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LSP Transmission Holdings, LLC v. Lange

United States District Court, D. Minnesota

June 21, 2018

LSP Transmission Holdings, LLC, Plaintiff,
Nancy Lange, Commissioner and Chair, Minnesota Public Utilities Commission; Dan Lipschultz, Commissioner, Minnesota Public Utilities Commission; Matt Schuerger, Commissioner, Minnesota Public Utilities Commission; John Tuma, Commissioner, Minnesota Public Utilities Commission; Katie Sieben, Commissioner, Minnesota Public Utilities Commission; and Mike Rothman, Commissioner, Minnesota Public Utilities Commission, Minnesota Department of Commerce, each in his or her official capacity, Defendants, and Northern States Power Company d/b/a Xcel Energy, and ITC Midwest, LLC, Intervenor-Defendants.

          Charles N. Nauen, Esq., David J. Zoll, Esq., and Rachel Ann Kitze Collins, Esq., Lockridge Grindal Nauen PLLP, counsel for Plaintiff.

          Jason Marisam, Solicitor General, Minnesota Attorney General's Office, counsel for State Defendants.

          Aaron D. Van Oort, Esq., Lauren W. Linderman, Esq., and Nathaniel J. Zylstra, Esq., Faegre Baker Daniels LLP, counsel for Northern States Power Company d/b/a Xcel Energy.

          John Pavelko, Esq., Leah C. Janus, Esq., and Lisa M. Agrimonti, Esq., Fredrikson & Byron, P.A., counsel for ITC Midwest LLC.

          B. Andrew Brown, Esq., Dorsey & Whitney LLP; Brian M. Meloy, Esq., and Thomas Carl Burman, Esq., Stinson Leonard Street LLP; David R. Moeller, Esq., Minnesota Power; and Jennifer O. Smestad, Esq., Otter Tail Power Company, counsel for Amicus Utilities.




         This matter involves a Constitutional challenge under the dormant Commerce Clause to Minnesota Statute § 216B.246, which grants incumbent electric utilities a right of first refusal to build and own electric transmission lines that connect to their existing facilities. Plaintiff LSP Transmission Holdings (“LSP”) alleges that the statute discriminates against out-of-state transmission developers in favor of in-state utilities. Defendants[1] have filed separate motions to dismiss LSP's lawsuit. (Doc. Nos. 18, 37 & 48.) For the reasons set forth below, the Court grants the motions.


         This case involves electric generation, transmission, and delivery. Electricity is provided to consumers in three steps: (1) electricity is generated at various power plants; (2) electricity is transmitted on an integrated system of large power lines (“transmission lines”); and (3) electricity is then distributed to consumers through a network of smaller power lines (“distribution lines”). Electricity placed on transmission lines becomes part of an integrated, interstate system. State regulation of industries, such as the electrical industry, has long been recognized as a valid exercise of a state's police powers. See Munn v. Illinois, 94 U.S. 113, 126 (1876) (explaining that state regulation of property that is used in a way that is of public consequence is a valid exercise of the state's powers).

         The principal federal statute governing electricity generation and transmission is the Federal Power Act (“FPA”), which was enacted in 1935. The Federal Energy Regulatory Commission (“FERC”) exercises authority over the interstate transmission of electric energy and its sale at wholesale in interstate commerce. 16 U.S.C. § 824(b)(1). States retain jurisdiction over the retail sale of electric energy, as well as the “local distribution” and “transmission of electric energy in intrastate commerce.” Id. Under the FPA, states have traditionally assumed all jurisdiction over the approval or denial of permits for the siting and construction of electric transmission facilities. See Piedmont Envtl. Council v. FERC, 558 F.3d 304, 310 (4th Cir. 2009).

         In Minnesota, electric service is provided by monopolies. Electric utilities are assigned to service areas. Minn. Stat. § 216B.37. Within the respective service areas, each utility has “the exclusive right to provide electric service at retail to each and every present and future customer in its assigned area and no [other] electric utility shall render or extend service at retail.” Minn. Stat. § 216B.40. In Minnesota, the PUC sets “just and reasonable” retail rates for public utilities. Minn. Stat. §§ 216B.03-.04, and .79. The PUC also ensures that each utility provides “safe, adequate, efficient, and reasonable service” and “make[s] adequate infrastructure investments.” Id.

         FERC is empowered to “divide the country into regional districts for the voluntary interconnection and coordination of facilities for the generation, transmission, and sale of electric energy” and has the “duty” to “promote and encourage such interconnection and coordination within each such district and between such districts.” 16 U.S.C. § 824a(a). Regionally, FERC-approved nongovernmental agencies, independent system operators (“ISO”s), oversee the operation and expansion of electric transmission grids. (Doc. No. 1 (“Compl.”) ¶ 14.) Each ISO issues a tariff, which establishes the terms by which its members build and operate grids. (Id. ¶ 15.) These tariffs are subject to the approval of FERC. (Id.) The Midcontinent Independent System Operator (“MISO”) is the regional planning entity that governs Minnesota.[2] (Id. ¶ 16.)

         Prior to 2011, FERC gave incumbent utilities a federal right of first refusal (“ROFR”). Under this system, if MISO approved construction of a new electric transmission line, the MISO member that distributed electricity in the area where the facility was to be built had a ROFR. Miso Transmission Owners v. FERC, 819 F.3d 329, 332 (7th Cir. 2016). In 2011, however, FERC issued Order 1000, which eliminated the federal ROFR. See Transmission Planning & Cost Allocation by Transmission Owning & Operating Pub. Utils., 136 FERC 61051, 2011 WL 2956837 (“Order 1000”) ¶ 7. See also MISO Transmission Owners v. FERC, 819 F.3d at 332. Order 1000 was consistent with the effort to manage electric grids on a regional level. See Reg'l Transmission Orgs., 89 FERC ¶ 61285, ¶ 1, 1999 WL 33505505, at *3 (Dec. 20, 1999); see also 18 C.F.R. § 35.34. At the same time, Order 1000 recognized that states could continue to regulate electric transmission lines. (Order 1000 ¶ 107) (“We acknowledge that there is longstanding state authority of certain matters that are relevant to transmission planning and expansion, such as matters relevant to siting, permitting, and construction. However, nothing in this Final Rule involves an exercise of siting, permitting, and construction authority.”). FERC further explained:

In developing the framework below, we have sought to provide flexibility for public utility transmission providers in each region to propose, in consultation with stakeholders, how best to address participation by nonincumbents as a result of removal of the federal right of first refusal from Commission-jurisdictional tariffs and agreements. However, we note that nothing in this Final Rule is intended to limit, preempt, or otherwise affect state or local laws or regulations with respect to construction of transmission facilities, including but not limited to authority over siting or permitting of transmission facilities. Public utility transmission providers must establish this framework in consultation with stakeholders and we encourage stakeholders to fully participate.

Order 1000 ¶ 227 (emphasis added).

         In accordance with Order 1000, MISO removed the federal ROFR provisions from its tariff. (Compl. ¶ 45.) Minnesota then enacted its own state ROFR law, Minn. Stat. § 216B.246.[3] Therefore, any new MISO-approved transmission project in Minnesota must comply with Minnesota's ROFR law, which provides in part:

An incumbent electric transmission owner has the right to construct, own, and maintain an electric transmission line that has been approved for construction in a federally registered planning authority transmission plan and connects to facilities owned by that incumbent electric transmission owner.

Minn. Stat. § 216B.246, subd. 2. If a proposed line connects to more than one incumbent owner's facilities, both owners will receive the right to build and operate the line “individually and proportionally” with other owner(s). Id. In addition, the statute authorizes the PUC to require an incumbent to build the electric transmission line, taking into consideration various issues, such as cost, efficiency, and reliability. Id., subd. 3(b).[4]Further, Minn. Stat. § 216B.246 defines an “incumbent electric transmission owner” as: “any public utility that owns, operates, and maintains an electric transmission line in this state; any generation and transmission cooperative electric associations; any municipal power agency; any power district; any municipal utility; or any transmission company . . . .” Minn. Stat. § 216B.246, subd. 1. Currently, “incumbents” in Minnesota include entities headquartered in Iowa, North Dakota, South Dakota, Wisconsin, and Minnesota. (Compl. ¶ 64(a)-(p).) Many of these entities also own and operate facilities in states other than Minnesota. Id.[5]

         FERC approved MISO's tariff, and in particular its decision to honor the state ROFR laws. Midwest Indep. Transmission Sys. Operator, Inc., 150 FERC ¶ 61037, 2015 WL 285969, at ¶ 25. FERC explained that “even if a transmission project is subject to a state [ROFR], the regional transmission planning process still results in the selection for planning and cost allocation purposes of transmission projects that are more efficient or cost-effective than would have been developed but for such processes.” Id. ¶ 16.

         LSP objected to FERC's ruling, arguing that FERC should preclude states from enacting ROFR laws. Id. ¶ 24. FERC held that “it is appropriate for MISO to recognize state or local laws or regulations as a threshold matter in the regional transmission planning process.” Id. ¶ 25. FERC explained that Order 1000 “struck an important balance between removing barriers to participation by potential transmission providers in the regional transmission planning process and ensuring the nonincumbent transmission developer reforms do not result in the regulation of matters reserved to the states.” Id. ¶ 27. LSP then sought judicial review of FERC's ruling and again argued that FERC should not have allowed MISO to implement state ROFR laws. MISO Transmission Owners, 819 F.3d at 336. The Seventh Circuit Court of Appeals rejected LSP's argument and held that it was a “proper goal” for FERC “‘to avoid intrusion on the traditional role of the States' in regulating the siting and construction of transmission facilities.” Id. The Seventh Circuit also explained that Order 1000 terminated the federal, not any state, right of first refusal. Id. (“Order No. 1000 terminated only federal rights of first refusal; it did not ‘limit, preempt, or otherwise affect state or local laws or regulations with respect to construction of transmission facilities.'”).

         This case involves the Huntley-Wilmarth line, a proposed 345 kilovolt electric transmission line that is proposed to run approximately 40 miles, wholly within Minnesota. The Huntley-Wilmarth line will connect two substations-NSP's existing Wilmarth substation north of Mankato, Minnesota and ITC Midwest's Huntley substation, which is currently under construction, south of Winnebago, Minnesota. (Compl. ¶ 70; Doc. No. 40 (“Zylstra Decl.”) ¶ 4, Ex. C (Notice of Intent) at 1.)[6] On March 3, 2017, after the Huntley-Wilmarth line was approved, NSP and ITC Midwest jointly exercised their rights of first refusal under § 216B.246. In their Notice of Intent to the Commission, NSP and ITC Midwest gave formal notice that they “intend to construct, own and maintain the Huntley-Wilmarth 345kv transmission line project to be located in south ...

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