Yesterday, the Eighth Circuit heard oral argument about whether Minnesota’s law granting in-state transmission owners a right-of-first refusal to build new projects violates the dormant Commerce Clause. Last year, a district court dismissed transmission developer LS Power’s complaint. In yesterday’s argument, the U.S. government joined LS Power in arguing that the appeals court’s decision was inconsistent with precedent.

LS Power emphasized that Minnesota’s law is not insulated by any public utilities exemption to the dormant Commerce Clause. To the extent such a carve-out exists for state regulation of public utilities, LS Power argued that it would only apply to state supervision of retail service. In support, LS Power noted that Tracy, the Supreme Court decision at the heart of the lower court’s dismissal, is about regulation of “retail” providers, a point the Court repeats throughout its opinion. LS Power urged the Eighth Circuit panel to conclude that Tracy is inapplicable to the current case because Minnesota’s law regulates interstate transmission development and benefits all transmission companies — not just retail providers — that own transmission facilities in Minnesota. Without a public utility exemption to shield the law from dormant Commerce Clause scrutiny, LS Power argued that law violates the dormant Commerce Clause because it “grants an absolute preference” to owners of in-state facilities.

On the other side, in-state transmission companies that benefit from that preference argued that Minnesota has made the permissible policy choice to limit competition. In support, counsel quoted a 2007 Supreme Court decision: “The policy of the State . . . favors displacing competition with regulation or monopoly control . . . nothing in the Commerce Clause vests the responsibility for that policy judgment with the Federal Judiciary.” The dormant Commerce Clause does not apply to Minnesota’s law, according to the companies, because Minnesota is not regulating interstate competition. Rather, the law reinforces the state’s long-standing policy of choosing exclusive providers of electric service.

The oral argument recording is available on the Minnesota page.