Update – October 17, 2018 – Transmission Developer Files Initial Brief in Eighth Circuit Appeal

On Friday, LS Power filed its initial brief in its appeal of a June decision dismissing dormant Commerce Clause claims against Minnesota’s right-of-first-refusal (ROFR) law. LSP’s brief argues that Minnesota’s law discriminates against interstate commerce on its face, in its effects, and in its purpose. It urges the Eighth Circuit to overturn the lower court’s ruling and vacate the law because the “discrimination against interstate commerce is so open and notorious that the invalidity of the Minnesota statute requires no further factual development.”

Minnesota’s ROFR law grants entities that currently own, operate, and maintain transmission facilities in Minnesota the right to build new transmission lines that will connect to their existing facilities. In effect, the law prohibits out-of-state transmission developers from building facilities in Minnesota. Developer LSP’s complaint argues that the law’s explicit in-state preference is discriminatory under the dormant Commerce Clause.

The lower court’s decision dismissing LSP’s dormant Commerce Clause claims relied primarily on a 1997 Supreme Court case, General Motors v. Tracy. In that case, the Court held that Ohio’s exemption from sales tax for in-state utilities’ natural gas purchases did not discriminate against out-of-state marketers because discrimination under the dormant Commerce Clause assumes a comparison of substantially similar entities. According to the court, utilities and marketers serve different markets (captive vs. competitive) and sell different products (“bundled” vs. “unbundled” gas). Thus, Ohio’s differential treatment of utilities and marketers was permissible. Here, the lower Court held that “regulated utilities (the existing transmission line owners with a ROFR) are not similarly situated with unregulated entities such as [complainant] LSP.”

On appeal, LSP argues that the Minnesota law targets a single product — electric transmission lines approved by a FERC-regulated RTO — and Tracy is therefore inapposite. The fact that some companies benefiting from the ROFR also provide a bundled retail product under state regulation is irrelevant. Tracy “does not purport to allow states to treat in-state public utilities and out-of-state competitors differently in a context where the only thing they are doing is competing for the very same business.”

Without Tracy to shield the law from dormant Commerce Clause scrutiny, LSP urges the Eighth Circuit to overturn the lower court’s decision because Minnesota’s law “discriminates against interstate commerce three times over.” First, the law discriminates on its face by “securing lucrative business opportunities . . . for favored local operators.” Second, the law discriminates in effect by “granting entities with an in-state presence a preference at the direct expense of out-of-state entities that lack such a presence.” Third, the law was enacted for the discriminatory purpose of insulating in-state companies from competition.

LSP also argues that Minnesota’s law unduly burdens interstate commerce while providing only “speculative” benefits. LS Power claims that “neither defendants nor the District Court explained how the ROFR statute protects retail customers or avoids inefficiencies and increased costs.”

The U.S. Department of Justice filed a statement of interest in the district court, forcefully siding with LSP and urging the court to strike down Minnesota’s law. The district court “declined to consider” the government’s brief because it was filed more than two months after the parties filed their briefs.

The brief is available on the Minnesota page