By Amelia Schlusser, Staff Attorney
The Oregon legislature is currently considering a bill (introduced as SB 477 in the Senate and HB 2729 in the House of Representatives) that would prevent Oregon’s investor-owned utilities from selling self-generated coal-fired power to Oregon consumers after January 1, 2025. Last week’s post described the proposed legislation’s requirements and explained some of the bill’s practical implications. I also noted that the bill raised some unanswered questions. The bill’s proponents explained that the introduced text is undergoing amendment to address these issues, which is a routine step in the legislative process. I also alluded to some potential legal implications associated with the bill’s distinction between utility-generated power and power sold on the wholesale market. This distinction helps ensure that the bill’s provisions comply with the Commerce Clause of the U.S. Constitution, which is the subject of this week’s post.
The Commerce Clause in Article I, Section 8 of the U.S. Constitution gives Congress authority to regulate interstate commerce. The negative corollary to this exclusive grant of federal authority is referred to as the “dormant” commerce clause. Under the dormant commerce clause (DCC), states may not enact laws or regulations that discriminate against or place an undue burden on interstate commerce. While states can enact laws that are necessary to protect the health, welfare, and safety of their citizens, these laws must not protect the economy of the enacting state at the expense of other states’ economies.
The Supreme Court has created a series of tests to determine whether state laws that discriminate or unduly burden interstate commerce violate the DCC. While these tests allow courts to give some level of consideration to state interests or purposes behind discriminatory regulations, the Supreme Court has held that state laws that regulate extraterritorially—regulating conduct beyond the enacting state’s borders—are per se invalid.
The Minnesota Decision
The federal district court in Minnesota recently issued a decision in North Dakota v. Heydinger, which involved a challenge to a Minnesota law that prohibited individuals from importing, committing to import, or entering into a long-term contract to purchase electricity that would increase power sector carbon dioxide emissions in Minnesota. The State of North Dakota, coal companies, and multi-state electricity providers challenged the Minnesota law, arguing that it violated the dormant commerce clause. The district court agreed and held that the law was per se invalid because it had an extraterritorial reach and regulated commerce that takes place entirely outside of Minnesota.
The district court determined that the Minnesota law applied to “power and capacity transactions occurring wholly outside of Minnesota’s borders” in violation of the dormant commerce clause. The court’s conclusion was premised primarily on the fact that Minnesota’s power grid is managed and operated by the Midcontinent Independent System Operator (MISO). Within the MISO territory, electricity generators from throughout the multi-state region sell power onto the grid, and electricity providers purchase power from the grid. The district court determined that this market-based grid system does not recognize state boundaries and cannot differentiate between power entering the grid in one state and leaving the grid in another. Therefore, the court reasoned, a non-Minnesota utility could inject electricity in the grid outside of Minnesota with the intent to sell this power to consumers outside of Minnesota, but this power could still end up in Minnesota and contribute to power sector CO2 emissions in the state. In the district court’s eyes, because a North Dakota generator could not guarantee that the coal power it injected into the MISO grid would not enter Minnesota, it would presumably be forced to adjust its non-Minnesota business practices to comply with Minnesota’s law.
Implications for Oregon SB 477 and HB 2729
The Minnesota district court’s decision is currently under appeal in the federal Court of Appeals for the Eighth Circuit, and while it’s difficult to predict exactly how the appellate court will rule, it’s entirely possible that the lower court’s decision will be overturned. Nevertheless, Oregon’s SB 477/HB 2729 was clearly written to avoid North Dakota v. Heydinger’s outcome. First, the bill only applies to investor-owned utilities (IOUs) operating in Oregon, so non-Oregon utilities are not subject to the bill’s requirements. Second, the bill explicitly exempts “market purchases of unspecified power” from the bill’s reach, so coal power generators outside of Oregon can still sell their power on the wholesale market without violating Oregon’s no-coal mandate. Finally, the bill directs Oregon’s IOUs to “reduce the allocation” of coal-fired power to zero by 2025, which indicates that IOUs operating both inside and outside of Oregon can still sell their coal-fired power to non-Oregon consumers.
These provisions should help the bill avoid the legal outcome that Minnesota’s law faced at the district court level. However, the Minnesota decision only addressed that law’s extraterritorial reach; because the district court determined Minnesota’s law was per se invalid under the DCC, it didn’t consider whether the law was discriminatory against out-of-state interests or whether it imposed an undue burden on interstate commerce. A full analysis of applicable DCC case law is beyond the scope of this blog entry. Nonetheless, it’s reassuring that the bill’s drafters appeared to recognize the potential Commerce Clause implications and took efforts to minimize the proposed legislation’s vulnerability to a constitutional challenge.