Today, the Eighth Circuit determined that the Next Generation Energy Act (“NGEA”), a Minnesota law that established power sector standards for carbon dioxide emissions, was unconstitutional (decision available here). In so doing, the Court affirmed the decision of District Court Judge Susan Nelson, whose 2014 decision we covered in “Court Declares Minnesota Coal Law Unconstitutional: Electrons Favor the Laws of Physics to Those of Governments.”

However, the Eighth Circuit panel arrived at Judge Nelson’s conclusion by a different route. Only one member of the panel – U.S. Circuit Judge James Loken – explicitly agreed with Nelson that the NGEA violated the dormant Commerce Clause. Judge Loken found that the NGEA’s “broad prohibitions plainly encompass non-Minnesota entities and transactions” and “regulate activity and transaction taking place wholly outside of Minnesota” because “when a non-Minnesota generating utility injects electricity into the MISO grid to meet its commitments to non-Minnesota customers, it cannot ensure that those electrons will not flow into and be consumed in Minnesota.  Likewise, non-Minnesota utilities that enter into power purchase agreements to serve non-Minnesota members cannot guarantee that the electricity eventually bid into the MISO markets pursuant to those agreements will not be imported into and consumed in Minnesota.”

By contrast, Judge Murphy disagreed with Judge Loken’s extraterritoriality analysis while Judge Colloton never even reached the dormant Commerce Clause question. Judge Murphy reasoned that because the NGEA’s importation prohibition “bans contracts for power from new large power plants, it thus bans wholesale sales of electric energy in interstate commerce” in direct contravention of the Federal Power Act’s grant of exclusive jurisdiction over “the transmission of electric energy in interstate commerce” to the Federal Energy Regulatory Commission.  Meanwhile, Judge Colloton reasoned that, “[b]y demanding offsets or allowance purchases from a North Dakota energy facility as a condition for contracting to provide power to Minnesota customers, Minnesota’s statute conflicts with the regulatory scheme that Congress designed in the Clean Air Act,” which allows each state to regulate emissions from sources within its borders through State Implementation Plans.

Since the panel was divided on the application of the dormant Commerce Clause to the NGEA, the permissible scope of state regulation of the energy sector remains uncertain. The concurrences in today’s decision in the Eighth Circuit add additional complexity and uncertainty by asserting that Minnesota’s law may be in conflict with the Clean Air Act or preempted by the Federal Power Act. In addition, and with respect to the question of whether state energy policy may run afoul of the extraterritorial doctrine of the dormant commerce clause, the Tenth Circuit recently came to a different conclusion in the face of a similar challenge to Colorado’s renewable portfolio standard (the Tenth Circuit decision can be found here). While the ultimate outcome is uncertain, the Eighth Circuit decision is sure to spark continued discussion and debate. Watch this space for updates as these issues move forward.