Iowa Supreme Court rules that solar-powered behind the meter installations are not public utilitiesSeptember 18, 2014
Iowa Supreme Court rules that solar-powered behind the meter installations are not public utilities
In a decision released July 11, 2014 in SZ Enters. v. Iowa Utilities Board, et al., No.13-0642 (Iowa 2014) (unpublished), the Iowa Supreme Court ruled that solar-powered behind the meter installations are not public utilities under Iowa law.
The court was asked to consider whether SZ Enterprises, LLC, d/b/a Eagle Point Solar ("Eagle Point") may enter into a long-term financing agreement related to the construction of a solar energy system on the property of the city of Dubuque under which the city would purchase from Eagle Point all of the electricity generated by the system on a per kilowatt hour (kWh) basis. Before moving forward with the project, Eagle Point sought a declaratory ruling from the Iowa Utilities Board (the board) (Iowa’s equivalent to the Public Service Commission of Wisconsin) that, under the proposed agreement, (1) Eagle Point would not be a "public utility" under Iowa law and (2) that Eagle Point would not be an "electric utility" under Iowa law. In Iowa, like in Wisconsin, only public utilities are permitted to serve customers, such as a city. Iowa, like Wisconsin, has exclusive service territories for its public utilities and other public utility companies are strictly prohibited from serving customers in the territory of another utility.
The Iowa utilities board decision
The board ruled that, under the proposed business arrangement, Eagle Point would be acting as a public utility. Therefore, the board ruled that Eagle Point was prohibited from selling electricity to the city under the proposed arrangement. Because it found that Eagle Point was indeed a public utility, the board found it unnecessary to consider the second question – whether Eagle Point was an electric utility.
Eagle Point brought a petition for judicial review of the board decision. The district court reversed, holding that Eagle Point’s behind the meter generation of solar electric power does not qualify as the type of activity practiced by a public utility. The court noted, however, that it was conceivable that, under some circumstances, an entity that was not a public utility could nevertheless be an electric utility, but that Eagle Point’s proposed project with the city did not make it an electric utility.
Iowa Supreme Court decision
In upholding the decision of the Iowa district court, the Iowa Supreme Court examined the proposed project between Eagle Point and the city of Dubuque and the relevant Iowa statutes. The Iowa Supreme Court had previously held that, in order to qualify as a public utility under Iowa Code section 476.1, the record must show "sales to sufficient of the public to clothe the operation with a public interest and . . . not . . . willingness to sell to each and every one of the public without discrimination." Iowa State Commerce Commission v. Northern Natural Gas Co. [Northern Natural Gas I], 161 N.W.2d 111, 115 (Iowa 1968). The Northern Natural Gas I court also referred to an eight-factor test as set forth in Natural Gas Service Co. v. Serv-Yu Cooperative, Inc., 219 P.2d 324, 325–26 (Ariz. 1950) for help in determining whether a business’ sales create such a "public interest." Northern Natural Gas I, 161 N.W.2d at 114-116. The Board had distinguished the Iowa Supreme Court’s ruling in Northern Natural Gas I by pointing out, inter alia, that the exclusive service territorial statutes applicable to electric utilities do not apply to gas utilities. SZ Enters., No.13-0642, at 6 (citing Iowa Code § 476.25(3)).
The district court analyzed the proposed project by considering "the natural of the actual operations conducted and its effect on the public interest." Id. at 7. Northern Natural Gas Co. v. Iowa Utils. Bd. (Northern Natural Gas II), 679 N.W.2d 629, 633 (Iowa 2004). While the district court examined the eight factors from the Serv-Yu case, it also noted that those factors are not necessarily controlling with respect to the question of whether or not Eagle Point was a public utility.
The Iowa Supreme Court also examined case law from other states regarding the inquiry into whether an entity is acting as a public utility and the question of whether third-party power purchase agreements are subject to regulation as public utilities. Finally, the court concluded that, based on a comprehensive analysis of the eight Serv-Yu factors and the proposed relationship between Eagle Point and the city of Dubuque, Eagle Point was neither a public utility nor an electric utility.
Application to Wisconsin
The Public Service Commission of Wisconsin has not addressed whether solar-powered behind the meter generation constitutes a public utility under Wisconsin law. The Iowa decision may encourage distributed generation proponents to press this issue.