Court Declares Minnesota Coal Law Unconstitutional: Electrons Favor the Laws of Physics to Those of Governments

by Stoel Rives LLP
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Minnesota legislators passed the Next Generation Energy Act in 2007 which, in part, established power sector standards for carbon dioxide emissions. As a result Minn. Stat. §216H.03 now provides that no person shall:

1.   Construct within a state a new large energy facility that would contribute to statewide power sector carbon dioxide emissions;

2.   Import or commit to import from outside the state power from a new large energy facility that would contribute to statewide power sector carbon dioxide emissions; or

3.   Enter into a new long-term power purchase agreement that would increase statewide power sector carbon dioxide emissions. For the purposes of this section, a long-term power purchase agreement means an agreement to purchase 50 megawatts of capacity or more for a term exceeding five years.

 

In 2011 neighboring state North Dakota, along with coal and utility interests, challenged the law and named as defendants the Commissioners of the Minnesota Public Utilities Commission and the Department of Commerce. Today District Court Judge Susan Nelson ruled in favor of the plaintiffs on cross motions for summary judgment. She determined the second and third provisions of the above statute unconstitutional, finding that they are per se invalid under the dormant Commerce Clause. Minnesota Governor Dayton quickly responded to the ruling with a press statement articulating his intentions to vigorously defend the law and appeal the decision.

 

As background, Article I, Section 8 of the U.S. Constitution provides Congress with the power to regulate Commerce among the states and the dormant Commerce Clause is the negative implication of that provision of power: states cannot pass laws that discriminate against or unduly burden interstate commerce.

The plaintiffs argued the law was effectively controlling conduct wholly outside the boundaries of Minnesota - something that was due in part to the fact that electrons tend to follow the laws of physics and do not adhere to state boundaries. Basin Electric Power Cooperative, for example, explained that it moved power from a coal-fired facility in Wyoming in order to meet North Dakota demand but was concerned that it might implicate the Act because it moved power from the western interconnection into the eastern interconnection and it could not be certain the electricity would not physically flow to Minnesota. The Minnesota Department of Commerce had earlier recognized a related problem for a power cooperative operating in the Midcontinent Independent System Operator (MISO) market, explaining that MISO load serving entities must bid in all of their generation resources to meet all of their load to avoid actions constituting economic withholding. Thus a load serving entity in MISO could not effectively plan separately for Minnesota and Wisconsin load, or otherwise ensure that electricity from a plant in Wisconsin would not serve Minnesota load.

 

The Court likened the problem to the difficulty states have had regulating internet activities without projecting legislation into other states. Judge Nelson explained: “MISO is the RTO responsible for operating and controlling the transmission of electricity in and among several states, including Minnesota. Like the transmission of information over the internet, the transmission of electricity of the MISO grid does not recognize state boundaries. Therefore, when a non-Minnesota entity injects electricity into the grid to satisfy its obligations to a non-Minnesota member, it cannot ensure that the electricity will not travel to and be removed in - in other words, be important to and contribute to statewide power sector carbon dioxide emissions in - Minnesota.” 

 

Unlike facially discriminatory statutes that receive strict scrutiny or statutes that indirectly burden interstate commerce and are evaluated under a balancing test, the Court’s determination today was that the extraterritorial reach of the provisions makes them per se invalid. In fact Judge Nelson described the issue as “a classic example of extraterritorial regulation because of the manner in which the electricity industry operates.” The Court further determined that “the statute also requires out-of-state entities to seek regulatory approval in Minnesota before undertaking transactions in other states. This statute overreaches and, if other states adopt similar legislation, it could lead to balkanization.”

 

In summary, the Court explained that:“ while the State of Minnesota’s goals in enacting Minn. Stat. §216H.03 may have been admirable, Minnesota has projected its legislation into other states and directly regulated commerce therein. Accordingly, Minn. Stat. §216H.03, subd. 3(2)-(3), constitutes impermissible extraterritorial legislation and is a per se violation of the dormant Commerce Clause.”

 

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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