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.
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