Minnesota Clean Energy Law Tees Up Circuit Split

On February 7, 2023, Minnesota Governor Tim Walz signed a clean energy bill, called “100 Percent by 2040,” into law. The bill requires Minnesota utilities to transition their electrical systems completely off fossil fuels within 17 years.

Ten other states (California, Hawaii, Illinois, Massachusetts, New Mexico, New York, Oregon, Rhode Island, Virginia, and Washington) have passed similar laws. But Minnesota is unique among these states because it is within the jurisdiction of the Court of Appeals for the Eighth Circuit. The Eighth Circuit, in North Dakota v. Heydinger 825 F.3d 912 (8th Cir. 2016), struck down a Minnesota law that would have prevented Minnesota utilities from purchasing power from any new, large, out-of-state energy facility that emitted carbon dioxide.

The three-judge panel that heard Heydinger unanimously voted to invalidate the law but wrote separate opinions to express their three distinct rationales. Judge Loken held that the law violated the dormant commerce clause because it would regulate activities that take place entirely outside of Minnesota. He noted that once a generator feeds into the Midcontinent Independent System Operator (MISO) grid, it loses control over where the grid sends its power. Because of this dynamic, the Minnesota law would apply to an out-of-state generator, intending to sell its power only to non-Minnesota customers through MISO, because that generator would be a MISO participant who “imports” electricity into Minnesota. Since the law would regulate purely out-of-state transactions, it had an unconstitutional extraterritorial reach. Heydinger at 921–22.

Judge Murphy disagreed with Judge Loken’s dormant commerce clause analysis, claiming that Judge Loken misunderstood how the grid works and misconstrued the meaning of the word “import” in the law. Murphy would have read the “import provision” to apply only when a Minnesota utility agreed to purchase power from a large, out of state energy facility, not whenever a generator feeds energy into the MISO grid. Judge Murphy still concurred in the judgment, holding that the Minnesota law was invalid because it was preempted by the Federal Power Act. The Federal Power Act gives the Federal Energy Regulatory Commission (FERC) exclusive jurisdiction over the wholesale and interstate electricity markets. Even with Judge Murphy’s narrower interpretation of the import provision, the law would still ban certain wholesale interstate electricity contracts that are properly FERC’s domain, not state legislation’s. Heydinger at 925–28.

Judge Colloton, the last judge on the panel, held that the law was preempted by the Clean Air Act. He pointed to the law’s offset requirement, which allowed generators and utilities to get around the statute’s requirements by showing that they will offset the new emissions through other means. To Judge Colloton, Minnesota’s law was an air pollution regulation that would apply outside of Minnesota’s borders. Thus, the law conflicted with the Clean Air Act, which was designed to allow states to regulate air pollution within their borders and to allow the operator of a pollution source to “look to only one sovereign—the State in which the source is located” for air pollution regulations. Heydinger at 928. Judge Colloton did not reach the constitutional question. 

North Dakota, the familiar plaintiff from the Heydinger case, is considering a lawsuit to stop the new Minnesota law from going into effect. Before the bill’s passage, North Dakota Governor Doug Burgum urged Governor Walz to push for amendments to the bill. In his letter, Governor Burgum also claimed that if the law passed it would raise the same constitutional issues which were “settled” by the Eighth Circuit in Heydinger. But this is an oversimplification. While Heydinger is an important precedent, there are aspects of the new Minnesota law that might change the Eighth Circuit’s analysis. For instance, where the Minnesota law at issue in Heydinger banned purchases from new, large, out-of-state, energy facilities that produce emissions, the newly passed law applies equally to out-of-state and in-state facilities. Because of this difference, arguably the new law only has an incidental effect on interstate commerce and does not violate the dormant commerce clause. See City of Philadelphia v. New Jersey, 437 U.S. 617 (1978). The new law only regulates utilities that serve retail consumers in Minnesota, so it is also unlikely to be preempted by the Federal Power Act. The Second Circuit, at least, has held that a law subsidizing renewable energy generators was not preempted by the Federal Power Act. Coal. For Competitive Elec. V. Zibelman, 906 F.3d 41 (2d Cir. 2019). Finally, the Minnesota law does not have an offset program, so the Clean Air Act violation is most likely cured, that is, if there was ever a Clean Air Act violation at all. Section 116 of the Clean Air Act expressly allows states to set more stringent controls on stationary sources than the controls set by the federal government (preempting only less stringent controls), so Judge Colloton’s argument was vulnerable from the beginning.