LSP Transmission Holdings, LLC v. Katie Sieben

United States Court of Appeals
For the Eighth Circuit
___________________________
No. 18-2559
___________________________
LSP Transmission Holdings, LLC
lllllllllllllllllllllPlaintiff - 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,
Commissioner, Minnesota Department of Commerce, each in his or her official capacity
lllllllllllllllllllllDefendants - Appellees
ITC Midwest LLC; Northern States Power Company, doing business as Xcel Energy
lllllllllllllllllllllIntervenors below - Appellees
------------------------------
United States Department of Justice
lllllllllllllllllllllAmicus Curiae
Iowa Department of Justice
lllllllllllllllllllllAmicus on Behalf of Appellant(s)
Great River Energy; Minnesota Power; Otter Tail Power Company; Southern
Minnesota Municipal Power Agency; Edison Electric Institute
lllllllllllllllllllllAmici on Behalf of Appellee(s)
____________
Appeal from United States District Court
for the District of Minnesota
____________
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 their
existing facilities. Minn. Stat. § 216B.246, subdiv. 2. Upon de novo review, we
affirm.
1
The Honorable Donovan W. Frank, United States District Judge for the
District of Minnesota.
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I. Background
A. Federal ROFR
Pursuant to the Federal Power Act (FPA), the Federal Energy Regulatory
Commission (FERC) regulates interstate transmission of electricity and the sale of
electricity at wholesale in interstate commerce. LSP Transmission Holdings, LLC v.
Lange, 329 F. Supp. 3d 695, 700 (D. Minn. 2018) (citing 16 U.S.C. § 824(b)(1)).
States, however, retain jurisdiction over the retail sale of electricity and the
generation, transmission, and distribution of electricity in intrastate commerce. Id.(citing 16 U.S.C. § 824(b)(1)).
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 “promote and encourage such
interconnection and coordination within each such district and between such
districts.” Id. (quoting 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. Each ISO issues a tariff, which
establishes the terms by which its members build and operate grids. These tariffs are
subject to the approval of FERC.” Id. at 700–01 (internal citations omitted).
Before issuing Order 1000, FERC allowed incumbent public utility
transmission providers to exercise their federal ROFR. Under that regulatory 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
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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
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 16 U.S.C. § 824e). “Order 1000 [is also] consistent with
[FERC’s] effort to manage electric grids on a regional level” but “recognize[s] that
states c[an] continue to regulate electric transmission lines.” LSP Transmission, 329
F. Supp. 3d at 701 (“We acknowledge that there is longstanding state authority [over]
certain matters that are relevant to transmission planning and expansion, such as
matters relevant to siting, permitting, and construction. However, nothing in . . .
[Order 1000] involves an exercise of siting, permitting, and construction authority.”
(quoting Order 1000 at 33 ¶ 107)).
2
“A ‘transmission facility selected in a regional transmission plan for purposes
of cost allocation’ is one that has been selected, pursuant to a Commission-approved
regional transmission planning process, as a more efficient or cost-effective solution
to regional transmission needs.” Order 1000 at 2 ¶ 5. The elimination of the federal
ROFR did not apply to utilities that were not selected in a regional transmission plan
for purposes of cost allocation. See id. at 3 ¶ 7.
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 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 . . . .
S.C. Pub. Serv. Auth. v. FERC, 762 F.3d 41, 73 (D.C. Cir. 2014).
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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 Minn. Stat. § 216B.246, subdiv. 2).
Minnesota’s ROFR law provides the following:
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. 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.
Minn. Stat. § 216B.246, subdiv. 2.
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
3
“In response to Order 1000, several states enacted their own ROFR laws.”LSP
Transmission, 329 F. Supp. 3d at 701 n.3 (citing N.D. Cent Code § 49-03-02.2; S.D.
Codified Laws § 49-32-20; Neb. Rev. Stat. § 70-1028; 17 Okla. Stat. § 292).
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¶ 25 (2015) (hereinafter “MITSO”)). 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 MITSO at 61176 ¶ 24). FERC
subsequently denied LSP’s request for rehearing. Id. (citing MITSO 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 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.
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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 argued 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
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).
4
A number of amici also filed briefing: one in support of LSP, two in support
of the Appellees, and one—filed by the United States—as a neutral advisor.
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“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 most favorably to the
complainant.” Id. And while “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. (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544,
555 (2007)). With that said, “[t]o survive a motion to dismiss, a complaint must
contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is
plausible on its face.’” Id. (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)).
“Threadbare recitals of the elements of a cause of action, supported by mere
conclusory statements, do not suffice.” Id. (quoting Iqbal, 556 U.S. at 678).
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 U.S. Const. art I, § 8, cl. 3). “Implicit within the
Commerce Clause is a negative or dormant feature that prevents individual states
from regulating interstate commerce.” Id. (quoting United Waste Sys. of Iowa, Inc.
v. Wilson, 189 F.3d 762, 765 (8th Cir. 1999)). In other words, “[t]he dormant
Commerce Clause keeps states from enacting ‘laws that discriminate against or
unduly burden interstate commerce.’” Id. (quoting S.D. Farm Bureau, Inc. v.
Hazeltine, 340 F.3d 583, 592 (8th Cir. 2003)).
When 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)).
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“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 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.
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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
markets and have monopolies with respect to the sale of electricity to consumers.”
LSP Transmission, 329 F. Supp. 3d at 707. The court found that Tracy’s reasoning
applies in the present case because LSP, as an unregulated transmission company, is
not similarly situated to Minnesota’s regulated utilities and transmission
companies—“the existing transmission line owners with a right of first refusal.” Id.
at 708. The court thus concluded that the Minnesota ROFR law did not discriminate
against LSP.
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
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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 headquartered, 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 federally registered planning authority transmission
plan and connects to facilities owned by that incumbent electric transmission owner.”
Minn. Stat. § 216B.246, subdiv. 2. The Minnesota law further defines an
“[i]ncumbent 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 association; any municipal power agency; any
power district; any municipal utility; or any transmission company.” Id. § 216B.246,
5
LSP also cites two Supreme Court flow-control decisions, which include C &
A Carbone, Inc. v. Town of Clarkstown, 511 U.S. 383 (1994); Fort Gratiot Sanitary
Landfill, Inc. v. Mich. Dep’t of Nat. Res., 504 U.S. 353 (1992). These cases do not
involve interests that are comparably similar to the present case.
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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.
6
For additional support, LSP also cites to Florida Transportation Services., Inc.
v. Miami-Dade County, 703 F.3d 1230, 1259 (11th Cir. 2012) (stating that the
Commerce Clause demands a focus on “where [a] company’s business takes place or
where its political influence lies”); and Walgreen Co. v. Rullan, 405 F.3d 50, 58 (1st
Cir. 2005) (refusing to hold “that a favored group must be entirely in-state for a law
to have a discriminatory effect on commerce”). These cases are distinguishable
because they do not consider state regulation of certain matters relevant to
transmission planning and expansion.
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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
. . . 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).
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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 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 Minn. Stat.
§ 216B.01). They also explain that the legislative history of the Minnesota ROFR law
7
Appellees correctly note that it would be somewhat awkward to label a
Minnesota law as discriminatory despite benefitting a company that has an operation
in Minnesota but is principally located or headquartered elsewhere. Although briefly
discussed in Oehrleins, we have not squarely addressed the issue of whether an entity
that has an in-state presence but is headquartered elsewhere is considered an in-state
entity for the purpose of dormant Commerce Clause review. We need not do so now.
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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, 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 Minn. Stat. § 216B.01). Cost
effective and reliable electricity transmission remains vital for efficient distribution
to those residents.
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 involves 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
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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 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 effect.
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2. Undue Burden
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 cannot 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.”
8
LSP cites Pike, 397 U.S. at 137; Cotto Waxco Co. v. Williams, 46 F.3d 790(8th Cir. 1995); and Pioneer Military Lending, Inc. v. Manning, 2 F.3d 280 (8th Cir.
1993). Once more, the contexts and interests in the aforesaid cases are not analogous
to that involved in the instant case.
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Defendants-Appellees’ Br. at 34. This goal is within the purview of a State’s
legitimate interest in regulating the intrastate transmission of electric energy. See 16
U.S.C. § 824(b)(1). Put differently, “unlike the regulation of natural gas, a field in
which FERC has jurisdiction both over pricing and over the siting of interstate lines,
the states retain authority over the location and construction of electrical transmission
lines.” Ill. Commerce Comm’n v. FERC, 721 F.3d 764, 773 (7th Cir. 2013) (internal
citation omitted).
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 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 rarely 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.
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III. Conclusion
For the foregoing reasons, we affirm the district court’s dismissal of LSP’s
complaint.
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