Federal appeals court rules against Minnesota’s CO2-control law

A three-judge panel at the U.S. Eighth Circuit Court of Appeals on June 15 ruled against a Minnesota law that attempts to control power plant CO2 emissions through limits imposed on a power grid that spans a multi-state area.

The 2007 Minnesota statute provides that “no person shall…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.”

The State of North Dakota, which has power plants fueled by locally-produced lignite that export power out of state, three non-profit cooperative entities that provide electric power to rural and municipal utilities in Minnesota, and others brought this action against the commissioners of the Minnesota Public Utilities Commission (MPUC) and the Minnesota Department of Commerce (MDOC), citing the law as a violation of the Commerce Clause of the U.S Constitution. The district court granted plaintiffs summary judgment and a permanent injunction, concluding that the above-quoted provisions are “impermissible extraterritorial legislation” and therefore “a per se violation of the dormant Commerce Clause.” Said the June 15 appeals court decision: “The State appeals. We affirm.”

Three cooperative entities are a principal focus in this case: Basin Electric Power Cooperative, Minnkota Power Cooperative and Missouri River Energy Services (MRES). Headquartered in North Dakota, Basin has 135 rural electric cooperative members spread across nine states, including twelve in Minnesota. Basin owns its own generation and transmission resources and enters into power purchase agreements with other generation and transmission utilities. Minnkota is a regional generation and transmission utility based in North Dakota that provides electric power to its members, who are distribution cooperatives in North Dakota and Minnesota, including various Indian reservations. Located in South Dakota, MRES provides power to more than sixty municipalities in Minnesota and three other states.

The Minnesota statute at issue is part of the Next Generation Energy Act (NGEA), a statute intended to reduce “statewide power sector carbon dioxide emissions” by prohibiting utilities from meeting Minnesota demand with electricity generated by a “new large energy facility” in a transaction that will contribute to or increase “statewide power sector carbon dioxide emissions.” The statute regulates “the total annual emissions of carbon dioxide from the generation of electricity within the state and all emissions of carbon dioxide from the generation of electricity imported from outside of the state and consumed in Minnesota.” The challenged prohibitions are enforced by MPUC and MDOC.

Since NGEA enactment, MDOC and MPUC have declined to clarify how these prohibitions apply to electricity transmitted under the Midcontinent ISO’s control.

Dairyland Power Cooperative is a Wisconsin generation and transmission cooperative that sells wholesale electricity through the MISO market to members scattered across several states, including Minnesota. Dairyland is part owner of a coal-fired plant, Weston 4, located in central Wisconsin. In a 2011 administrative proceeding, MDOC, at the urging of environmental groups took the position that the disputed law restricts Dairyland’s ability to rely on electricity generated by Weston 4 to serve its Minnesota members. Dairyland noted that MISO was responsible for dispatching all electricity Dairyland generates. MDOC nonetheless took the position that Weston 4 is a “new large energy facility” subject to the NGEA unless an exemption applied. That exemption was eventually granted.

Cooperatives say Minnesota law is hurting their operations

In early 2012, Basin notified the state that it was transmitting electricity from Dry Forks, a Wyoming coal-fired plant, to meet increased demand in the booming North Dakota “oil patch,” which brought electric power into the Eastern Interconnection and subject to MISO’s control. MDOC asked Basin for analysis of whether that provision of power to MISO was a violation of the Minnesota law. After Basin responded, neither MPUC nor MDOC answered Basin’s request for confirmation whether this transmission violated the law. Plaintiffs submitted declarations by Basin officers that Basin is apprehensive about entering into long-term power purchase agreements to serve non-Minnesota load due to the law, which interferes with Basin’s ability to make investment decisions such as its planned development of a coal-fired plant in Selby, South Dakota.

Minnkota has increasing surplus capacity from its partially-owned, coal-fired plant in North Dakota. Concerned that this will trigger NGEA enforcement, two of its members in Minnesota have declined to enter into long-term purchase agreements with Minnkota.

MRES declined to purchase capacity from a coal-fired facility in Wisconsin after determining the transaction would be viewed by Minnesota as violating the NGEA.

In this case, the district court in April 2014 concluded that:

  • the plaintiffs have standing to challenge the Minnesota law under the Commerce Clause, and the issue is ripe for judicial review;
  • the court would not abstain from deciding the Commerce Clause issue;
  • the Commerce Clause extraterritoriality doctrine is not limited to price-control statutes; and
  • the Minnesota law unambiguously applies to transactions outside Minnesota that place energy in the MISO market and therefore unconstitutionally compels out-of-state cooperatives to conduct their out-of-state business according to Minnesota’s terms because they cannot ensure that out-of-state coal-generated electricity they inject into the MISO grid will not be used to serve their Minnesota members.

The June 15 appeals court ruling upheld the lower court, saying in part: “In determining whether a law has extraterritorial reach, the Supreme Court has instructed us to consider ‘how the challenged statute may interact with the legitimate regulatory regimes of other States.’ Other States in the MISO region have not adopted Minnesota’s policy of increasing the cost of electricity by restricting use of the currently most cost-efficient sources of generating capacity. Yet the challenged statute will impose that policy on neighboring States by preventing MISO members from adding capacity from prohibited sources anywhere in the grid, absent Minnesota regulatory approval or the dismantling of the federally encouraged and approved MISO transmission system. This Minnesota may not do without the approval of Congress.”

The appeals court also ruled: “Like persons who post information on an out-of-state internet website, out-of-state utilities entering into purchases and sales of electricity in the MISO transmission grid ‘cannot prevent [electricity users in Minnesota] from accessing the [electrons].’ And the statute provides that all MISO participants must comply with the challenged prohibitions any time they enter into a transaction or agreement that may ‘import’ electricity into Minnesota. To avoid this direct impact on activities and transactions that are otherwise entirely out-of-state commerce, integrated regional utilities like Basin must either unplug from MISO or seek regulatory approval from MDOC and MPUC. ‘Forcing a merchant to seek regulatory approval in one State before undertaking a transaction in another directly regulates interstate commerce.’ For this reason, the district court correctly concluded that the challenged prohibitions have ‘the practical effect of controlling conduct beyond the boundaries of’ Minnesota.”

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.