In re Minn. Power's Petition for Approval of the Energyforward Res. Package, A19-0688

958 N.W.2d 339

In the MATTER OF MINNESOTA POWER'S PETITION FOR APPROVAL OF the ENERGYFORWARD RESOURCE PACKAGE.

A19-0688

A19-0704

Supreme Court of Minnesota.

Filed: April 21, 2021

OPINION

McKEIG, Justice.

This appeal considers whether the Minnesota Environmental Policy Act, Minnesota Statutes ch. 116D (2020), requires the Minnesota Public Utilities Commission to conduct an environmental review before deciding whether to approve affiliated-interest agreements under Minnesota Statutes section 216B.48, subdivision 3 (2020), that will govern the construction and operation of a power plant in a neighboring state. The court of appeals held that the Commission erred by approving the affiliated-interest agreements without first considering whether environmental review was necessary. In re Minn. Power's Petition for Approval of the EnergyForward Res. Package (In re Minn. Power) , 938 N.W.2d 843, 853 (Minn. App. 2019). We disagree. We therefore reverse the court of appeals and remand to that court to address the remaining issues on appeal.

FACTS

In July 2017, appellant Minnesota Power, a Minnesota public utility, filed a petition with appellant Minnesota Public Utilities Commission (Commission) for approval of its EnergyForward resource package as required under Minnesota law. See Minn. Stat. § 216B.2422, subd. 2 (2020) ; Minn. R. ch. 7843 (2019). This petition included a proposal for the Nemadji Trail Energy Center (NTEC), a natural gas power plant, to be located in Superior, Wisconsin. Wisconsin does not allow foreign entities to obtain a license, permit, or franchise to own or operate a power-generation facility in Wisconsin. Wis. Stat. § 196.53 (2020). Thus, Minnesota Power explained to the Commission, NTEC will be jointly owned and developed by South Shore Energy LLC, a Wisconsin affiliate of Minnesota Power, and Dairyland, a Wisconsin generation and transmission cooperative. South Shore and Dairyland will each own an equal share of NTEC and an equal share of the power generated at the plant.

Because Minnesota Power is a regulated Minnesota utility, it is required under Minnesota law to secure Commission approval of agreements with its affiliate, South Shore. Minn. Stat. § 216B.48, subd. 3 (stating that a "contract" between a "public utility" and an "affiliated interest" must have the Commission's "written approval"). Thus, in its July 2017 petition, Minnesota Power sought Commission review and approval of three affiliated-interest agreements. In the first agreement, South Shore agrees to sell 48 percent of the capacity produced at NTEC to Minnesota Power. In the second agreement, South Shore assigns its rights and responsibilities as construction agent for NTEC to Minnesota Power. In the third agreement, South Shore assigns its rights to act as the operating agent of NTEC to Minnesota Power.

The Commission referred the EnergyForward plan and the affiliated-interest agreements to a contested case hearing before an administrative law judge (ALJ). Respondents Minnesota Center for Environmental Advocacy, Union of Concerned Scientists, and Sierra Club filed comments regarding the EnergyForward proposal and the affiliated-interest agreements. Respondent Honor the Earth filed a petition for Minnesota Environmental Policy Act (MEPA) review of NTEC with the Commission, which the ALJ found was outside the scope of the contested-case proceeding. Thus, the issue before the ALJ was whether Minnesota Power's proposed purchase of capacity from NTEC was needed and reasonable and, therefore, whether the affiliated-interest agreements should be approved. In her findings, the ALJ concluded that Minnesota Power had failed to establish that the capacity purchase from NTEC was needed and reasonable. Finding the company's analysis of alternative forms of energy both inadequate and biased in favor of NTEC, the ALJ recommended that the Commission deny Minnesota Power's request for approval of the affiliated-interest agreements.

In October 2018, after the ALJ made her recommendations, respondent Honor the Earth filed a petition with the Environmental Quality Board to request MEPA review of the NTEC plant; specifically, that an Environmental Assessment Worksheet (EAW) be prepared. The Environmental Quality Board referred the petition to the Commission, as the responsible governmental unit to make the decision on the need for an EAW. See Minn. R. 4410.0500, 4410.4300 (2019).

The Commission did not adopt the ALJ's recommendations. See Minn. Stat. § 14.62, subd. 2a (2020) (stating that an ALJ's decision is final unless the agency rejects it). In its decision, the Commission addressed both the approval of the NTEC plan and whether approval of the affiliated-interest agreements requires environmental review and an EAW under MEPA.

The Commission found that the capacity purchase from NTEC, as proposed by Minnesota Power, is needed and reasonable because it is a cost-effective resource for meeting the company's energy needs as it retires older coal-powered resources. In reaching this conclusion, the Commission disagreed with the ALJ's conclusions regarding the sufficiency of the agency modeling on resource needs, demand, and energy efficiency.

On the request for MEPA review, the Commission concluded that its jurisdiction is limited to power plants proposed to be built in Minnesota. Because NTEC will be built entirely in Wisconsin and is not a cross-border project, the Commission concluded, it is not subject to Minnesota's permitting and environmental review regulations. The Commission also found the approval of the affiliated-interest agreements would not grant permission to Minnesota Power to construct or operate the plant; rather, that permission would have to be obtained from Wisconsin regulators. Thus, the Commission concluded there is no "project" subject to MEPA review. See Minn. Stat. § 116D.04, subd. 1a(d) (2020) (defining "governmental action" to include "projects"). The Commission therefore denied Honor the Earth's petition for MEPA review, and approved all three affiliated-interest agreements as "reasonable and consistent with the public interest under the relevant statute and rules." Minn. Stat. § 216B.48 (2020) ; Minn. R. 7825.1900 - .2300 (2019).

Respondents appealed the Commission's decision to the court of appeals. In a published opinion, the court of appeals reversed the Commission's decision to deny the petition for MEPA review. In re Minn. Power , 938 N.W.2d at 847. The court concluded that "MEPA requires all state agencies to consider ‘to the fullest extent practicable’ the environmental consequences flowing from their actions." Id. at 850 (quoting Minn. Stat. § 116D.03, subd. 1 (2020) ). With this broad directive in mind, the court concluded "that MEPA applies to the governmental action of approving the NTEC affiliated-interest agreements." Id. at 850-51. The court of appeals remanded the case to the Commission to determine if an EAW is necessary, declining to address the other challenges to the Commission's decision to approve the affiliated-interest agreements. Id. at 853 n.5. We granted Minnesota Power's petition for review.¹

ANALYSIS

We independently review an agency's decision without any special deference to the decision of the court of appeals. Estate of Atkinson v. Minn. Dept. of Hum. Servs. , 564 N.W.2d 209, 213 (Minn. 1997). Substantial deference, however, is given to the decision of the Commission and agency decisions enjoy a presumption of correctness. City of Moorhead v. Minn. Pub. Util. Comm'n , 343 N.W.2d 843, 846 (Minn. 1984). We may reverse or modify an agency decision if it is:

(a) in violation of constitutional provisions; or

(b) in excess of the statutory authority or jurisdiction of the agency; or

(c) made upon unlawful procedure; or

(d) affected by other error of law; or

(e) unsupported by substantial evidence in view of the entire record as submitted; or

(f) arbitrary or capricious.

Minn. Stat. § 14.69 (2020). The party challenging an agency decision "has the burden of proving that the conclusions of such agency violate one or more of the provisions" of Minn. Stat. § 14.69. Markwardt v. State, Water Res. Bd. , 254 N.W.2d 371, 374 (Minn. 1977).

The parties agree that the question presented by this appeal—does MEPA require environmental review of affiliated-interest agreements associated with a Wisconsin power plant before approval of those agreements—is a question of law. We review questions of law de novo, see, e.g. , Minnesota Sands, LLC v. Cnty. of Winona , 940 N.W.2d 183, 200 (Minn. 2020), while giving substantial deference to an agency's fact-finding process. In re Excess Surplus Status of Blue Cross & Blue Shield of Minn. , 624 N.W.2d 264, 278 (Minn. 2001). We will reverse an agency decision if its findings are unsupported by substantial evidence. Citizens Advocating Responsible Dev. v. Kandiyohi Cnty. Bd. of Comm'rs (CARD) , 713 N.W.2d 817, 832 (Minn. 2006).

Appellants argue that the court of appeals erred when it held that the commission's approval of Minnesota Power's affiliated-interest agreements that govern a Wisconsin power plant is a "project" to which MEPA applies, thus requiring an EAW and an Environmental Impact Statement (EIS) before a final decision can be made. They contend that the but-for causation standard that the court of appeals applied is improper and too expansive. Appellants urge that MEPA does not apply because agency approval of affiliated-interest agreements governing a commercial relationship does not cause environmental effects, and an EAW is not required.

Respondents disagree. They argue that the court of appeals correctly recognized that the Commission's decision to approve the affiliated-interest agreements proposed by a Minnesota utility for a project that will have environmental impacts in Minnesota requires MEPA review before the Commission can make an approval decision.²

We begin with the plain language of section 216B.48. See CARD , 713 N.W.2d at 828 (applying statutory...