Minnesota Carbon Statute Invalidated

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Publication August 11, 2016

Minnesota cannot bar Minnesota utilities from signing new long-term-power contracts to buy electricity from fossil-fuel power plants in other states, a US appeals court said in June.

The case was being watched closely by opponents of renewable portfolio standards who hope it will give them grounds to argue that state RPS statutes are unconstitutional.

Minnesota enacted a “Next Generation Energy Act” in 2007 that bars construction of new power plants of 50 megawatts or more in the state that contribute to carbon dioxide emissions unless an offset project is undertaken at the same time to reduce emissions by the same amount. The statute also bars electricity from being imported into Minnesota from such power plants in other states.

North Dakota and various electric cooperatives sued to block enforcement. The Minnesota statute complicates life for electric cooperatives that cross state lines. For example, the Dairyland Power Cooperative in Wisconsin provides electricity from a coal-fired power plant in Wisconsin that Minnesota views as a new power plant. About 16% of the electricity goes to members of the cooperative in Minnesota. The Basin Electric Cooperative in North Dakota supplies power to 135 rural electric system members in nine states, including 12 members in Minnesota. The members share the costs. Basin Electric buys a lot of electricity through requests for proposals.

A federal district court held in April 2014 that the Minnesota statute violates the US constitution because it requires coops in other states effectively to seek approval from Minnesota before undertaking a transaction in another state.

A US appeals court agreed.

The appeals court said the law violates the “dormant” commerce clause in the US constitution, which limits the ability of states to enact laws that impede interstate commerce. The statute seeks “to reduce emissions that occur outside Minnesota by prohibiting transactions that originate outside Minnesota. And their practical effect is to control activities taking place wholly outside Minnesota,” the court said.

Last year, another US appeals court considered whether the RPS statute in Colorado violates the dormant commerce clause.

Colorado requires Colorado utilities to supply at least 20% of their electricity from renewable sources. The percentage is scheduled to increase to 30% in 2020. The Energy and Environment Law Institute argued that the Colorado RPS statute harms a coal company in another state that is a member of the law institute because coal-fired power plants in other states will lose business in Colorado, leading to less demand for coal.

The court in the Colorado case said the problem with this argument is that it would require courts to strike down all state laws that regulate health or safety by requiring manufacturers who want to do business in the state to alter their designs or labels. It said it can see how a state statute that discriminates against out-of-state rivals goes too far. An example is a state law requiring all milk sold in New York to be purchased from New York dairy farmers. However, requiring Colorado utilities to supply a certain percentage of electricity from renewable sources confers no special advantage on Colorado power producers.

The Minnesota court called the Colorado decision a “somewhat contrary position” to its decision to strike down the Minnesota statute.

The Colorado decision, it said, suggested that “non-price standards for products sold in-state” may withstand commerce clause scrutiny under a balancing test, but they do not warrant “near automatic condemnation” on account of their extraterritorial reach. It said did not have to reach the issue of balancing interests, since Minnesota did not argue that near automatic condemnation was an inappropriate standard.

The Minnesota case is State of North Dakota v. Heydinger.

The Energy and Environmental Law Institute asked the US Supreme Court to hear arguments in the Colorado case, Energy and Environmental Law Institute v. Epel et al., but the Supreme Court declined last December to do so.


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