On April 18, 2014, the U.S. District Court for the District of Minnesota struck down Minnesota’s restrictions on importing new electricity from carbon emitting power plants in other states. Among other things, Minnesota’s 2007 Next Generation Energy Act (“NGEA”) prohibited any person from importing, or contracting for the import of, any new power from an out-of-state facility that would contribute to statewide power sector carbon dioxide emissions without a corresponding carbon-dioxide reduction project. The law effectively barred Minnesota utilities from importing additional power from coal-fired generation. U.S. District Judge Susan Richard Nelson ruled that Minnesota’s attempt to limit the importation of power from facilities outside of Minnesota imposed unconstitutional restrictions on out-of-state electricity producers in violation of the dormant Commerce Clause.
Judge Nelson stated that the dormant Commerce Clause prohibits a State from discriminating against or unduly burdening interstate commerce, particularly if a law controls commerce occurring wholly outside the boundaries of the State. Furthermore, Judge Nelson stated that “[l]ike the transmission of information over the internet, the transmission of electricity over the [Midcontinent Independent System Operator (“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 imported to and contribute to statewide power sector carbon dioxide emissions in—Minnesota.” The Judge found that the NGEA thus violated the dormant Commerce Clause’s prohibition on extraterritorial effects and was per se invalid.
Judge Nelson also addressed the NGEA’s exemption requiring a corresponding carbon-dioxide reduction project for any new carbon emitting power, which required a company to demonstrate to the Minnesota Public Utility Commission’s satisfaction that the project would adequately offset the prohibited carbon dioxide emissions. Judge Nelson explained that Minnesota not only improperly attempted to regulate wholly out-of-state transactions, but it also tried to force non-Minnesota entities to seek regulatory approval from the state of Minnesota before undertaking transactions with other non-Minnesota entities. “[O]nly by undertaking a ‘carbon dioxide reduction project’ approved by a Minnesota agency can, for example, a North Dakota generation-and-transmission cooperative inject coal-generated electricity into the MISO grid to serve its North Dakota members.” Judge Nelson concluded that if the overreaching provision of NGEA were to stand, and other States were to create similar requirements, it would result in a balkanized system for parties providing power to the nation’s electrical system.
A copy of the order is available here.