On June 15, 2016, the United States Court of Appeals for the Eighth Circuit affirmed a district court ruling that struck down as unconstitutional a portion of a Minnesota statute limiting increases in carbon dioxide emissions from energy facilities. North Dakota v. Heydinger, No. 14-2156. North Dakota and coal and energy industry groups ("Plaintiffs") brought the suit to challenge a restrictive provision in Minnesota's Next Generation Energy Act ("NGEA").

The provision in question prohibited the construction of new large energy facilities, importation of power from new large energy facilities, and creation of new long-term power purchase agreements that would increase "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 the state and consumed in Minnesota."

The prohibition would not apply if a carbon reduction project offset the emissions contributed by a proposed new power plant. Plaintiffs challenged the Minnesota law as a violation of the Commerce Clause found in Article 1, Section 8 of the U.S. Constitution. The Minnesota district court found in favor of Plaintiffs, concluding that the Minnesota statute was an extraterritorial regulation and thus a per se violation of the dormant Commerce Clause.

As in many other states, the electricity industry in Minnesota operates on a regional grid system with transmission facilities owned by member utility organizations and operated by an independent system operator. In Minnesota's case, the independent system operator is the Midcontinent Independent Transmission System Operator ("MISO"). Under this regional grid system, electricity generated both inside and outside of Minnesota is channeled into a single interstate pool of electricity controlled by MISO. As a result of this pooling system, utilities have no way to preclude electricity generated in a plant wholly outside of Minnesota from reaching a Minnesota electricity consumer.

This regional electrical interconnectivity means that Minnesota's NGEA would impact not just power plant construction, power importation, and power purchase agreements within Minnesota's borders, but, as the Eighth Circuit reasoned, it also would impact an entire regional grid that includes 14 other states and parts of Canada. For example, a North Dakota utility cooperative was apprehensive about entering long-term power purchase agreements needed to meet new demand in North Dakota because of fear of violating Minnesota's law. Accordingly, Judge Loken, in a portion of the Eight Circuit opinion not joined by the other two members of the panel, held that the "district court correctly concluded that the challenged prohibitions have the practical effect of controlling conduct beyond the boundaries of' Minnesota."

The other two judges on the Eighth Circuit panel agreed that the Minnesota statutory provisions should be struck down, but for reasons other than their extraterritorial reach. Judge Murphy concluded that the district court's injunction should be upheld because the statutory provisions are preempted by the Federal Power Act, which "gives the Federal Energy Regulatory Commission ("FERC") exclusive jurisdiction to regulate wholesale sales and the transmission of electric energy in interstate commerce." Judge Colloton likewise concluded that the challenged provisions are preempted by federal law. He agreed with Judge Murphy that FERC has exclusive jurisdiction over the market at issue. But he found the statute provisions preempted only insofar as the Minnesota statute bans wholesale sales of electric energy in interstate commerce. Judge Colloton, nevertheless, reasoned that even where the Minnesota statute permits wholesale sales through carbon offsets, the statute is preempted on different grounds because it conflicts with the Clean Air Act's regulatory scheme.

Minnesota requested and received an extension to July 13, 2016, to file a petition for rehearing, but did not ultimately file the petition. 

Assistance from summer associate Kali H. Frampton

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