and Southwest Transmission, LLC, Appellants, v. STATE of Iowa, Iowa Utilities Board, Geri D. Huser, Glen Dickinson, and Leslie Hickey, Appellees, and MidAmerican Energy Company and ITC Midwest LLC, Intervenor-Appellees |
| Court | Iowa Supreme Court |
Waterman, J., delivered the opinion of the court, in which all participating justices joined. Oxley, McDermott, and May, JJ., took no part in the consideration or decision of the case.
Michael R. Reck (argued), Charles F. Becker, and Erika L. Bauer (until withdrawal) of Belin McCormick, P.C., Des Moines, for appellants.
Brenna Bird, Attorney General, and David M. Ranscht (argued) and Benjamin Flickinger (until withdrawal), Assistant Attorneys General, for State appellees.
Stanley J. Thompson (until withdrawal), Elizabeth R. Meyer, and Tara Z. Hall of Dentons Davis Brown PC, West Des Moines, for intervenor-appellee MidAmerican Energy Company.
Bret A. Dublinske (argued) and Lisa M. Agrimonti of Fredrikson & Byron, P.A., Des Moines, and Amy Monopoli (until withdrawal) of ITC Holdings Corp., Des Moines, for intervenor-appellee ITC Midwest LLC.
Lynn C. Herndon of Nyemaster Goode, P.C., Des Moines, and Kenneth R. Stark of McNees Wallace & Nurick LLC, Harrisburg, PA, for amicus curiae Coalition of MISO Transmission Customers.
Terri C. Davis and Kelly A. Cwiertny of Shuttleworth & Ingersoll, P.L.C., Cedar Rapids, for amicus curiae Resale Power Group of Iowa.
Samantha C. Norris, Haley R. Van Loon, and Jackson G. O'Brien of Brown, Winick, Graves, Gross and Baskerville, P.L.C. for amicus curiae NextEra Energy Transmission, LLC.
In this appeal, we must decide whether the district court correctly ruled that qualified would-be competitors in the electric transmission market lacked standing to challenge new legislation that blocks them from bidding against existing Iowa operators on future projects. The statute at issue, Iowa Code section 478.16 (2020), grants "incumbent" Iowa entities a right of first refusal (ROFR) that forestalls competitive bidding. The ROFR repeatedly failed to pass as a stand-alone bill but was enacted in the final hours of the 2020 legislative session as part of a fifty-page appropriations bill. The plaintiffs sued the Iowa Utilities Board to enjoin enforcement of section 478.16 on grounds the enactment violated the single-subject, title, and equal protection provisions of the Iowa Constitution. The district court granted the Board's motion to dismiss on grounds the plaintiffs lacked standing because there were no approved projects to upgrade Iowa's electric grid when the suit was filed.
The plaintiffs appealed, arguing they satisfied standing requirements because such projects were imminent and they were otherwise qualified bidders. We transferred the case to the court of appeals. New projects were announced while the appeal was pending and the plaintiffs moved to stay enforcement of the ROFR. The court of appeals denied the stay, declined to take judicial notice of the new projects, and affirmed the dismissal for lack of standing, stating the plaintiffs "swung before the pitch and cannot satisfy the injury-in-fact prong of our standing test." We granted the plaintiffs’ application for further review.
On our review, we hold the district court erred by dismissing this action for lack of standing. The more fitting baseball analogy is that the enactment of section 478.16 took the plaintiffs off the ball field before the game began. The likelihood of future projects satisfies the injury-in-fact requirement for standing. We vacate the court of appeals decision, reverse the dismissal order, and remand the case for the district court to address the constitutional challenges on the merits. Because the plaintiffs have shown a likelihood of success on the merits, we grant a temporary injunction to stay enforcement of section 478.16 pending resolution of this litigation.
The electricity market involves three main steps: generation, transmission, and distribution. This case is about transmission: how to move electric power from where it is generated to where it is distributed either wholesale or to retail consumers. Congress has enacted massive funding to upgrade our nation's electric grid. The bipartisan infrastructure bill and Inflation Reduction Act have appropriated billions of dollars for electric transmission projects.1 The plaintiffs in this case, LS Power Midcontinent, LLC, and Southwest Transmission, LLC, (collectively LSP), are among the few entities with the capital and expertise to compete for upcoming upgrades to the electric grid.
Our nation's electric grid is interdependent. For example, PJM Interconnection, one of the largest grid operators in the thirteen eastern states, generates surplus electricity from fossil fuel plants. "When wind power plunged in the Midwest and central states [in late February 2023], PJM helped fill the gap between supply and demand and kept the lights on." S.O.S. for the U.S. Electric Grid , Wall St. J. (Feb. 26, 2023, 4:47 PM), https://www.wsj.com/articles/s-o-s-for-the-u-s-electric-grid-pjm-interconnection-blackout-supply-renewables-subsidy-report-fossil-fuel-4cbdd56e. Efficient transmission is a key component for avoiding grid imbalances that can lead to blackouts. See id. (citing PJM report).
The Iowa Utilities Board (IUB) regulates the siting and construction of electric transmission lines in our state pursuant to Iowa Code chapter 478. The Federal Energy Regulatory Commission (FERC) regulates interstate, high-voltage transmission. FERC in turn oversees regional transmission organizations (RTOs). Each RTO coordinates, controls, and monitors the power grid within its region of service. This authority includes planning and approving new transmission projects to be carried out by private entities. Two RTOs, Midcontinent Independent System Operator (MISO) and Southwest Power Pool (SPP), serve Iowa. Missouri-based LSP actively develops, constructs, and manages electric transmission projects in the territory of these two RTOs. LSP currently has no projects in Iowa.
In 2011, FERC took action to lower the cost of grid upgrades. Specifically, FERC directed RTOs to remove federal-level ROFRs in order to increase competitive bidding. See Transmission Planning and Cost Allocation by Transmission Owning and Operating Public Utilities, 76 Fed. Reg. 49,841, 49,855 (2011) [hereinafter FERC Order]. The agency reasoned that federal ROFRs might "be leading to rates ... that are unjust and unreasonable," in large part because "it is not in the economic self-interest of incumbent[s] to permit new entrants to develop transmission facilities," even if those facilities "would result in a more efficient or cost-effective solution." NextEra Energy Cap. Holdings, Inc. v. Lake , 48 F.4th 306, 312 (5th Cir. 2022) () (quoting FERC Order at 49,886). Because the Federal Power Act "leav[es] room for state regulation," the FERC Order permits state-level ROFRs. Id. ; FERC Order at 49,880. That left the door open to the state ROFR at issue here.
A. The ROFR and Its Effects. Iowa Code section 478.16(2), enacted in 2020, 2020 Iowa Acts ch. 1121, § 128, gives incumbent electric transmission owners an ROFR2 to construct, own, and maintain an RTO-approved electric transmission line that will be connected to an existing electric facility. Amicus Resale Power Group of Iowa rightly observes the ROFR stifles competition: "The Iowa ROFR Statute creates a right that no market participant would otherwise have—an ability to essentially deny market entry to a potential competitor, and thereby preserve a monopoly role in the development and ownership of additional transmission facilities." The United States Court of Appeals for the Fifth Circuit described a similar electric transmission ROFR as follows:
NextEra Energy Cap. Holdings, Inc. , 48 F.4th at 309–10 (5th Cir. 2022) ().
Section 478.16 defines "incumbent electric transmission owner" as follows:
Id. § 478.16(1)(c ). Notably, this definition of incumbent does not include LSP, which operates transmission lines in neighboring states, or amicus NextEra Energy Transmission, LLC, the leading transmission company in North America, which operates fifteen electricity generation facilities in Iowa that generate over 1,300 megawatts using transmission lines (called "gen-tie lines") that connect its wind turbines and solar panels to substations. MidAmerican Energy Company and ITC Midwest, LLC, the two intervenors in this case, fall within this statutory definition of "incumbent."
Section 478.16 further provides that an incumbent electric transmission owner has ninety days to exercise its...
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