On Friday, 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 asks the court to declare the law unconstitutional because it violates the dormant Commerce Clause.
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 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.
LSP’s complaint is available on the Minnesota page.