LSP Transmission Holdings, LLC v. Lange et al

Filing 77

MEMORANDUM OPINION AND ORDER - Defendants' Motions to Dismiss (Doc. Nos. 18 , 37 , 48 ) are GRANTED and Plaintiff's Complaint (Doc. No. 1 ) is DISMISSED WITH PREJUDICE. (Written Opinion) Signed by Judge Donovan W. Frank on 6/21/2018. (las)

UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA

LSP Transmission Holdings, LLC,

Civil No. 17-4490 (DWF/HB)

Plaintiff,
v.

MEMORANDUM
OPINION AND ORDER

Nancy Lange, Commissioner and Chair,
Minnesota Public Utilities Commission;
Dan Lipschultz, Commissioner,
Minnesota Public Utilities Commission;
Matt Schuerger, Commissioner, Minnesota
Public Utilities Commission; John Tuma,
Commissioner, Minnesota Public Utilities
Commission; Katie Sieben, Commissioner,
Minnesota Public Utilities Commission; and
Mike Rothman, Commissioner, Minnesota
Public Utilities Commission, Minnesota
Department of Commerce, each in his or
her official capacity,
Defendants,
and
Northern States Power Company d/b/a
Xcel Energy,
and
ITC Midwest, LLC,
Intervenor-Defendants.
_______________________________________________________________________
Charles N. Nauen, Esq., David J. Zoll, Esq., and Rachel Ann Kitze Collins, Esq.,
Lockridge Grindal Nauen PLLP, counsel for Plaintiff.

Jason Marisam, Solicitor General, Minnesota Attorney General’s Office, counsel for
State Defendants.
Aaron D. Van Oort, Esq., Lauren W. Linderman, Esq., and Nathaniel J. Zylstra, Esq.,
Faegre Baker Daniels LLP, counsel for Northern States Power Company d/b/a Xcel
Energy.
John Pavelko, Esq., Leah C. Janus, Esq., and Lisa M. Agrimonti, Esq., Fredrikson &
Byron, P.A., counsel for ITC Midwest LLC.
B. Andrew Brown, Esq., Dorsey & Whitney LLP; Brian M. Meloy, Esq., and
Thomas Carl Burman, Esq., Stinson Leonard Street LLP; David R. Moeller, Esq.,
Minnesota Power; and Jennifer O. Smestad, Esq., Otter Tail Power Company, counsel for
Amicus Utilities.
_______________________________________________________________________

INTRODUCTION
This matter involves a Constitutional challenge under the dormant Commerce
Clause to Minnesota Statute § 216B.246, which grants incumbent electric utilities a right
of first refusal to build and own electric transmission lines that connect to their existing
facilities. Plaintiff LSP Transmission Holdings (“LSP”) alleges that the statute
discriminates against out-of-state transmission developers in favor of in-state utilities.
Defendants 1 have filed separate motions to dismiss LSP’s lawsuit. (Doc. Nos. 18, 37 &
48.) For the reasons set forth below, the Court grants the motions.

1

Defendants include the named Commissioners of the Minnesota Public Utilities
Commission (“PUC”), who have been sued in their official capacities, and the
Commissioner of the Minnesota Department of Commerce (together, the “State
Defendants”); Intervenor Defendant Northern States Power Company (“NSP”); and
Intervenor Defendant ITC Midwest LLC (“ITC Midwest”). In addition, an amicus brief
(Footnote Continued on Next Page)
2

BACKGROUND
This case involves electric generation, transmission, and delivery. Electricity is
provided to consumers in three steps: (1) electricity is generated at various power plants;
(2) electricity is transmitted on an integrated system of large power lines (“transmission
lines”); and (3) electricity is then distributed to consumers through a network of smaller
power lines (“distribution lines”). Electricity placed on transmission lines becomes part
of an integrated, interstate system. State regulation of industries, such as the electrical
industry, has long been recognized as a valid exercise of a state’s police powers. See
Munn v. Illinois, 94 U.S. 113, 126 (1876) (explaining that state regulation of property that
is used in a way that is of public consequence is a valid exercise of the state’s powers).
The principal federal statute governing electricity generation and transmission is
the Federal Power Act (“FPA”), which was enacted in 1935. The Federal Energy
Regulatory Commission (“FERC”) exercises authority over the interstate transmission of
electric energy and its sale at wholesale in interstate commerce. 16 U.S.C. § 824(b)(1).
States retain jurisdiction over the retail sale of electric energy, as well as the “local
distribution” and “transmission of electric energy in intrastate commerce.” Id. Under the
FPA, states have traditionally assumed all jurisdiction over the approval or denial of

(Footnote Continued From Previous Page)
was filed by Great River Energy, Minnesota Power, Otter Tail Power Company, and
Southern Minnesota Municipal Power Agency. (Doc. No. 25.)

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permits for the siting and construction of electric transmission facilities. See Piedmont
Envtl. Council v. FERC, 558 F.3d 304, 310 (4th Cir. 2009).
In Minnesota, electric service is provided by monopolies. Electric utilities are
assigned to service areas. Minn. Stat. § 216B.37. Within the respective service areas,
each utility has “the exclusive right to provide electric service at retail to each and every
present and future customer in its assigned area and no [other] electric utility shall render
or extend service at retail.” Minn. Stat. § 216B.40. In Minnesota, the PUC sets “just and
reasonable” retail rates for public utilities. Minn. Stat. §§ 216B.03-.04, and .79. The
PUC also ensures that each utility provides “safe, adequate, efficient, and reasonable
service” and “make[s] adequate infrastructure investments.” Id.
FERC is empowered to “divide the country into regional districts for the voluntary
interconnection and coordination of facilities for the generation, transmission, and sale of
electric energy” and has the “duty” to “promote and encourage such interconnection and
coordination within each such district and between such districts.” 16 U.S.C. § 824a(a).
Regionally, FERC-approved nongovernmental agencies, independent system operators
(“ISO”s), oversee the operation and expansion of electric transmission grids. (Doc. No. 1
(“Compl.”) ¶ 14.) Each ISO issues a tariff, which establishes the terms by which its
members build and operate grids. (Id. ¶ 15.) These tariffs are subject to the approval of

4

FERC. (Id.) The Midcontinent Independent System Operator (“MISO”) is the regional
planning entity that governs Minnesota. 2 (Id. ¶ 16.)
Prior to 2011, FERC gave incumbent utilities a federal right of first refusal
(“ROFR”). Under this system, if MISO approved construction of a new electric
transmission line, the MISO member that distributed electricity in the area where the
facility was to be built had a ROFR. Miso Transmission Owners v. FERC, 819 F.3d 329,
332 (7th Cir. 2016). In 2011, however, FERC issued Order 1000, which eliminated the
federal ROFR. See Transmission Planning & Cost Allocation by Transmission Owning
& Operating Pub. Utils., 136 FERC 61051, 2011 WL 2956837 (“Order 1000”) ¶ 7. See
also MISO Transmission Owners v. FERC, 819 F.3d at 332. Order 1000 was consistent
with the effort to manage electric grids on a regional level. See Reg’l Transmission
Orgs., 89 FERC ¶ 61285, ¶ 1, 1999 WL 33505505, at *3 (Dec. 20, 1999); see also 18
C.F.R. § 35.34. At the same time, Order 1000 recognized that states could continue to
regulate electric transmission lines. (Order 1000 ¶ 107) (“We acknowledge that there is
longstanding state authority of certain matters that are relevant to transmission planning
and expansion, such as matters relevant to siting, permitting, and construction. However,
nothing in this Final Rule involves an exercise of siting, permitting, and construction
authority.”). FERC further explained:
In developing the framework below, we have sought to provide flexibility
for public utility transmission providers in each region to propose, in
2

MISO also governs other states and the Canadian province of Manitoba. (Compl.

¶ 16.)

5

consultation with stakeholders, how best to address participation by
nonincumbents as a result of removal of the federal right of first refusal
from Commission-jurisdictional tariffs and agreements. However, we note
that nothing in this Final Rule is intended to limit, preempt, or otherwise
affect state or local laws or regulations with respect to construction of
transmission facilities, including but not limited to authority over siting or
permitting of transmission facilities. Public utility transmission providers
must establish this framework in consultation with stakeholders and we
encourage stakeholders to fully participate.
Order 1000 ¶ 227 (emphasis added).
In accordance with Order 1000, MISO removed the federal ROFR provisions from
its tariff. (Compl. ¶ 45.) Minnesota then enacted its own state ROFR law, Minn. Stat.
§ 216B.246. 3 Therefore, any new MISO-approved transmission project in Minnesota
must comply with Minnesota’s ROFR law, which provides in part:
An incumbent electric transmission owner has the right to construct, own,
and maintain an electric transmission line that has been approved for
construction in a federally registered planning authority transmission plan
and connects to facilities owned by that incumbent electric transmission
owner.
Minn. Stat. § 216B.246, subd. 2. If a proposed line connects to more than one incumbent
owner’s facilities, both owners will receive the right to build and operate the line
“individually and proportionally” with other owner(s). Id. In addition, the statute
authorizes the PUC to require an incumbent to build the electric transmission line, taking

3

In response to Order 1000, several states enacted their own ROFR laws. See, e.g.,
N.D. Cent Code § 49-03-02.2; S.D. Codified Laws § 49-32-20; Neb. Rev. Stat.
§ 70-1028; 17 Okla. Stat. Ann. § 292.

6

into consideration various issues, such as cost, efficiency, and reliability. Id., subd. 3(b). 4
Further, Minn. Stat. § 216B.246 defines an “incumbent electric transmission owner” as:
“any public utility that owns, operates, and maintains an electric transmission line in this
state; any generation and transmission cooperative electric associations; any municipal
power agency; any power district; any municipal utility; or any transmission company . . .
.” Minn. Stat. § 216B.246, subd. 1. Currently, “incumbents” in Minnesota include
entities headquartered in Iowa, North Dakota, South Dakota, Wisconsin, and Minnesota.
(Compl. ¶ 64(a)-(p).) Many of these entities also own and operate facilities in states
other than Minnesota. Id. 5
FERC approved MISO’s tariff, and in particular its decision to honor the state
ROFR laws. Midwest Indep. Transmission Sys. Operator, Inc., 150 FERC ¶ 61037, 2015

4

Minn. Stat. § 216B.246 provides for a process by which incumbent owners have a
window of time in which to notify the PUC whether they intend to exercise their ROFR;
if an incumbent indicates that it does not wish to build the proposed line, it must explain
the reason for its decision, and the PUC may override that decision and order the
incumbent to build the line. Id., subd. 3(b).
5

The primary purpose of Minn. Stat. § 216B.246 was to preserve the status quo and
avoid the uncertainty of a new process for electric transmission development in
Minnesota after the Federal ROFR was eliminated. (Compl. ¶ 53 (bill was intended to
“preserve the status quo”).) This purpose is reflected by the comments of Senator David
Brown, one of the bill’s authors, at the Senate committee hearing on the ROFR bill: “Our
regulated system has served Minnesota well, and our system is reliable and our rates are
fairly competitive. . . . If we choose not to pass this legislation, we are moving into the
world of the unknown versus we have a very known process right now, members. And I
think it’s best to stick with that process. . . .” (Doc. No. 22 (“Peick Aff.”) ¶ 2, Ex. A,
Statement of Senator Brown at 00:28 & 49:21.) The Court takes judicial notice of these
comments.

7

WL 285969, at ¶ 25. FERC explained that “even if a transmission project is subject to a
state [ROFR], the regional transmission planning process still results in the selection for
planning and cost allocation purposes of transmission projects that are more efficient or
cost-effective than would have been developed but for such processes.” Id. ¶ 16.
LSP objected to FERC’s ruling, arguing that FERC should preclude states from
enacting ROFR laws. Id. ¶ 24. FERC held that “it is appropriate for MISO to recognize
state or local laws or regulations as a threshold matter in the regional transmission
planning process.” Id. ¶ 25. FERC explained that Order 1000 “struck an important
balance between removing barriers to participation by potential transmission providers in
the regional transmission planning process and ensuring the nonincumbent transmission
developer reforms do not result in the regulation of matters reserved to the states.” Id.
¶ 27. LSP then sought judicial review of FERC’s ruling and again argued that FERC
should not have allowed MISO to implement state ROFR laws. MISO Transmission
Owners, 819 F.3d at 336. The Seventh Circuit Court of Appeals rejected LSP’s argument
and held that it was a “proper goal” for FERC “‘to avoid intrusion on the traditional role
of the States’ in regulating the siting and construction of transmission facilities.” Id. The
Seventh Circuit also explained that Order 1000 terminated the federal, not any state, right
of first refusal. Id. (“Order No. 1000 terminated only federal rights of first refusal; it did
not ‘limit, preempt, or otherwise affect state or local laws or regulations with respect to
construction of transmission facilities.’”).

8

This case involves the Huntley-Wilmarth line, a proposed 345 kilovolt electric
transmission line that is proposed to run approximately 40 miles, wholly within
Minnesota. The Huntley-Wilmarth line will connect two substations—NSP’s existing
Wilmarth substation north of Mankato, Minnesota and ITC Midwest’s Huntley
substation, which is currently under construction, south of Winnebago, Minnesota.
(Compl. ¶ 70; Doc. No. 40 (“Zylstra Decl.”) ¶ 4, Ex. C (Notice of Intent) at 1.) 6 On
March 3, 2017, after the Huntley-Wilmarth line was approved, NSP and ITC Midwest
jointly exercised their rights of first refusal under § 216B.246. In their Notice of Intent to
the Commission, NSP and ITC Midwest gave formal notice that they “intend to
construct, own and maintain the Huntley-Wilmarth 345kv transmission line project to be
located in south central Minnesota.” (Notice of Intent at 1.) NSP and ITC Midwest also
filed their Notice Plan on June 30, 2017. (Zylstra Decl. ¶ 4, Ex. D.) The project is
scheduled to be complete by January 1, 2022. (Compl. ¶ 72.)
On September 29, 2017, LSP filed the present lawsuit challenging the
constitutionality of Minn. Stat. § 216B.246. LSP argues that Minnesota’s ROFR law
violates the dormant Commerce Clause of the United States Constitution. (See generally
Compl.) Specifically, Plaintiff alleges that Minn. Stat. § 216B.246 facially discriminates,
or discriminates in purpose or effect, against interstate commerce in the construction and
ownership of large transmission facilities because it (1) gives “incumbent utilities with an
existing footprint in Minnesota the exclusive right of first refusal to build transmission
6

The Court considers the Notice of Intent because it is embraced by the Complaint.

9

lines,” and (2) effectively prohibits LSP and other out-of-state participants from building
transmission lines in Minnesota. (Compl. ¶¶ 85-86.) LSP also alleges that, even if Minn.
Stat. § 216B.246 is not discriminatory, it imposes an undue burden on interstate
commerce. (Id. ¶¶ 91-92.) Defendants move to dismiss LSP’s complaint for failure to
state a claim.
DISCUSSION
I.

Statement of Interest
On April 13, 2018, the U.S. Government filed a Statement of Interest on Behalf of

the United States of America. (Doc. No. 70.) The Government’s statement was filed by
the Justice Department’s Antitrust Division. The Court allowed the parties to respond to
the Statement of Interest. (Doc. Nos. 72-76.) As aptly noted by NSP and ITC Midwest,
the Antitrust Division’s statement is untimely, as it was filed roughly two and one-half
months after briefing was completed. Moreover, the Antitrust Department offers no
explanation, let alone good cause, for its delay. It is solely within the Court’s discretion
to permit or deny a statement of interest. See Creedle v. Gimenez, Civ. No. 17-22477,
2017 WL 5159602, at *2 (S.D. Fla. Nov. 7, 2017). In exercising that discretion, the
Court can consider whether the information is timely, useful, or otherwise necessary to
the administration of justice. Id. In light of the Antitrust Division’s unjustified delay and
the fact that this case has been fully and thoroughly briefed by all other parties, the
interests of justice do not require the Court to consider the Statement of Interest.
Accordingly, the Court declines to consider the Statement of Interest. However, the

10

Court has reviewed the statement and notes that consideration of the statement would not
alter the Court’s decision.
II.

Legal Standard
In deciding a motion to dismiss under Rule 12(b)(6), a court assumes all facts in

the complaint to be true and construes all reasonable inferences from those facts in the
light most favorable to the complainant. Morton v. Becker, 793 F.2d 185, 187 (8th
Cir. 1986). In doing so, however, a court need not accept as true wholly conclusory
allegations, Hanten v. Sch. Dist. of Riverview Gardens, 183 F.3d 799, 805 (8th
Cir. 1999), or legal conclusions drawn by the pleader from the facts alleged, Westcott v.
City of Omaha, 901 F.2d 1486, 1488 (8th Cir. 1990). A court deciding a motion to
dismiss may consider the complaint, matters of public record, orders, materials embraced
by the complaint, and exhibits attached to the complaint. See Porous Media Corp. v. Pall
Corp., 186 F.3d 1077, 1079 (8th Cir. 1999).
To survive a motion to dismiss, a complaint must contain “enough facts to state a
claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544,
570 (2007). Although a complaint need not contain “detailed factual allegations,” it must
contain facts with enough specificity “to raise a right to relief above the speculative
level.” Id. at 555. As the Supreme Court reiterated, “[t]hreadbare recitals of the elements
of a cause of action, supported by mere conclusory statements,” will not pass muster
under Twombly. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Twombly, 550 U.S.

11

at 555). In sum, this standard “calls for enough fact[s] to raise a reasonable expectation
that discovery will reveal evidence of [the claim].” Twombly, 550 U.S. at 556.
III.

Commerce Clause
The Commerce Clause expressly authorizes Congress’s power to regulate

interstate commerce. U.S. Const. Art. I, § 8, cl. 3. The Commerce Clause has a negative
or dormant implication as well, prohibiting states from enacting laws that discriminate or
unduly burden interstate commerce. Gen. Motors Corp. v. Tracy, 519 U.S. 278, 287
(1997) (“Tracy”); Quill Corp. v. North Dakota, 504 U.S. 298, 312 (1992). State laws
invite scrutiny under the dormant Commerce Clause if they mandate “differential
treatment of in-state and out-of-state economic interests that benefits the former and
burdens the latter.” Granholm v. Heald, 544 U.S. 460, 472 (2005) (citation omitted).
The rationale behind the dormant Commerce Clause is to prohibit economic
protectionism, or state “regulatory measures designed to benefit in-state economic
interests by burdening out-of-state competitors.” Associated Indus. of Mo. v. Lohman,
511 U.S. 641, 647 (1994) (citation omitted). See also S. Union Co. v. Mo. Pub. Serv.
Comm’n, 289 F.3d 503, 508 (8th Cir. 2002) (citation omitted) (noting the rationale
behind the dormant Commerce Clause).
When determining if a state law violates the dormant Commerce Clause, the Court
uses a two-step inquiry. First, the Court asks whether the law overtly discriminates
against interstate commerce. R&M Oil & Supply, Inc. v. Saunders, 307 F.3d 731, 734
(8th Cir. 2002). A state law “overtly discriminates” if it is discriminatory on its face, in

12

its purpose, or in its effects. Id. In such a case, the state law “will be invalidated unless
the state can show, under rigorous scrutiny, that it has no other means to advance a
legitimate local interest.” IESI AR Corp. v. Nw. Ark. Reg’l Solid Waste Mgmt. Dist., 433
F.3d 600, 604 (8th Cir. 2006); see also C&A Carbonne, Inc. v. Town of Clarkstown, 511
U.S. 383, 392 (1994). If the state law is not overtly discriminatory, the Court moves to
the second tier of the analysis. Under this tier, known as the Pike-test, even if a statute
regulates evenhandedly to effectuate a legitimate, local public interest, the Court will ask
if the law imposes a burden on interstate commerce that “is clearly excessive in relation
to its putative local benefits.” Pike v. Bruce Church, Inc., 397 U.S. 137, 142 (1970). The
burden of demonstrating that a state law discriminates against interstate commerce “rests
on the party challenging the validity of the statute.” Hughes v. Okla., 441 U.S. 322, 336
(1979). The Eighth Circuit has noted (citing Supreme Court precedent) that courts
exercise caution in reviewing state utility regulations under the dormant Commerce
Clause, and explained that “regulation of utilities is one of the most important of the
functions traditionally associated with the police power of the States.” S. Union Co., 289
F.3d at 508 (quotation omitted).
Plaintiff argues that Minn. Stat. § 216B.246 both overtly discriminates and fails
the Pike test. Defendants, on the other hand, argue that Minn. Stat. § 216B.246 is an
evenhanded, non-discriminatory state public-utility regulation that is presumptively valid
under the dormant Commerce Clause. Defendants contend that the Supreme Court’s
decision in Tracy is dispositive and forecloses LSP’s discrimination claim. Defendants

13

also point out the long history of judicial deference to utility regulation and contend that
Minnesota has made a reasonable determination that the entities that own the facilities to
which new lines would connect are best positioned to ensure the reliable delivery of
power to Minnesota consumers. In addition, Defendants argue that Minnesota’s interest
in regulating the provision of electricity to its citizens outweighs any indirect effects on
interstate commerce.
A.

General Motors Corp. v. Tracy

As an initial matter, the parties dispute the proper application of the Supreme
Court’s decision in Tracy. Defendants argue that Tracy forecloses LSP’s claim of
discrimination. LSP, on the other hand, argues that Tracy is inapposite and that
Defendants misconstrue and attempt to overextend the decision in Tracy.
In Tracy, the Supreme Court reviewed an Ohio statute that granted a tax
exemption on retail sales and use of natural gas to in-state regulated public utilities and
denied the same tax exemption to interstate natural gas transmission companies. Id. at
281-82. General Motors, a purchaser of natural gas from out-of-state marketers whose
sales were subject to the taxes, challenged the tax exemption under the dormant
Commerce Clause, arguing that the exemption discriminated against interstate commerce.
Id. at 297-98. The Supreme Court considered the threshold issue of whether the Ohio
statute applied to “substantially similar entities.” Id. at 298 (“Conceptually, of course,
any notion of discrimination assumes a comparison of substantially similar entities.”).
This inquiry is important because, as noted by the Supreme Court, if a statute

14

distinguishes between “different entities” serving “different markets,” there would be no
discrimination. Id. at 299. More specifically, if the entities are not “substantially
similar,” then “eliminating the tax or other regulatory differential would not serve the
dormant Commerce Clause’s fundamental objective of preserving a natural market for
competition undisturbed by preferential advantages conferred by a State upon its
residents or resident competitors.” Id.
In Tracy, the Supreme Court found that in-state gas utilities served residential
consumer end-users through monopolies that exist independent of the state statute at
issue. Id. at 297-98, 302-03. In contrast, interstate companies—out-of-state marketers
whose sales were subject to the taxes—did not serve those residential consumers. Thus,
with respect to sales to consumers in these monopolies, the local gas utilities and the
out-of-state marketers were not similarly situated because they did not compete. Id. at
302-03. As to the sales to the consumers, the dormant Commerce Clause had “no job to
do.” Id. at 303.
The Supreme Court, however, also considered the sale of natural gas to industrial
consumers. Id. With respect to these sales, the Supreme Court noted the “possibility of
competition” between the local utilities and private businesses, and therefore also a
possibility of a dormant Commerce Clause violation. Id. The Supreme Court asked
whether “we should accord controlling significance to the noncaptive market in which
they compete, or to the noncompetitive, captive market in which the local utilities alone
operate?” Id. at 303-04. Despite the possibility of competition in the noncaptive market,

15

the Supreme Court held that the state was justified in treating the utilities differently in
both markets. The Supreme Court held that it would give controlling weight to the
captive, monopoly market:
First and most important, we must recognize an obligation to proceed
cautiously lest we imperil the delivery by regulated [utilities] of bundled
gas to the noncompetitive captive market. Second, as a Court we lack the
expertness and the institutional resources necessary to predict the effects of
judicial intervention invalidating Ohio’s tax scheme on the utilities’
capacity to serve this captive market. Finally, should intervention by the
National Government be necessary, Congress has both the resources and
the power to strike the balance between the needs of the competitive market
and captive markets.
Id. at 304. The Court went on to explain that “[w]here a choice is possible . . . the
importance of traditional regulated service to the captive market makes a powerful case
against any judicial treatment that might jeopardize [the utilities’] continuing capacity to
serve the captive market.” Id. The Supreme Court further reasoned that:
[the state’s] regulatory response to the needs of the local natural gas market
has resulted in a noncompetitive bundled gas product that distinguishes its
regulated sellers from independent marketers to the point that the
enterprises should not be considered ‘similarly situated’ for purposes of
facial discrimination under the Commerce Clause.
Id. at 310. The Supreme Court in Tracy held that the Ohio statute did not discriminate
against interstate commerce and did not run afoul of the dormant Commerce Clause. 7

7

Other Supreme Court decisions have acknowledged that local utilities with
monopolies are not similarly situated to private businesses when analyzing the dormant
Commerce Clause. See, e.g., United Haulers Ass’n, Inc. v. Oneida-Herkimer Solid Waste
Mgmt. Auth., 550 U.S. 330, 342-43 (2007) (citing Tracy); Levin v. Commerce Energy,
Inc., 560 U.S. 413, 429 n.9 (2010) (citing Tracy); Camps Newfound/Owatonna, Inc. v.
Town of Harrison, 520 U.S. 564, 607 (1997) (Scalia, J., dissenting) (observing that Tracy
(Footnote Continued on Next Page)
16

In a recent decision, the Second Circuit Court of Appeals applied Tracy when
considering a dormant Commerce Clause challenge to a Connecticut program that
distinguished between in-state and out-of-state entities in the electricity market. The
Connecticut program required state electric utilities to either produce renewable energy
or to purchase renewable energy credits from “renewable energy producers located in the
region.” Allco Fin. Ltd. v. Klee, 861 F.3d 82, 86 (2d Cir. 2017). Despite there being a
national market for renewable energy credits, the court found that the state program
advanced legitimate interests in the local market. Id. (noting that the program promotes
increased production of renewable power generation in the region and, by extension, the
protection of its citizens’ health, safety, and reliable access to power). The court also
noted that FERC had established a regional market (and geographic boundaries), and that
FERC’s involvement weighed strongly against intervention by the court. Id. (noting
FERC and Congress are better-situated to supervise and determine economic and health
and safety effects of geographic boundaries). The Second Circuit held that the “means
and ends” that Connecticut selected in its renewable energy credit program were “well
within the scope of what Congress and FERC have traditionally allowed the States to do
in the realm of energy regulation.” Id. at 106.
After careful analysis, the Court concludes that the reasoning behind the dismissal
of the dormant Commerce Clause challenge in Tracy applies to the present case. Minn.
(Footnote Continued From Previous Page)
“effectively creates what might be called a ‘public utilities’ exception to the negative
Commerce Clause”).

17

Stat. § 216B.246 is part of the Minnesota’s broader regulation of the provision of
electricity to the consumer market. Many of the entities that own existing transmission
facilities are regulated public utilities, who serve captive markets and have monopolies
with respect to the sale of electricity to consumers. Thus, for these sales, there is no
competition and the dormant Commerce Clause does not apply. See, e.g., Tracy, 519
U.S. at 303. However, the Court recognizes that local utilities in Minnesota and
out-of-state entities may compete for the right to build transmission lines. In this case,
LSP alleges that it wishes to compete against Minnesota electric utilities for the right to
build transmission lines, but that it is being discriminated against by Minn. Stat.
§ 216B.246. (Compl. ¶¶ 75-78.) Under Tracy, however, the Court grants controlling
weight to the monopoly market. Minnesota is entitled to consider the effect on the public
utilities and the consumers that the utilities serve and “to give the greater weight to the
captive market and the local utilities’ singular role in serving it.” Tracy, 519 U.S. at 304.
Moreover, like in Tracy, where the Supreme Court determined that the possibility of a
negative impact on the ability of utilities to serve consumers in the monopoly market
weighed against invalidating the challenged statute, the same holds true here. Tracy, 519
U.S. at 309. The reasons cited in support of giving greater weight to the monopoly
market in Tracy apply here; namely, to avoid any jeopardy or disruption to the service of
electricity to the state electricity consumers and to allow for the provision of a reliable
supply of electricity.

18

In addition, as was the case in Tracy, the economic consequences of any Court
intervention to strike down Minn. Stat. § 216B.246 are unclear. Id. at 307. Under Minn.
Stat. § 216B.46, Minnesota not only gives existing owners a right of first refusal to build
new transmission lines that will connect to their existing facilities, but in return
Minnesota also places extensive regulatory burdens on those owners. Any intervention
by the Court could upset the balance between those burdens and regulation. Importantly,
Congress and FERC have both indicated that Minnesota is entitled to make the policy
decision to adopt a right of first refusal to build new transmission lines. And as it has
been noted many times before, Congress, FERC, and the Minnesota legislature are
“better-situated than the courts” to “determine the economic wisdom and the health and
safety effects” of a decision on the correct balance between competition and a right of
first refusal in the area of the building of electric transmission facilities. See, e.g., Allco,
861 F.3d at 107. The Court, therefore, properly defers to their judgment.
The Court has considered, but is not persuaded by, LSP’s arguments that Tracy is
inapposite. First, LSP argues that Minn. Stat. § 216B.246 does not single out providers
that serve retail consumers as the sole beneficiaries of the statute’s protection, but instead
that it protects all transmission owning entities in Minnesota. This distinction, however,
is not persuasive. While it is true that Minn. Stat. § 216B.246 relates to transmission
lines, the main principle of Tracy—that there cannot be discrimination between entities
that are not similarly situated—applies here. Regulated utilities (the existing
transmission line owners with a right of first refusal) are not similarly situated with

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unregulated entities such as LSP. See id. at 298-99. Second, LSP argues that the Court is
not required to defer to Minnesota’s policy decision, and in particular because this case,
unlike in Tracy, does not involve a tax law (and its “subtle complexities”). The Supreme
Court in Tracy, however, explained that the dormant Commerce Clause “prohibits state
taxation or regulation that discriminates against or unduly burdens interstate commerce.”
519 U.S. at 287 (emphasis added). The relevant case law does not demand that tax
statutes receive greater deference than regulatory statutes under the Commerce Clause.
For all of the above reasons, the Court concludes that Tracy forecloses LSP’s
allegation that Minn. Stat. § 216B.246 overtly discriminates against out-of-state
transmission developers.
B.

Overt Discrimination

Even if LSP’s claim of overt discrimination was not foreclosed by Tracy, LSP’s
argument that Minn. Stat. § 216B.246 facially discriminates because it grants incumbents
the right to build federally approved transmission line projects in Minnesota fails. There
is no dispute that the statute grants a preference to “incumbent electric transmission
owners,” but that preference does not discriminate against out-of-state entities. Instead, it
affords companies whose facilities will connect to new transmission lines the first chance
to build the new line. The statute’s preference does not apply to all incumbent electric
transmission owners, but only to those directly connected to the proposed line, whether
those incumbents are in-state or out-of-state. The statute draws a neutral distinction
between existing electric transmission owners whose facilities will connect to a new line

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and all other entities, regardless of whether they are in-state or out-of-state. In fact, the
Complaint lists the sixteen entities that would qualify as incumbents under Minn. Stat. §
216B.246, and five of those entities are headquartered outside of Minnesota. (Compl.
¶¶ 64-66; Doc. No. 39 at 26-27.)
In response, LSP argues that any owner of a transmission facility in Minnesota,
regardless of their actual headquarters, should be considered “in-state.” The Court
disagrees. Incumbency bias is not the same as discrimination against out-of-state
interests. See Colon Health Ctrs. of Am., LLC v. Hazel, 813 F.3d 145, 154 (4th Cir.
2016) (explaining that an incumbent recipient of a state benefit is not necessarily an
“in-state resident”). Here, out-of-state companies can benefit from Minn. Stat.
§ 216B.246 on the same terms as a Minnesota company.
For the above reasons, the Court concludes that LSP has failed to demonstrate that
Minn. Stat. § 216B.246 discriminates against out-of-state entities. 8
C.

Pike Test

LSP argues that even if Minn. Stat. § 216B.246 regulates evenhandedly, it violates
the Commerce Clause under the Pike balancing test. Specifically, LSP claims that Minn.
Stat. § 216B.246 “unduly burdens interstate commerce by restricting entry to the
transmission market in Minnesota, thus walling the state from new market participants.”
(Compl. ¶ 91.) Even where a law does not patently discriminate, it may still be invalid

8

LSP has also failed to meet its burden to demonstrate that Minn. Stat. § 216B.246
has a discriminatory purpose or effect.

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under the dormant Commerce Clause if its burden on interstate commerce is “clearly
excessive in relation to the putative local benefits.” S. Union, 289 F.3d at 507 (quoting
Pike, 397 U.S. at 142). The Pike test requires the balancing of a legitimate public interest
against any incidental burdens on interstate commerce.
Minnesota has a strong and well-recognized interest in regulating the market for
electricity that serves its citizens. See, e.g., Ark. Elec. Coop Corp. v. Ark. Pub. Serv.
Comm’n, 461 U.S. 375, 377 (1983) (“[t]he regulation of utilities is one of the most
important functions traditionally associated with the police powers of the States”).
Minnesota also has a long history of regulating both the construction and operation of
transmission facilities. See N. D. v. Heydinger, 825 F.3d 912, 922 (8th Cir. 2016). The
Minnesota legislature decided to create a right of first refusal as part of its broader
scheme regulating utilities. Courts have upheld similar statutes in the face of dormant
Commerce Clause challenges. See, e.g., S. Union, 289 F.3d at 509. Indeed, the benefits
of utility regulation have been presumed by courts. See id. (noting that “local public
utility rate regulation is presumptively valid”). And courts have consistently noted that
legislatures are uniquely positioned to make determinations regarding the “health, life,
and safety” of their citizens, even if state legislation might indirectly affect commerce.
Tracy, 519 U.S. at 306. In enacting Minn. Stat. § 216B.246, the Minnesota legislature
determined that it is necessary to provide “the retail consumers of natural gas and electric
service in this state with adequate and reliable services at reasonable rates,” and that the
legislation was necessary “to avoid unnecessary duplication of facilities which increase

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the cost of service to the consumer” and “to minimize disputes between public utilities
which may result in inconvenience or diminish efficiency in service to the consumers.”
Minn. Stat. § 216B.01. The Court concludes that Minnesota has demonstrated a strong
interest in enacting Minn. Stat. § 216B.246 and various resulting benefits.
Turning to the second prong, the Court balances the local benefits of Minn. Stat.
§ 216B.246 with any incidental burden that the statute places on interstate commerce.
LSP argues that the cumulative effect of individual states’ right-of-first-refusal laws
would nullify Order 1000’s abolition of federal right-of-first-refusal laws and undermine
its goals by effectively eliminating competition for transmission line projects. LSP
asserts that giving incumbents the right of first refusal would eliminate competitive
bidding for these projects and would place a significant burden on interstate commerce.
Moreover, LSP contends that Minn. Stat. § 216B.246 burdens LSP individually by
effectively barring it from competing via the FERC-approved process for regionally
planned projects approved for construction in Minnesota. Finally, LSP asserts that the
nature of the Pike balancing test is fact-intensive, making any decision premature.
As explained above, Minn. Stat. § 216B.246 does not provide a preference to
in-state companies. Instead, it gives a right of first refusal to companies (in-state or
out-of-state) whose facilities will connect to the proposed transmission line. Any
incidental effects on interstate commerce caused by giving existing facilities a right of
first refusal are insufficient to outweigh the significant local interest described above.
See, e.g., Ark. Elec. Coop. Corp., 461 U.S. at 395. In Tracy, the Supreme Court explains

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that “there is no clear line between [the] two strands of analysis”—facial discrimination
and the “so-called Pike undue burden test.” Tracy, 519 U.S. at 298 n.12. The Supreme
Court also noted the narrow application of the Pike test:
Nonetheless, a small number of our cases have invalidated state laws under
the dormant Commerce Clause that appear to have been genuinely
nondiscriminatory, in the sense that they did not impose disparate treatment
on similarly situated in-state and out-of-state interests, where such laws
undermined a compelling need for national uniformity in regulation.
Id. Here, LSP has not shown that Minn. Stat. § 216B.246 undermines a compelling need
for national uniformity. In fact, FERC, the agency charged by Congress with ensuring
national regulation of electric markets, expressly approved the use of state
right-of-first-refusal laws. Midwest Indep. Transmission Sys. Operator, Inc., 150 FERC
¶ 61037 at 18. FERC explained that it had “struck an important balance” between
promoting competition and allowing the continued “regulation of matters reserved to the
states.” 150 FERC at 61166 ¶ 27. In its Complaint, LSP acknowledges that FERC’s
rules are not intended to override transmission siting decisions by the state and that FERC
approved a provision in the MISO tariff that incorporates Minnesota’s right-of-first
refusal. (Compl. ¶¶ 44-45.) Where Congress and FERC have endorsed the state’s role, a
regulation will pass the Pike test if it was enacted in a “legitimate state pursuit.” Allco,
861 F.3d at 108.
After balancing under the Pike test, the Court concludes that any burden on
interstate commerce is outweighed by the benefits of Minnesota’s right-of-first-refusal

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statute. Moreover, the Court notes that economic and free market arguments are better
left to legislators. See Colon Health Ctrs., 813 F.3d at 158.
For all of the above reasons, the Court determines that Minn. Stat. § 216B.246
does not violate the dormant Commerce Clause. LSP’s Complaint is, therefore,
dismissed.
ORDER
Based upon the foregoing, and the files, records, and proceedings herein, IT IS
HEREBY ORDERED that Defendants’ Motions to Dismiss (Doc. Nos. [18, 37, 48]) are
GRANTED and Plaintiff’s Complaint (Doc. No. [1]) is DISMISSED WITH
PREJUDICE
LET JUDGMENT BE ENTERED ACCORDINGLY.
Dated: June 21, 2017

s/Donovan W. Frank
DONOVAN W. FRANK
United States District Judge

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