UPDATES & ANALYSIS

Iowa Supreme Court rules that Iowa Utilities Board must consider alternatives to a public utility’s plan for managing emissions

by Ami Penquite | August 4, 2023

In an opinion filed on April 28, 2023, the Iowa Supreme Court in Environmental Law and Policy Center v. Iowa Utilities Board ruled under Iowa Code section 476.6 the Iowa Utilities Board erred in not considering certain intervenors’ evidence when approving MidAmerican Energy’s required biennial plan and budget for “managing regulated emissions from its facilities in a cost-effective manner.” Justice McDonald delivered the opinion of the Court, in which all of the Justices joined.

Iowa Code section 476.6 regulates “changes in rates, charges, schedules, and regulations for rate-regulated public utilities.” Under the code section, covered utilities are required to develop and update a plan and budget for managing regulated emissions in a cost-effective manner. The Utilities Board considers these plans in a contested proceeding where the Iowa Department of Natural Resources (DNR) and Office of the Consumer Advocate (OCA) are required to participate and other parties may intervene.

Under Iowa Code section 476.6, the Utilities Board can only approve a plan if it is “reasonably expected to achieve cost-effective compliance with applicable state environmental requirements and federal ambient air quality standards.” “In reaching its decision, the [Utilities Board] shall consider whether” the plan “reasonably balance[s] costs, environmental requirements, economic development potential, and the reliability of the electric generation and transmission system.” If the plan is not approved, the utility that submitted it will not be able to recover costs by increasing rates for consumers.

In this case, MidAmerican submitted a plan requesting approval for operations and maintenance costs associated with emission controls of four pre-approved coal-fueled power plants. Several parties intervened in the contested case proceedings, including the Environmental Law & Policy Center, the Iowa Environmental Council, and the Sierra Club. In written testimony, a utilities specialist for the OCA criticized the plan for “failing to consider the retirement of coal-fueled electric power generating facilities.” Specialists from the intervening parties also testified continued operation of the facilities was not cost effective.

Before the contested proceeding, there had been a nonunanimous settlement agreement created between MidAmerican and OCA, but the Utilities Board continued with the proceeding and approved MidAmerican’s plan while denying the joint motion to settle and cancelling the contested case hearing. The Utilities Board stated the evidence presented by OCA and the interveners was outside the scope of the proceeding.

The Board denied a motion to reconsider, and the intervenors filed for judicial review in the district court. OCA and Environmental Parties argued the board erred in concluding that the consideration of least-cost alternatives and retirement of coal-fueled electric generating facilities were outside the scope of the statute. The district court ruled in favor of the Utilities Board and upheld the approval of MidAmerican’s plan. Subsequently, the environmental parties appealed and the Court retained the appeal.

On appeal, the Utilities Board maintained that the evidence rejected was outside the scope of section 476.6 and thus not relevant. “[A]ccording to MidAmerican, the statute neither allows Environmental Parties and OCA to foist alternative budgets and plans on the utility nor allows the board to consider or approve alternative budgets and plans.”

The Court agreed that the scope of the statute is narrow, but noted that the scope does not resolve the issue of whether the evidence relating to alternatives was relevant. The Court provided three reasons why the evidence was relevant and should have been considered by the Utilities Board. First, the statute’s text requires the submitted plan to be “reasonably” cost-effective and “reasonably balance[d],” which indicates alternative methods should be considered when approving a plan. Second, the requirement that a contested case proceeding take place before a plan is approved indicates relevant evidence may be submitted to oppose the submitted plan. Finally, the Utilities Board has allowed similar evidence in contested proceedings before and determined the evidence was relevant.

Justice McDonald agreed that “the intervening parties could not force alternative budgets and plans, including plant retirement, on MidAmerican. And we agree with the board that it was without the authority to approve alternative budgets and plans.” However, the Court held the specialists’ evidence was relevant and should have been considered by the Utilities Board, and since the Utilities Board did not consider the relevant evidence, their decision was “the product of illogical reasoning.” Subsequently, the Utilities Board’s decision was vacated and the case was remanded to the district court to be remanded to the agency.

Tags: Iowa Supreme Court 2022-23