Update – November 12, 2020 – Transmission Developer Petitions U.S. Supreme Court about Minnesota Law Favoring In-State Utilities

Last week, LSP Transmission petitioned the Supreme Court to review an Eighth Circuit decision about Minnesota’s Right of First Refusal (ROFR) law. The state’s law grants entities that already own transmission facilities in the state the right to build any new transmission lines approved by the federally regulated regional transmission planner. LSP argues that the Eighth Circuit’s decision “upholds a blatantly protectionist law that explicitly discriminates in favor of entities with an existing in-state presence with respect to opportunities in a distinctly interstate market” and is therefore invalid under the dormant Commerce Clause.

The Minnesota Legislature passed the ROFR law shortly after FERC required the regional transmission network operator (MISO) to open certain transmission projects to competitive development. According to LS Power, without protection from the federally regulated tariff, utilities with in-state transmission facilities lobbied the state legislature to protect them from the possibility that transmission developers might win MISO’s competitive procurements and be awarded the opportunity to build transmission in the state. In 2018, a federal district court dismissed LS Power’s complaint. In March, the Eighth Circuit affirmed. The panel concluded that Minnesota’s ROFR law “draws a neutral distinction between existing electric transmission owners . . . and all other entities,” noting that a few of the existing transmission owners are headquartered in other states. It also dismissed claims about the law’s discriminatory purposes and effects, emphasizing that states have broad authority to regulate utilities and accepting the state’s representations that the ROFR serves the state’s legitimate goal of delivering reliable and cost-effective power.

In its petition, LSP claims that the Eighth Circuit “embraced the patently incorrect proposition that the Commerce Clause is indifferent to discrimination in favor of incumbents with an existing in-state presence as long as some of those incumbents are headquartered elsewhere.” Companies with in-state businesses, such as utility transmission owners, employ local residents and pay local taxes, which positions them to lobby state lawmakers to reserve markets for in-state businesses. According to LS Power, state discrimination that benefits such powerful local interests is the “precise evil the Commerce Clause guards against.” The panel’s focus on company headquarters conflicts with “any sensible construction of the Commerce Clause.”

LSP further argues that the Eighth Circuit erred by “declaring the Commerce Clause irrelevant simply because state police power includes regulating utilities.” LSP concedes that a state might have authority to favor incumbent providers with respect to purely local retail utility matters, but Minnesota’s “express discrimination with respect to the interstate grid is plainly verboten.”

In 2019, the Supreme Court reiterated that under the dormant Commerce Clause a state law that discriminates against “nonresident economic actors can be sustained only on a showing that it is narrowly tailored to “advanc[e] a legitimate local purpose.” The case was about a state restriction on alcohol retailers and also implicated the 21st Amendment. It was the Court’s first decision about the dormant Commerce Clause in more than a decade.

A case about a similar Texas ROFR law is currently pending before the Fifth Circuit. LSP has also asked an Iowa state court to strike down that state’s recently passed ROFR. The company claims the ROFR was slipped into the state’s omnibus budget bill in violation of the Iowa Constitution.

LSP’s petition is available on the Minnesota page.