Utilities and generators will find this recent decision by the Minnesota District Court interesting because the issues are similar to energy and environmental laws in other states. The plaintiffs include the State of North Dakota, the Industrial Commission of North Dakota, the Lignite Energy Council, Basin Electric Power Cooperative, the North American Coal Corporation, Great Northern Properties Limited Partnership, Missouri Basin Municipal Power Agency d/b/a Missouri River Energy Services, and Minnkota Power Cooperative, Inc. They filed suit against the Commissioners of the Minnesota Public Utilities Commission and the Commissioner of the Minnesota Department of Commerce alleging that Minn. Stat. § 216H.03 violates the Commerce Clause of the U.S. Constitution (Count I), the Supremacy Clause of the U.S. Constitution because the statute is preempted by the Clean Air Act and the Federal Power Act (Counts II and III, respectively), the Privileges and Immunities Clause of the U.S. Constitution (Count IV), and the Due Process Clause of the Fourteenth Amendment of the U.S. Constitution (Count VI).

The statute at issue is Minnesota’s Next Generation Energy Act (“NGEA”). It establishes energy and environmental standards related to carbon dioxide emissions and seeks to limit increases in “statewide power sector carbon dioxide emissions,” stating:

Unless preempted by federal law, until a comprehensive and enforceable state law or rule pertaining to greenhouse gases that directly limits and substantially reduces, over time, statewide power sector carbon dioxide emissions is enacted and in effect, … no person shall: construct within the state a new large energy facility that would contribute to statewide power sector carbon dioxide emissions; 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 enter into a new long-term power purchase agreement that would increase statewide power sector carbon dioxide emissions. For 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 finding the law unconstitutional the Court emphasized that neither the parties, nor the Court, dispute that carbon dioxide emissions are a problem that this country needs to address.

The question here is not the environmental issue. The question is whether the Minnesota Legislature has the power, under the U.S. Constitution, to address that issue through the means articulated in Minn. Stat. § 216H.03. Because the Court finds that Minn. Stat. § 216H.03, subd. 3(2)–(3), violates the dormant Commerce Clause, the answer to that question is ‘no.’

– Decision, Page 26

Providing me with flashbacks to first year Con Law, the court defines the dormant Commerce Clause as the negative implication of the Commerce Clause. States may not enact laws that discriminate against or unduly burden interstate commerce. The court then explained the three levels of analysis under the dormant Commerce Clause.

First, a state statute that has “an ‘extraterritorial reach,’ that is, … the statute has the practical effect of controlling conduct beyond the boundaries of the state,” is per se invalid. Cotto Waxo Co., 46 F.3d at 793 (citing Healy v. Beer Inst., Inc., 491 U.S. 324, 336 (1989)).

Second, a state statute that is discriminatory on its face, in practical effect, or in purpose is subject to strict scrutiny. Id. (citations omitted).

Third, a state statute that is not discriminatory, but indirectly burdens interstate commerce, is evaluated under the balancing test set forth in Pike v. Bruce Church, Inc., 397 U.S. 137, 142 (1970).

If you think this is not smart grid related think again. The court took the time to explain the unique nature of electricity, pointing out it is different from tangible products. Electricity cannot be shipped directly from Point A to Point B and MISO, the RTO for the utilities in this case, does not match buyers to sellers. Once electricity enters the grid, it is indistinguishable from the rest of the electricity in the grid. A North Dakota generation-and-transmission cooperative cannot ensure that the coal-generated electricity that it injects into the MISO grid is used only to serve its North Dakota members and not its Minnesota members. Consequentially, in order to ensure compliance with Minn. Stat. § 216H.03, subd. 3(2)– (3), out-of-state parties must conduct their out-of-state business according to Minnesota’s terms—i.e., engaging in no transactions involving power or capacity that would contribute to or increase Minnesota’s statewide power sector carbon dioxide emissions. This is the “paradigm” of extraterritorial legislation according to the court. Most likely there will be an appeal. Given the increase in interconnections and the growing RTO markets, this case will be watched by many.