On June 21, 2018, the United States District Court, District of Minnesota issued an order and memorandum rejecting a challenge to the constitutionality of Minn. Stat. § 216B.246 and granting defendants’ motions to dismiss. The statute, which was enacted after FERC Order 1000 (and eliminating the federal right of first refusal or “ROFR”), provides incumbent electric utilities with the ROFR to build and own electric transmission lines that connect to their existing facilities (thereby creating a State ROFR).  The suit was initiated by LSP Transmission Holdings (“LSP”), alleging that Minn. Stat. § 216B.246 violates the dormant Commerce Clause of the United States Constitution, claiming that the statute facially discriminates, or discriminates in purpose or effect, against interstate commerce regarding the ownership and construction of large transmission facilities.  Defendants moved to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure.

Defendants contended that the U.S. Supreme Court’s decision in Gen. Motors Corp. v. Tracy, 519 U.S. 278, 287 (1997) (“Tracy”) was dispositive, thereby foreclosing LSP’s discrimination claims. In that case, the Supreme Court analyzed a state statute that provided tax exemptions on retail sales to in-state regulated public utilities and denied the exemptions to interstate transmission companies. In upholding the state statute, the Supreme Court recognized that discrimination only exists where two entities are similarly situated.  The Supreme Court concluded that in-state regulated utilities and out-of-state entities were not similarly situated because they did not compete. The Court largely accepted this rationale and the underlying policy arguments and adopted the Tracy opinion, noting that:

[T]he Court grants controlling weight to the monopoly market. Minnesota is entitled to consider the effect on the public utilities and the consumers that the utilities serve and “to give the greater weight to the captive market and the local utilities’ singular role in serving it.”…The reasons cited in support of giving greater weight to the monopoly market in Tracy apply here; namely to avoid any jeopardy or disruption to the service of electricity to the state electricity consumers and to allow for the provision of a reliable supply of electricity.

In addition to the Tracy analysis, the Court also concluded that Minn. Stat. § 216B.246 does not overtly discriminate against out-of-state entities. It stated that the statute “affords companies whose facilities will connect to new transmission lines the first chance to build a new line. The statute’s preference does not apply to all incumbent electric transmission owners, but only to those directly connected to the proposed line.”  The Court also addressed and refuted LSP’s assertions that Minn. Stat. § 216B.246 fails the balancing test set forth in Pike v. Bruce Church, Inc., 397 U.S. 137, 142 (1970).

We will continue to cover additional developments and any appeals in this case.