Court strikes down Iowa utility law, pauses $2.6 billion in transmission line projects

Iowa legislators violated the state constitution in the waning hours of the 2020 legislative session to pass a bill limiting competition on electric transmission projects, a Polk County judge says.

The bill created a "right of first refusal," or ROFR, allowing companies that already own transmission infrastructure in Iowa the first right to bid on new transmission projects. In effect, the law allows incumbent providers like MidAmerican Energy and ITC Midwest, both of which filed to intervene in the lawsuit, to block new competitors from entering the market.

After Gov. Kim Reynolds signed the law, two companies, LS Power Midcontinent and Southwest Transmission, filed suit, saying the ROFR measure would unlawfully prevent them from competing on future transmission projects.

The court initially dismissed the lawsuit, but the Iowa Supreme Court in March revived the case and sent it back for further consideration, saying the companies had shown they had standing to oppose the new rules.

Now the court has sided with the challengers. In an order Monday, Judge Coleman McAllister permanently blocked the state from enforcing the law, and ordered ITC and MidAmerican to stop work on projects worth several billion dollars until they go through a more competitive bid process.

Echoing Iowa Supreme Court, law ruled unconstitutional

The ruling focuses on two clauses in the Iowa Constitution requiring that any law passed be on a "single subject," and must be titled in a way that gives notice of its contents.

The ROFR provision, which had previously failed to pass as a standalone law, instead was added on the final night of the 2020 session as an amendment to House File 2643, an omnibus bill titled “An Act relating to state and local finances by making appropriations, providing for legal and regulatory responsibilities, providing for other properly related matters, and including effective date and retroactive applicability provisions."

Iowa Supreme Court Justice Thomas Waterman in the March ruling wrote that "in our view, this title is so amorphous that it is difficult to discern the shape and contours of the subject of the bill to which the ROFR might be 'utterly incongruous. ... H.F. 2643 likely was enacted with a title that does not comply with article III, section 29" of the Iowa Constitution.

Further bolstering the argument that the bill's passage violated provisions designed to ensure transparency and robust debate, Waterman cited discussions about the bill on the Senate floor to argue that, in fact, many legislators had been confused about what they were voting on.

Waterman also made clear he was not a fan of the underlying policy. He wrote that the ROFR rules are protectionist, anticompetitive and "quintessentially crony capitalism," and likely to impose higher utility costs on Iowans.

In Monday's ruling, McAllister wrote that no new facts had been presented to change Waterman's findings, and struck down the law and related regulations as unconstitutional.

Praise from plaintiffs, power consumers

Sharon Segner, senior vice president at plaintiff LS Power, praised the decision in a statement.

"Consumers in Iowa and the entire upper Midwest are the real winners today, as the Court’s ruling will ensure they receive the benefits of electric transmission development competition,” Segner said.

Also praising the ruling was the Electricity Transmission Competition Coalition, a group primarily representing industrial groups and other electricity consumers. Coalition Chair Paul Cicio in a statement called the ROFR law "anti-consumer, anti-competitive, and anti-free market."

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"This decisive court action is a victory for consumers — and will lower electricity costs for Iowa businesses and families," he said. "We look forward to seeing MISO (Midcontinent Independent System Operator, the interstate organization in charge of the projects) conduct a competitive process for the Iowa projects in short order.”

MidAmerican and ITC said in a joint statement that it is "common practice" for the Legislature to bundle provisions together in omnibus bills, and that they are considering their next steps.

"Notably, the district court did not rule on the merits of the ROFR legislation, but rather on the procedural issue of the constitutionality of passing the legislation as part of an appropriations bill," the companies said. "As public policy, the ROFR protects Iowa landowner interests, meets the needs of energy consumers, and ensures a coordinated approach to planning and safely operating the electric grid to support a growing Iowa economy."

Legislators irked by prior Supreme Court ruling

Republican legislators have fiercely pushed back against the previous Supreme Court decision, saying they believed the bill was lawfully passed and that the court's parsing of legislative debate violated the separation of powers.

In response, many legislators simply stopped debating. During deliberation over a child labor bill in April, Republican legislators refused to answer questions about the legislation, and signaled that to prevent future court interference, they would no longer engage in "spontaneous and speculative discussions" during floor debate.

Republicans did begin answering some questions again by the end of the 2023 session, but the court decision remains on legislators' minds. Senate Majority Leader Jack Whitver told reporters May 4 he hopes the Supreme Court will revisit the issue.

"I have no problem with the debate on the Senate floor," Whitver said. "The only problem I have is when it is used to throw out laws that were, in my opinion, constitutionally passed. And it’s as simple as that, really."

Decision puts $2.6 billion in projects on hold

The decision comes at an awkward time. In 2022, Congress appropriated $13 billion for electric transmission projects, funding in part several projects located at least in part in Iowa. McAllister's ruling referenced five projects, approved in 2022 under the ROFR rules, worth a combined $2.6 billion.

Although the plaintiffs asked the court to find the approval of those projects invalid, MidAmerican and ITC Midwest argued it could not do so because MISO, the entity that bid out the projects, was not a party to the suit.

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McAllister ruled that because the ROFR law was unconstitutional, the bidding process for the 2022 projects was improper, and enjoined ITC and MidAmerican from taking further action until the projects are rebid. He noted that, had the district court not incorrectly dismissed the case earlier in the litigation, the plaintiffs would have been able to bid on the projects in the first place.

"This court has the authority, now, to correct its earlier error and prevent substantial injury and damage to plaintiffs by granting them the relief they seek," he wrote.

It is not clear what impact this will have on the affected projects' timeline and costs, and when a new bidding process might take place. Reynolds and Attorney General Brenna Bird's offices did not respond to messages seeking comment.

William Morris covers courts for the Des Moines Register. He can be contacted at wrmorris2@registermedia.com, 715-573-8166 or on Twitter at @DMRMorris.

This article originally appeared on Des Moines Register: Iowa power transmission law unconstitutional, Polk County court rules