LSP Transmission Holdings, LLC v. Katie SiebenLSP Transmission Holdings, LLC v. Katie Sieben
Appeal from United States Distriсt Court for the District of Minnesota
Submitted: October 16, 2019
Filed: March 25, 2020
Before SMITH, Chief Judge, GRUENDER and BENTON, Circuit Judges.
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
I. Background
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” and to “promotе 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 regulatory regime, inсumbents 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 Transmission Tariffs] or other Commission-jurisdictional tariffs and agreements any provisions that grant a federal right of first refusal to transmission facilities that are selected in a regional transmission plan for purposes of cost allocation.” Order 1000 at 3 ¶ 7.2
B. State ROFR
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 transmission plan and cоnnects 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 less than 100 kilovolts.
After MISO rеmoved 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
¶ 25 (2015) (hereinafter “MISO“)). LSP, a transmission company based outside of Minnesota, challenged MISO‘s tariff. FERC, however, ruled that MISO is authorized to consider state laws in the regional transmission planning process. Based on FERC‘s ruling, LSP requested a rehearing. LSP argued, in part, “that FERC should preclude states from enacting ROFR laws.” Id. (citing MISO at 61176 ¶ 24). FERC subsequently denied LSP‘s request for rehearing. Id. (citing MISO at 61176 ¶ 25).
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
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.
In September 2017, LSP filed the instant lawsuit against Minnesota‘s Public Utilities Commission and Department of Commerce, challenging the constitutionality of Minnesota‘s ROFR provision. LSP arguеd that the law violates the dormant Commerce Clause by discriminating against or placing an undue burden on interstate commerce. Eventually, Xcel and ITC intervened as defendants. Appellees then filed separate motions to dismiss LSP‘s complaint for failure to state a claim.
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 not foreclosе 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).
“In deciding a motion to dismiss under
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
When analyzing allegаtions 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)).
“The discrimination may take one of three forms. The law may be discriminatory on its face or, even if it is facially neutral, the law may have a discriminatory purpose or a discriminatory effect.” U & I Sanitation, 205 F.3d at 1067. Under the dormant Commerce Clause, a law is discriminatory if it benefits in-state economic interests while also inordinately burdening out-of-state economic interests. Hampton Feedlot, 249 F.3d at 818.
“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, the Supreme Court сoncluded 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.
Here, the district court pointed out that “[m]any of the entities that own existing transmission facilities [in Minnesota] are regulated public utilities, who serve captive
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
the Supreme Court have invalidated. Id. at 26-27 (citing Ben Oehrleins & Sons & Daughter, Inc. v. Hennepin Cty., 115 F.3d 1372, 1376 (8th Cir. 1997) (affirming that provisions of county ordinance “prevent[ing]the delivery of County waste to out-of-state processors are unconstitutional“)).5 And according to LSP, the district court should not have disregarded its facial-discrimination claim on the basis that some of Minnesota‘s incumbents with in-state operations are headquartered in other states. LSP claims, “What matters for purposes of determining whether an entity is in-state is not where it is heаdquartered, but whether it has a meaningful in-state presence.” Appellant‘s Br. at 28.
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 construction in a fеderally registered planning authority transmission plan and connects to facilities owned by
subdiv. 1(c). Currently, incumbents in Minnesota include entities headquartered in Iowa, North Dakota, South Dakota, Wisconsin, and Minnesota. Many of these entities also own and operate facilities in states other than Minnesota.
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.
We further stated:
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
After reviewing the plain language of Minnesota‘s ROFR law, we hold that this law is not facially discriminatory. LSP‘s facial-discrimination claim fails.7
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 provision has a discriminatory purpose. It cites the provision‘s lеgislative 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
reveals that the Minnesota legislature previously considered alternatives to the statute but decided it was more appropriate to maintain its “longstanding, successful regulatory approach for selecting the owners and operators of transmission lines.” Id.
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 least “79 percent of transmission line assets in Minnesota.” Id. at 23. This, alоng 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
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
out-of-state interests.” IESI AR Corp., 433 F.3d at 605. LSP claims that Minnesota‘s ROFR provision produces disproportionate, discriminatory effects because of the 16 incumbents, 11 are Minnesota-based, and only 5 are based elsewhere. Appellees respond by arguing that “nothing in § 216B.246 imposes any greater burden on out-of-state entities trying to enter the transmission-line market than it does on Minnesota entities—they are all excluded unless they own or buy the transmission facility in Minnesota to which the new transmission line will connect.” Intervenors-Appellees’ Br. at 45.
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 entities other than utilities, such as independent transmission companies, to qualify as inсumbents 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 effect.
2. Undue Burden
Because Minnesota‘s ROFR provision does not discriminate against out-of-statе 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 cannot compete for Minnesota‘s MISO-approved transmission projeсts. 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
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.”
Defendants-Appellees’ Br. at 34. This goal is within the purview of a State‘s legitimate interest in regulating the intrastate transmission of еlectric energy. See
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 aggregate standpoint, this record does not establish that the cumulative effect оf 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 rarely invoked Pike balancing to invalidate state regulation under the Commerce Clаuse.” 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.
III. Conclusion
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 failed to complete needed projects in a timely fashion. The upshot was thаt 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 . . . .