On December 23, 2019, the Minnesota Court of Appeals reversed and remanded a decision by the Minnesota Public Utilities Commission (the “Commission”) approving affiliated-interest agreements permitting Minnesota Power and its Wisconsin affiliate to move forward with the construction of a large natural gas facility – the Nemadji Trail Energy Center (“NTEC”) – in Superior, Wisconsin (the “Order”). The result of the Order may complicate the already complex issue of state permitting, specifically a state’s ability to regulate activity occurring in another state.

Honor the Earth and certain Clean Energy Organizations sought additional review of the Commission’s order based on concern about the lack of a Commission-ordered environmental assessment worksheet (“EAW”) pursuant to the Minnesota Environmental Policy Act (“MEPA”). During the initial Commission proceeding, Minnesota Power, and indeed the Commission, determined that an EAW was not necessary because (1) MEPA does not apply to the affiliated-interest agreements because NTEC does not meet the definition of “project” under MEPA, and (2) the Commission does not have authority to order an EAW for a project located in Wisconsin. In its Order, the Court of Appeals addresses each point, in turn.

The Order holds that MEPA applies to affiliated-interest agreements. Contrary to the Commission’s interpretation, the Court of Appeals concludes that the NTEC affiliated-interest agreements are “projects” as defined by MEPA. The Court’s definition of “project” is “a definite, site-specific, action that contemplates on-the-ground environmental changes.” The Order notes that the construction and operation of NTEC are definite and site-specific actions that will affect the immediate location as well as the surrounding environment (including Minnesota – 2.5 miles away – and Lake Superior). The Court went on to note that because the construction of NTEC is an environmentally significant event that may not occur without Commission approval of the affiliated-interest agreements, Commission approval of such agreements constitutes indirect governmental action manipulating the environment and triggering MEPA. Therefore, the Court concluded that MEPA “applies to the governmental action of approving the NTEC affiliated-interest agreements.”

Next, under a de novo standard of review, the Order holds that the Commission may require an EAW for a project outside of Minnesota. First, the Court concludes that the Commission possesses jurisdiction based on its authority to regulate Minnesota public utilities and their affiliated-interest agreements. Second, the Court determines that “MEPA is a process-focused statutory scheme; it merely provides a mechanism for informing the Commission’s decision whether the affiliated-interest agreements are reasonable and consistent with the public interest with reference to environmental impact.”

Interestingly, despite Minnesota Power’s and the Commission’s assertions, the Order expressly differentiates the NTEC matter from North Dakota v. Heydinger, an Eighth Circuit case striking down a Minnesota statute attempting to limit the purchase of energy from sources outside the state that would contribute to or increase statewide power-sector carbon-dioxide emissions. 825 F.3d 912, 919–21 (8th Cir. 2016). Contrasting the NTEC matter from regulations implicating the dormant Commerce Clause, the Court notes “MEPA does not regulate commerce in Wisconsin or impose Minnesota’s environmental policies on Wisconsin. It does not dictate whether Minnesota Power constructs, operates, or purchases power from NTEC.” Instead, as previously noted, the Court determined that MEPA is merely a “process-focused” statute providing tools to inform Commission decisions on affiliated-interest agreements and the underlying environmental impact.

While either Minnesota Power or the Commission may seek Minnesota Supreme Court review, as it stands, the Order creates the potential for a fundamental shift in environmental regulation in Minnesota as out-of-state projects with a nexus to Minnesota may now need to seriously consider the likelihood of Minnesota regulatory oversight.

Stoel Rives will continue monitoring and updating as this important legal issue develops. The full Order may be viewed here.