On April 18, the U.S. District Court for the District of Minnesota struck down
the State of Minnesota’s restrictions on importing electricity from
coal power plants in other states. The court held that these
restrictions improperly regulated electric generators and utilities
outside the state.
The decision sets a precedent that could threaten
state regulations of imported fuel and electricity, such as the numerous
renewable power standards and California’s low carbon fuel standard.
These regulations have been a flashpoint for conflicts between in-state
and out-of-state interests, including Canadian energy producers who
believe that the standards discriminate against them.
Minnesota
adopted the restriction on electricity imports in its 2007 Next
Generation Energy Act, which placed a moratorium on construction of new
coal power plants within the state. The point of the moratorium was to
limit greenhouse gas emissions from coal burning, which contributes to
climate change. Without the import restriction, Minnesota’s moratorium
might have little effect: companies looking to build a new coal plant
could simply build in neighboring states, exporting electricity to
Minnesota and increasing greenhouse gas emissions. So Minnesota declared
that “no person shall . . . import or commit to import from outside the
state power from” new coal plants or “enter into a new long-term power
purchase agreement that would increase statewide power sector carbon
dioxide emissions.” Minn. Stat. § 216H.03, subd. 3. New coal plants
could only avoid this ban if they paid to reduce emissions elsewhere or
qualified for an exception.
North Dakota and utilities with coal
power plants brought a lawsuit alleging that Minnesota’s restrictions
unconstitutionally regulated outside of Minnesota’s territory, and the
court agreed. The U.S. Constitution’s Commerce Clause gives the federal
government the authority to regulate interstate commerce and implies
that states cannot “discriminate against or unduly burden interstate
commerce” without congressional authorization. This rule is called the
“dormant commerce clause” because it applies when congress has not
authorized state regulation. One aspect of this rule is that states
cannot adopt a regulation that “has the practical effect of controlling
conduct beyond the boundaries of the state.”
The court held that
the import restriction necessarily regulated out-of-state conduct
because electricity on the grid “does not recognize state boundaries.”
Electricity is not like a package that is shipped from a seller to a
buyer. Instead, the interstate electric grid creates a pool of power.
Electric generators contribute electricity and consumers withdraw
electricity. It is as though one group was emptying buckets of water
into a lake and another group was filling buckets of water from a lake.
Companies may talk about purchasing electricity “from” a specific
utility, but that is an accounting convention, not a description of a
physical process—the electricity purchased comes from an
undifferentiated pool. Thus, when a North Dakota utility sells to a
North Dakota customer some of the electricity might be diverted into
Minnesota, violating Minnesota’s import restriction. So Minnesota’s law
regulates out-of-state conduct, and the court held that it violated the
U.S. Constitution and enjoined any enforcement.
The decision
raises two potential problems for state regulation of imported
electricity and fuel. First, more than half of the fifty states have
renewable power standards that apply to imported electricity. Under the
court’s decision these standards would be invalid unless they exempted
incidental imports from out-of-state utilities serving out-of-state
customers. The Harvard Environmental Law Program’s Policy Initiative’s
Energy Fellow Ari Peskoe has suggested some ways that states could try to insulate their regulations from a similar challenge.
Second,
the court suggested that there may be strict limits on a state’s
ability to regulate imported fuel and electricity through renewable
portfolio standards or the low carbon fuel standard. The usual rule
under the dormant commerce clause is that states “may not attach
restrictions to exports or imports to control commerce in other states”
or otherwise “project” their regulation into other states. But the
entire point of state restrictions on imported fuel and electricity is
to affect out-of-state greenhouse emissions. States want to regulate
imported fuel and electricity because they are concerned that
out-of-state energy producers are contributing to climate change—they
don’t want to import oil from places where it takes a lot of greenhouse
gas emissions to produce oil and they don’t want to import electricity
from states that are producing it using a lot of greenhouse gas
emissions. And that concern makes sense: even if those greenhouse gas
emissions take place in other states or countries, they’re just as bad
for the entire world’s climate. As a result, the U.S. Court of Appeals
for the Ninth Circuit recently suggested that the dormant commerce clause’s prohibition on extraterritorial regulation is only meant for extraterritorial price-regulation, so it doesn’t threaten California’s low carbon fuel standard or, presumably, state renewable power standards.
The
Minnesota court, however, rejected the Ninth Circuit’s reasoning,
noting that the Supreme Court and several appellate courts have held
that states may not project their regulation into neighboring states,
even when the regulation was not about prices. This conflicting
reasoning comes at an important moment for state regulation of imported
fuel and electricity. There is still no legal consensus on the validity
of these regulations, which are being challenged in several lawsuits
around the country. Statepowerproject.org, a website by the Harvard Environmental Law Program’s Policy Initiative is tracking these lawsuits.
Second,
there is no consensus on whether these state import restrictions are a
wise way to make climate policy. Although states have good reason to be
concerned about the fossil-fuel industry in their trading partners,
other states and countries worry that these import regulations are aimed
at burdening out-of-state industry. Canada doesn’t think California
should tell it how to produce oil, and is concerned that California’s
regulation has been rigged to harm it. Quebec believes that state
renewable portfolio standards discriminate by refusing to credit its
hydropower exports as renewable. And states like North Dakota have the
same concerns about Minnesota’s regulation. These conflicting interests
may create conflicting regulations and state-to-state trade wars that
would splinter interstate energy markets. In a forthcoming article in Fordham Law Review, titled “Importing Energy, Exporting Regulation,”
I argue that the federal government should address this problem by
supervising state regulation of imported energy, exempting
non-discriminatory regulations from dormant commerce clause review.
No
one yet knows how this legal and policy debate will be resolved. The
Minnesota decision frames the legal debate through its searching dormant
commerce clause review and clarifies the stakes by striking down a
closely watched state electricity regulation. The one certainty is that
the debate will continue.
http://theenergycollective.com/energylawprof/371881/federal-court-strikes-down-minnesota-s-limits-coal-power-imports-critical-momen
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