State of North Dakota v. Beverly Heydinger
825 F.3d 912 (2016)
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Rule of Law:
A state law violates the dormant Commerce Clause's extraterritoriality doctrine when its practical effect is to control commercial conduct that occurs wholly outside the state's borders.
Facts:
- In 2007, Minnesota enacted the Next Generation Energy Act (NGEA), which prohibited importing power from new large energy facilities that would increase statewide carbon dioxide emissions.
- Basin Electric Cooperative, Minnkota Power Cooperative, and Missouri River Energy Services are out-of-state electric utility cooperatives that generate and transmit power to members in multiple states, including Minnesota.
- These cooperatives, along with other utilities in the region, operate as members of the Midcontinent Independent Transmission System Operator (MISO), a federally-regulated regional grid spanning fifteen states.
- Within the integrated MISO grid, electricity from all sources is commingled, and its flow is centrally dispatched by MISO, making it impossible to trace electrons from a specific generator to a specific consumer.
- Minnesota's Department of Commerce (MDOC) began questioning whether out-of-state facilities owned by cooperatives like Dairyland and Basin were in violation of the NGEA for their participation in the MISO market.
- The uncertainty created by the NGEA and Minnesota's potential enforcement actions caused the plaintiff cooperatives to hesitate or refrain from making investments in new out-of-state facilities and from entering into new long-term power purchase agreements.
Procedural Posture:
- The State of North Dakota and several out-of-state power cooperatives sued Minnesota officials in the U.S. District Court for the District of Minnesota.
- The plaintiffs alleged, among other things, that Minnesota's Next Generation Energy Act violated the dormant Commerce Clause.
- The district court granted summary judgment for the plaintiffs, issuing a permanent injunction against the enforcement of the challenged statutory provisions.
- The district court concluded that the provisions constituted impermissible extraterritorial legislation and were therefore a per se violation of the dormant Commerce Clause.
- The State of Minnesota, as the defendant, appealed the district court's decision to the U.S. Court of Appeals for the Eighth Circuit.
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Issue:
Does a Minnesota statute that prohibits importing electricity from certain new out-of-state facilities and bans entering into long-term power purchase agreements that increase statewide carbon dioxide emissions violate the dormant Commerce Clause by regulating conduct wholly outside of Minnesota?
Opinions:
Majority - Loken, Circuit Judge
Yes, the Minnesota statute violates the dormant Commerce Clause. A state law is per se invalid if its practical effect is to control conduct beyond the state's boundaries. Because electricity flows freely and untraceably throughout the integrated MISO grid, Minnesota's law necessarily controls the conduct of out-of-state generators and utilities participating in transactions wholly outside of Minnesota. To comply, these out-of-state entities would be forced to conduct their non-Minnesota business according to Minnesota's terms or seek regulatory approval from Minnesota, which is a direct regulation of interstate commerce prohibited by the extraterritoriality doctrine.
Concurring - Murphy, Circuit Judge
The judgment should be affirmed, but not on extraterritoriality grounds. The statute does not regulate conduct 'wholly outside' Minnesota, as it only applies to energy 'imported' into the state. However, the statute is preempted by the Federal Power Act (FPA), which grants the Federal Energy Regulatory Commission (FERC) exclusive jurisdiction over wholesale sales of electric energy in interstate commerce. By prohibiting certain types of wholesale power purchase agreements, Minnesota is directly regulating in an area exclusively occupied by federal law.
Concurring - Colloton, Circuit Judge
The judgment should be affirmed because the Minnesota statute is preempted by federal law. I agree with Judge Murphy that the statute's ban on certain wholesale sales is preempted by the Federal Power Act. Furthermore, the statute's offset provisions, which would require out-of-state facilities to change their emissions profiles to sell power to Minnesota, are preempted by the Clean Air Act. The Clean Air Act establishes a scheme where each state has primary responsibility for regulating emissions sources within its own geographic borders, and Minnesota's law improperly encroaches upon the authority of other states to regulate sources within their jurisdictions.
Analysis:
This decision reinforces the strength of the dormant Commerce Clause's extraterritoriality doctrine as a limit on state environmental regulations that impact national markets. The majority opinion clarifies that the doctrine is not limited to price-control statutes and applies forcefully to highly integrated, federally-regulated markets like regional electricity grids. The concurring opinions highlight an alternative and equally powerful basis for invalidating such state laws: federal preemption under the Federal Power Act and the Clean Air Act, providing multiple legal avenues for challenging state energy policies that have interstate effects.
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