Commerce Clause and Supremacy Clause Challenge to State Law Limiting Coal Power
State of North Dakota, et al., v. Heydinger, et al., Case No. 11-cv-3232
Recent Developments: In June 2016, the 8th Circuit affirmed a Federal District Court’s decision that Minnesota’s law is unconstitutional.
LSP Transmission v. Swanson
LSP Transmission filed a lawsuit in federal district court in Minnesota, arguing that the state’s Right of First Refusal (ROFR) law facially discriminates against interstate competitors in the transmission development market. The company argues that the law has no legitimate, non-protectionist purpose and that is therefore unconstitutional under dormant Commerce Clause doctrine.
Minnesota’s ROFR law, enacted in 2012, provides in-state utilities with “the right to construct, own, and maintain an electric transmission line that has been approved for construction” by a FERC-regulated transmission planning process. The utility that owns the existing facilities that interconnect with the new line has 90 days following approval by the FERC-regulated process of the new line to notify the Minnesota PUC of whether or not it intends to construct the line. If the utility does not intend to construct the line, the PUC may order it to do so. Otherwise, other entities may have the opportunity to construct the line. See Minn. Stat. § 216.246.
The Minnesota Legislature passed the law in the wake of FERC’s issuance of Order No. 1000, which mandated reforms to regional transmission planning. Order No. 1000 stipulates that RTO/ISO tariffs may not grant a utility the right of first refusal to construct a transmission project selected by a regional process. FERC concluded that ROFRs discourage new entrants in the transmission development market and may result in transmission rates that are not just and reasonable. The First, Seventh, and D.C. Circuit Courts of Appeal upheld FERC orders requiring wholesale market operators to remove ROFRs.
According to LSP’s complaint, while the regional transmission planning entity (MISO) was preparing tariff provisions that would eliminate the ROFR from its FERC-jurisdictional tariff, the Minnesota Legislature created a state-level ROFR “to protect its incumbent utilities from being required to compete with out-of-state-developers.” LSP cites a recent determination by MISO that an approved transmission project was not subject to its competitive solicitation process because of Minnesota’s law as evidence of the law’s discriminatory purpose and effect.
The court sided with the state and utilities who filed briefs defending the law, relying primarily on a 1997 Supreme Court case, General Motors v. Tracy, about an Ohio tax on natural gas purchases. In that case, the Court held that Ohio’s exemption of sales by in-state utilities did not discriminate against out-of-state marketers. According to the Court, utilities and marketers serve different markets (captive vs. competitive) and sell different products (“bundled” vs. “unbundled” gas). Because any notion of discrimination under the dormant Commerce Clause assumes a comparison of substantially similar entities, the Court held that the state’s differential treatment of utilities and marketers was not unconstitutionally discriminatory. The Court was also reluctant to second-guess Ohio’s regulation of utilities, “lest [it] imperil the delivery . . . of bundled gas to the noncompetitive captive market.”
In this case, the Minnesota court concluded that the state “is entitled to consider the effect on the public utilities and the consumers that the utilities serve” and feared that the “negative impact on the ability of utilities to serve consumers in the monopoly market weighed against invalidating the challenged statute.” The court also observed that utilities are subject to extensive state regulation and its intervention “could upset the balance between those burdens” and the benefit of the ROFR. Ultimately, the Court said, “Congress, FERC, and the Minnesota legislature are better-situated than the courts to determine the economic wisdom and the health and safety effects of a decision on the correct balance between competition” and regulated monopolies.
The court also concluded that the law does not discriminate against out-of-state entities. Rather, the law “draws a neutral distinction between existing electric transmission owners whose facilities will connect to a new line and all other entities, regardless of whether they are in-state or out-of-state.” Moreover, the court observed that five of the sixteen incumbent transmission owners are headquartered out of state and held that “incumbency bias is not the same as discrimination against out-of-state interests.” Finally, the court dispensed with the claim that law unduly burdens interstate commerce.
The legal theory that state ROFR laws violate the dormant Commerce Clause is discussed in a 2015 law review article by Alexandra Klass and Jim Rossi that is the subject of an Electricity Law Initiative policymaker summary.
LS Power’s Initial Brief (Oct. 12, 2018)
District Court Decision
Memorandum and Opinion (June 21, 2018)
Complaint (Sep. 29, 2017)
Minnesota’s Memorandum in Support of Motion to Dismiss (Nov. 7, 2017)
Minnesota Utilities’ Amicus Brief in Support of the State (Nov. 14, 2017)
Northern States Power’s Motion to Dismiss (Nov. 17, 2017)
Plaintiff’s Opposition to Motions to Dismiss (Jan. 9, 2018)
Minnesota’s Reply in Support of Motion to Dismiss (Jan. 26, 2018)
Northern States Power Company’s Reply in Support of Motion to Dismiss (Jan. 26, 2018)
U.S. Department of Justice Statement of Interest (Apr. 13, 2018) (supporting LSP)
• LSP Response (Apr. 30, 2018)
• Minnesota’s Response (Apr. 30, 2018)
• Northern States Power Company Response (Apr. 30, 2018)
North Dakota v. Heydinger
In 2007, the Minnesota legislature passed wide-ranging energy reform legislation known as the Next Generation Energy Act (NGEA). One section of the NGEA requires state agencies to craft a plan for reducing the State’s greenhouse gas emissions by 80 percent. If the State fails to adopt a plan, the NGEA then prohibits any “person” from: (1) constructing a “new large energy facility” in Minnesota that would contribute to statewide power sector carbon dioxide emissions; (2) “import[ing] or commit[ting] to import” power from a new large energy facility that would contribute to statewide power sector carbon dioxide emissions; or (3) entering into a new long-term power purchase agreement that would increase statewide power sector carbon dioxide emissions, unless the project developer offset its emissions to the satisfaction of the PUC. The NGEA includes exemptions for specific facilities, and excludes natural gas fired plants from the definition of “new large energy facility.”
North Dakota, coal companies, and coal-dependent utilities claim that this provision is invalid under the Commerce Clause because it facially discriminates against them and unduly burdens interstate commerce. Challengers argue that the NGEA impermissibly restricts imports of power into Minnesota and prohibits long-term contracts with out-of-state coal plants, while providing exemptions only for facilities in Minnesota and/or owned by Minnesota entities. Plaintiffs further allege that the NGEA is per se invalid because its limitations on coal-generated electricity regulate a means of production that occurs outside Minnesota’s boundaries. Plaintiffs assert that such extraterritorial regulation is unconstitutional.
State defendants and environmental group intervenors argue that as a threshold matter the case is not ripe for adjudication. The Minnesota PUC, charged with implementing and enforcing the NGEA, has not yet provided guidance on the this provision’s meaning. According to Defendants, Plaintiffs are asking a Federal court to strike down the statute based on a speculative and overly broad interpretation.
With regard to the Commerce Clause challenge, the Defendants respond that the NGEA applies equally to in-state and out-of-state interests. With regard to extraterritoriality, Defendants assert that the Supreme Court has only applied that doctrine to price control laws, and the NGEA is not a price control law.
In April 2014, the court ruled on the parties’ motions for summary judgment and agreed with the plaintiffs that provisions (2) and (3) regulate extraterritorially and are therefore invalid under the dormant Commerce Clause. The court observed that energy generated by a particular power plant cannot be tracked across the interstate transmission grid. Energy injected into the grid from a plant in one State could be consumed in another State, so long as they are electrically connected. Given this interstate movement of energy, the court found two constitutional problems with provisions (2) and (3).
First, the law prohibits any “person” from importing energy from a new coal-fired facility into Minnesota. Therefore, a coal-fired generator injecting energy into the regional grid, regardless of its location, could be importing energy into Minnesota in violation of the law. The court found that Minnesota’s attempt to regulate out-of-state electricity generation is barred by the dormant Commerce Clause.
Second, provision (3) allows for long-term contracts that increase Minnesota’s emissions only if the project proponent offsets the emissions to the satisfaction of Minnesota regulators. But because the court found that the law applies to any electricity provider injecting energy into the regional grid, the law therefore requires non-Minnesota generators to seek Minnesota’s approval before entering into a transaction. The court concluded that Minnesota’s regulation of out-of-state transactions violates the dormant Commerce Clause.
Challengers had also asserted that the provisions are preempted by the Federal Power Act and Clean Air Act and therefore invalid under the Constitution’s Supremacy Clause. The court determined that the Supremacy Clause challenge was moot because she had struck down the provisions based on their extraterritorial reach.
Decisions (June 15, 2016)
Order Dismissing Cross-Appeal (Oct. 2, 2014)
Appellants’ Motion to Dismiss Appellees Cross Appeal (July 11, 2014)
Appellees’ Opposition to Appellants’ Motion to Dismiss (July 21, 2014)
Appellants’ Reply in Support of Motion to Dismiss (July 24, 2014)
Appellants’ Initial Brief (Nov. 3, 2014)
Amicus Briefs in Support of Appellants:
• Amicus Brief of Environmental Organizations in Support of Appellants (Nov. 24, 2014)
• Amicus Brief of Steven Gaw and Steven Weissman in Support of Appellants (Nov. 24, 2014)
• American Wind Energy Association and Solar Energy Industry Association
• Minnesota Environmental Organizations
Appellees’ Brief and Supplemental Addendum (Jan. 21, 2015)
Amicus Briefs in Support of Appellees:
• U.S. Chamber of Commerce, Minnesota Chamber of Commerce, National Association of Manufacturers, and the American Fuel and Petrochemical Manufacturers
• American Coalition for Clean Coal Electricity and the National Mining Association
• Montana Coal Council and Mountain States Legal Foundation
• American Public Power Association, National Rural Electric Cooperative Assocation, and the Missouri Joint Municipal Electric Utility Commission
Appellants’ Reply Brief (Mar. 16, 2015)
Appellees’ Reply Brief (Mar. 31, 2015)
Letter from Appellees about amendment to Minnesota law (June 14, 2016)
Listen to the Oral Argument (Oct. 21, 2015)
Memorandum Opinion and Order (granting in part and denying in part Defendants’ Motion to Dismiss) (Sep. 30, 2012)
Judge’s Opinion and Order Granting Summary Judgment In Favor of Plaintiffs (Apr. 18, 2014)
Amended Complaint (Dec. 1, 2011)
Defendants’ Memorandum in Support of Motion for Summary Judgment (Sep. 5, 2013)
Amici Environmental Organizations Brief in Support of Defendants’ Motion and in Opposition to Plaintiffs’ Motion (Sep. 20, 2013)
Plaintiffs’ Opposition to Defendants’ Motion (Sep. 26, 2013)
Defendants’ Reply in Support of Motion for Summary Judgment (Oct. 10, 2013)
Plaintiffs’ Memorandum in Support of Motion for Summary Judgment (Sep. 5, 2013)
Defendants’ Opposition to Plaintiffs’ Motion for Summary Judgment (Sep. 26, 2013)
Amici Minnesota Chamber of Commerce and National Mining Association Brief in Support of Plaintiffs (Oct. 1, 2013)
Amici American Public Power Association and Natural Rural Electric Cooperative Association Memorandum in Support of Plaintiffs (Oct. 8, 2013)
Plaintiffs’ Reply in Support of Motion for Summary Judgment (Oct. 10, 2013)
Oral Argument on Motion for Partial Judgment on the Pleadings (Apr. 12, 2012)
Oral Argument on Motions for Summary Judgment (Oct. 17, 2013)