LSP Transmission Holdings, LLC, Plaintiff - Appellant v. Katie Sieben, Commissioner, Minnesota Public Utilities Commission, each in his or her official capacity; Dan M. Lipschultz, Commissioner, Minnesota Public Utilities Commission, each in his or her official capacity; Matthew Schuerger, Commissioner, Minnesota Public Utilities Commission, each in his or her official capacity; John Tuma, Commissioner, Minnesota Public Utilities Commission, each in his or her official capacity; Valerie Means, Commissioner, Minnesota Public Utilities Commission, each in his or her official capacity; Steve Kelley, Commissiоner, Minnesota Department of Commerce, each in his or her official capacity, Defendants - Appellees, ITC Midwest LLC; Northern States Power Company, doing business as Xcel Energy, Intervenors below - Appellees
No. 18-2559
United States Court of Appeals For the Eighth Circuit
March 25, 2020
Submitted: October 16, 2019; United States Department of Justice, Amicus Curiae; Iowa Department of Justice, Amicus on Behalf of Appellant(s); Great River Energy; Minnesota Power; Otter Tail Power Company; Southern Minnesota Municipal Power Agency; Edison Electric Institute, Amici on Behalf of Appellee(s)
Submitted: October 16, 2019
Filed: March 25, 2020
Before SMITH, Chief Judge, GRUENDER and BENTON, Circuit Judges.
SMITH, Chief Judge.
LSP Transmission Holdings, LLC (LSP) filed this appeal against Minnesota‘s Public Utilities Commission and Department of Commerce; ITC Midwest, LLC (ITC); and Northern States Power Company doing business as Xcel Energy (“Xcel“) (collectively, “Appellees“). LSP asserts that the district court1 erred in deciding that Minnesota‘s right of first refusal (ROFR) provision does not violate the dormant Commerce Clause. The provision grants incumbent electric transmission owners a ROFR to construct, own, and maintain electric transmission lines that connect to thеir existing facilities.
A. Federal ROFR
Pursuant to the
FERC is also authorized to “divide the country into regional districts for the voluntary interconnection and coordination of facilities for the generation, transmission, and sale of electric energy” аnd to “promote and encourage such interconnection and coordination within each such district and between such districts.” Id. (quoting
Before issuing Order 1000, FERC allowed incumbent public utility transmission providers to exercise their federal ROFR. Under that rеgulatory regime, incumbents held priority status in choosing to construct new electric transmission lines in their respective service territories. See id. at 701 (citing MISO Transmission Owners v. FERC, 819 F.3d 329, 332 (7th Cir. 2016)). In 2011, “FERC issued Order 1000,” which in part, “eliminated the federal ROFR.” Id. (citing Transmission Planning & Cost Allocation by Transmission Owning & Operating Pub. Utils., 136 FERC 61051, 3 ¶ 7 (2011) (hereinafter “Order 1000“)). Order 1000 specifically “direct[s] public utility transmission providers to remove from their [Open Access
In substance, FERC‘s Order 1000 reformed “its electric transmission planning and cost allocation requirements for public utility transmission providers.” Order 1000 at 1 ¶ 1 (citing
Regionally, Minnesota is governed by the FERC-approved regional transmission entity known as Midcontinent Independent System Operator (MISO). Id. “In accordance with Order 1000, MISO removed the federal ROFR provisions from its tariff.” Id. Thereafter, in response to Order 1000, Minnesota, along with other states,3 enacted a state statutory ROFR. Id. (citing
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 transmissiоn plan and connects to facilities owned by that incumbent electric transmission owner. The right to construct, own, and maintain an electric transmission line that connects to facilities owned by two or more incumbent electric transmission owners belongs individually and proportionally to each incumbent electric transmission owner, unless otherwise agreed upon in writing. This section does not limit the right of any incumbent electric transmission owner to construct, own, and maintain any transmission equipment or facilities that have a capacity of lеss than 100 kilovolts.
After MISO removed the federal ROFR and incorporated Minnesota‘s ROFR into its tariff, FERC approved the tariff. LSP Transmission, 329 F. Supp. 3d at 702 (citing Midwest Indep. Transmission Sys. Operator, Inc., 150 FERC 61037, 61176
C. Procedural History
After FERC denied LSP‘s request for rehearing, LSP first filed a petition for review against FERC, which was denied by the Seventh Circuit. See MISO Transmission Owners, 819 F.3d at 337. LSP contended that FERC erred in allowing MISO to recognize state ROFR laws. Id. at 336. The Seventh Circuit ultimately held that FERC‘s goal—“to avoid intrusion on the traditional role of the States in regulating the siting and construction of transmission facilities“—was proper and that Order 1000 terminated the federal ROFR, not ROFR laws enacted by states. Id. (internal quotation omitted).
Prior to LSP filing the present lawsuit, Xcel—a Minnesota-based public utility—and ITC—a Minnesota-based transmission company—“jointly exercised their rights of first refusal under § 216B.246” to construct the Huntley-Wilmarth line. LSP Transmission, 329 F. Supp. 3d at 703. The line is a proposed 345 kilovolt electric transmission line that was approved by FERC and is projected to traverse Minnesota for approximately 40 miles. Id. It “will connect two substations—[Xcel‘s] existing Wilmarth substation north of Mankato, Minnesota and ITC[‘s] . . . Huntley substation, . . . south of Winnebago, Minnesota,” which was under construction at the time LSP filed its complaint against the Appellees. Id. “The [line] is scheduled to be complete[d] by January 1, 2022.” Id.
The district court granted the motions. In doing so, the court concluded that General Motors Corp. v. Tracy, 519 U.S. 278 (1997), forecloses LSP‘s arguments that Minnesota‘s ROFR law overtly discriminates against nonincumbent or out-of-state transmission companies. The court also determined that even if Tracy does nоt foreclose LSP‘s overt-discrimination arguments, its arguments still fail because Minnesota‘s ROFR applies equally to all incumbent electric transmission owners. Both in-state and out-of-state owners may use the ROFR and, thus, it does not discriminate for the former or against the latter.
As for LSP‘s contentions that Minnesota‘s ROFR law also places an undue burden on interstate commerce, the district court held that Minnesota‘s interest in regulating its own local electricity market outweighs any incidental effects on interstate commerce. After the court entered its order dismissing LSP‘s complaint, LSP filed this appeal.4
II. Discussion
A. Standard of Review
We review de novo the district court‘s dismissal of LSP‘s complaint. U.S. ex rel. Raynor v. Nat‘l Rural Utils. Coop. Fin., Corp., 690 F.3d 951, 955 (8th Cir. 2012).
B. Constitutionality
The Commerce Clause “grants Congress the power to regulate commerce between the states.” IESI AR Corp. v. Nw. Ark. Reg‘l Solid Waste Mgmt. Dist., 433 F.3d 600, 604 (8th Cir. 2006) (citing
Whеn analyzing allegations that a state or local law violates the dormant Commerce Clause, we examine the law for the presence of both overt and non-overt discrimination. Hampton Feedlot, Inc. v. Nixon, 249 F.3d 814, 818 (8th Cir. 2001). “First, if the law in question overtly discriminates against interstate commerce, we will strike the law unless the state or locality can demonstrate, ‘under rigorous scrutiny, that it has no other means to advance a legitimate local interest.‘” Id. (quoting U & I Sanitation v. City of Columbus, 205 F.3d 1063, 1067 (8th Cir. 2000)).
“Second, even if a law does not overtly discriminate against interstate commerce, the law will be stricken if the burden it imposes upon interstate commerce is ‘clearly excessive in relation to the putative local benefits.‘” Id. (quoting U & I Sanitation, 205 F.3d at 1067). This is the Pike balancing test. See S.D. Farm Bureau, 340 F.3d at 593 (citing Pike v. Bruce Church, Inc., 397 U.S. 137 (1970)). Essentially, “[t]hose challenging the legislative action have the burden of showing that the statute‘s burden on interstate commerce exceeds its local benefit.” Hampton Feedlot, 249 F.3d at 818.
1. Overt Discrimination
As a preliminary matter, the parties extensively argue whether the Supreme Court‘s decision in Tracy forecloses LSP‘s arguments that the Minnesota ROFR provision overtly discriminates against nonincumbent and out-of-state transmission companies. Tracy held that Ohio‘s differential tax treatment of natural gas sales by regulated local gas utilities and unregulated producers or marketers—whether in state or out of state—did not violate the Commerce Clause. 519 U.S. at 310. In reaching its holding, thе Supreme Court concluded that Ohio‘s favorable tax treatment of local utilities whose natural gas sales or distribution to consumers were tax-exempt did not violate the Commerce Clause because the local distribution utilities were not similarly situated to the producers or marketers. Id. at 287-310.
We do not, however, need to decide whether Tracy is applicable. If controlling, Tracy would only resolve the overt discrimination issue of the dormant Commerce Clause analysis, and the non-overt undue burden question would remain. We would have to consider the latter under the Pike balancing test. Therefore, accepting as true the allegation in the complaint that Minnesota-defined incumbent transmission owners and LSP are competitors, i.e., similarly situated, in the transmission expansion or development market, we address LSP‘s arguments using the full dormant Commerce Clause analysis.
a. Facial Discrimination
“A statute ‘overtly discriminates’ if it is discriminatory on its face, in its purpose, or through its effects.” R & M Oil & Supply, Inc. v. Saunders, 307 F.3d 731, 734 (8th Cir. 2002) (quoting U & I Sanitation, 205 F.3d at 1067). “The burden to show discrimination rests on [LSP who is] challenging the validity of Minnesota‘s ROFR law. Hughes v. Oklahoma, 441 U.S. 322, 336 (1979). LSP asserts that the Minnesota law expressly grants a ROFR to in-state entities only and thus gives them impermissible preferential treatment “to build new MISO-approved transmission lines in Minnesota.” Appellant‘s Br. at 25. LSP also argues that Minnesota‘s ROFR provision is indistinguishable from the various “flow control” laws that this court and
LSP‘s facial-discrimination claim fails. The district court concluded that Minnesota‘s ROFR “statute draws a neutral distinction between existing electric transmission owners whose facilities will connect to a new line and all other entities, regardless of whether they are in-state or out-of-state.” LSP Transmission, 329 F. Supp. 3d at 708. We agree.
Minnesota‘s ROFR law states, “An incumbent electric transmission owner has the right to construct, own, and maintain an electric transmission line that has been approved for сonstruction in a federally registered planning authority transmission plan and connects to facilities owned by that incumbent electric transmission owner.”
LSP argues that the headquarters site for entities treated as Minnesota incumbents should be irrelevant to our discrimination analysis. Relying on our Oehrleins decision, LSP urges us to decide that these incumbents have meaningful Minnesota operations and, therefore, should be considered in-state entities who are not discriminated against by Minnesota‘s ROFR provision. See 115 F.3d at 1386-87. LSP states that the Minnesota law is per se invalid against out-of-state entities.6
We disagree. Oehrleins involved a county ordinance that required waste generated within the county to be transferred to facilities within that same county. This court rejected plaintiffs’ “‘market access’ theory” argument, which “assume[d] that an out-of-state concern that permanently locates an operation within the state is still an ‘out-of-state’ entity that can complain that a law that even-handedly restricts a local market is ‘discriminatory.‘” Id. at 1386.
A Delaware corporation doing business in Minnesota could not argue that it is discriminated against by Minnesota laws that apply equally to all businesses operating in the state. South Dakota companies may cho[o]se not to locate operations in Minnesota because of comparatively high state taxes that apply to all businesses, but this is not discrimination under the Commerce Clause.
Id. at 1386-87. “It would be a different matter, of course, if the state were to treat a company incorporated or principally located in another state differently from Minnesota companies on that basis.” Id. at 1387 n.13. Such is not the case here. Minnesota‘s preference is for electric transmission owners who have existing facilities, and its law applies evenhandedly to all entities, regardless of whether they are Minnesota-based entities or based elsewhere.
In some instances, laws that restrain both intrastate and interstate commerce may be discriminatory. This is not such an instance. FERC continues to acknowledge “longstanding state authority over certain matters that are relevant to transmission planning and expansion, such as matters relevant to siting, permitting, and construction.” Order 1000 at 33 ¶ 107. The building of transmission lines inheres in the processes of siting, permitting, and constructing, which are integral to transmission planning and expansion. As the Supreme Court aptly stated, “We cannot accept appellants’ underlying notion that the Commerce Clause protects the particular structure or methods of operation in a . . . market.” Exxon Corp. v. Governor of Md., 437 U.S. 117, 127 (1978).
b. Discriminatory Purpose
“In determining whether a regulation has a discriminatory purpose, courts consider both direct and indirect evidence.” IESI AR Corp., 433 F.3d at 604.
This includes: 1) statements by lawmakers; 2) the sequence of events preceding the [statute]‘s adoption, including irregularities in the procedures; 3) the state‘s consistent pattern of discriminating against, or disparately impacting, a particular class of persons; 4) the [statute]‘s historical background, including whether it has been historically used to discriminate; and 5) the [statute]‘s use of highly ineffective means to promote the legitimate interest asserted by the state.
Id. LSP, based on its complaint and public documents, posits that Minnesota‘s ROFR provisiоn has a discriminatory purpose. It cites the provision‘s legislative history. LSP points to supporters’ hearing testimony and asserts that “Minnesota lawmakers openly sought to insulate incumbent transmission owners from competition introduced by Order No. 1000.” Appellant‘s Br. at 36.
Appellees, on the other hand, contend that Minnesota‘s “purpose in regulating electricity is to provide consumers ‘in . . . [Minnesota] with adequate and reliable services at reasonable rates.‘” Intervenors-Appellees’ Br. at 47 (quoting
Out of 16 incumbents, there are “eleven . . . headquartered in Minnesota” that also “own 16,229 miles, or 87 percent, of transmission line[s] in Minnesota.” Compl. at 22, LSP Transmission Holdings, LLC v. Swanson, et al., No. 0:17-cv-04490-DWF-HB (D. Minn. Sept. 29, 2017), ECF No. 1. LSP also states that the four largest owners—three of which are utilities—comprise at leаst “79 percent of transmission line assets in Minnesota.” Id. at 23. This, along with the hearing testimony, reflects that Minnesota‘s ROFR law is not primarily aimed at protecting in-state interests but at maintaining a regulatory system that has worked and provided “adequate and reliable services at reasonable rates” to Minnesota residents. Intervenors-Appellees’ Br. at 47 (quoting
Significantly, state police power includes regulating utilities. Ark. Elec. Coop. Corp. v. Ark. Pub. Serv. Comm‘n, 461 U.S. 375, 377 (1983). Such state regulation inherently invоlves siting, permitting, and constructing transmission lines. Further, FERC has left such control to state authority and has not deemed that state ROFR laws use “highly ineffective means” to accomplish the interests of states. The Seventh Circuit agreed when it denied LSP‘s petition for review against FERC. On this record, we cannot conclude that Minnesota‘s ROFR provision has a discriminatory purpose, and we affirm the district court‘s dismissal of LSP‘s discriminatory-purpose claim.
c. Discriminatory Effect
We now address whether Minnesota‘s ROFR law is discriminatory in its effect. “A regulation discriminates in effect if it favors in-state economic interests over
As discussed above, many of the incumbents that possess the ROFR under Minnesota‘s law are headquartered in Minnesota. These entities control most of the transmission lines in Minnesota. Three out of the four top majority owners are utilities. LSP‘s argument that disproportionate ownership by incumbents shows discriminatory effects misses the point. States have traditionally regulated utilities, and FERC continues to recognize the important role states play in regulating the siting, permitting, and constructing of transmission lines as transmission needs are planned and expanded.
Minnesota‘s decision to allow еntities other than utilities, such as independent transmission companies, to qualify as incumbents does not show an intent to favor in-state interests. If an entity does not already own an existing transmission facility in Minnesota, then it—whether a Minnesota or an out-of-state entity—faces the incidental hurdle that is placed by the Minnesota ROFR provision. If an incumbent owner chooses not to exercise its ROFR, for whatever reason, then other entities, including LSP, can seek approval and gain transmission facilities in Minnesota. Simply put, we discern no discriminatory effeсt.
Because Minnesota‘s ROFR provision does not discriminate against out-of-state interests, we consider LSP‘s undue-burden claim. LSP contends that the Minnesota law violates the Commerce Clause under the Pike balancing test. “That test requires balancing a legitimate local public interest against its incidental burden on interstate commerce.” S. Union Co. v. Mo. Pub. Serv. Comm‘n, 289 F.3d 503, 508 (8th Cir. 2002). A law fails this balancing analysis when “the burden imposed on such commerce is clearly excessive in relation to the putative local benefits.” Pike, 397 U.S. at 142.
LSP alleges that the state law is burdensome because it сannot compete for Minnesota‘s MISO-approved transmission projects. Additionally, it argues that the law has a negative aggregate effect because “if every state were to adopt a ROFR statute, the cumulative effect of such statutes would nullify Order No. 1000‘s abolition of federal ROFRs and eliminate competition in the market.” Appellant‘s Br. at 53. It further adds that the Minnesota law‘s purported benefits are speculative.
Conversely, Appellees argue that LSP alleges insufficient facts to sustain its substantial burden for asserting a Pike claim. They claim that “[n]one of the cases that LSP cites in its balancing analysis address any state interest comparable to the interest in regulating utilities.”8 Intervenors-Appellees’ Br. at 51. They also assert that if any federal action is warranted, Congress—not the courts—is best suited to take it.
Minnesota enacted its ROFR law, in part, in response to the uncertainty produced by FERC‘s Order 1000. Its goal was “to preserve the historically-proven status quo for the construction and maintenance of electric transmission lines.”
The second part of the Pike balancing test requires us to consider the burden imposed on interstate commerce. Minnesota‘s ROFR law could affect LSP‘s ability to build MISO-approved transmission lines in Minnesota. But from an aggrеgate standpoint, this record does not establish that the cumulative effect of state ROFR laws would eliminate competition in the market completely. Incumbents are not obligated to exercise their ROFRs, and some incumbents may not be obligated by their states’ public utilities or service commissions to build federally-approved transmission lines. Moreover, FERC‘s Order 1000 did not eliminate the federal ROFR for incumbents not selected in regional transmission plans for purposes of cost allocation.
We also note that “the Supreme Court has rarеly invoked Pike balancing to invalidate state regulation under the Commerce Clause.” S. Union Co., 289 F.3d at 509. Hence, we cannot say that the burden imposed by Minnesota‘s ROFR law is clearly excessive in relation to Minnesota‘s legitimate state interests in regulating its electric industry and maintaining the status quo. We, therefore, affirm the dismissal of LSP‘s undue-burden claim.
For the foregoing reasons, we affirm the district court‘s dismissal of LSP‘s complaint.
SMITH
CHIEF JUDGE
Notes
S.C. Pub. Serv. Auth. v. FERC, 762 F.3d 41, 73 (D.C. Cir. 2014).This limitation was born of . . . [FERC‘s] concern that a complete ban could potentially threaten grid reliability if nonincumbents failеd to complete needed projects in a timely fashion. The upshot was that rights of first refusal could be retained for facilities located wholly within the service territory of an incumbent whose development costs would not be spread to other parties . . . .