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From Antitrust Law Daily, April 19, 2018

Antitrust Division contends Minnesota law giving local utilities right of first refusal for line projects violates dormant Commerce Clause

By E. Darius Sturmer, J.D.

A Minnesota statute granting incumbent electricity monopolists a right of first refusal in transmission line projects connecting to their facilities violates the dormant Commerce Clause and should therefore be overturned as unconstitutional, according to the Department of Justice Antitrust Division. The Antitrust Division submitted a statement of interest on behalf of the United States to the federal district court in Minneapolis where a complaint was filed challenging the measure. The enforcement agency argued that, by allowing local entities to block entry by potentially out-of-state competitors, the law has an unconstitutionally discriminatory effect on interstate commerce (LSP Transmission Holdings, LLC v. Lange, Case No. 17-cv-04490 DWF/HB).

The Minnesota statute could satisfy neither the anti-discrimination test nor the undue burden test, the government stated, "because it raises entry barriers segments the interstate market in developing transmission lines, favors in-state incumbents, and causes substantial anticompetitive effects in interstate commerce." The federal government had not authorized or approved such state regulation of interstate commerce, the statement noted.

The government filed the Statement of Interest in a lawsuit that had been brought last September by an out-of-state transmission line builder/operator—LSP Transmission Holdings, LLC—against six members of the Minnesota Public Utilities Commission in their official capacities. Two incumbent utilities, Northern States Power Co. (Xcel Energy) and ITC Midwest, LLC), have since intervened as defendants in the litigation.

The challenged law, the Statement explains, "effectively prevents new entrants who lack a preexisting physical presence in Minnesota from building transmission lines within the state… by giving any incumbent electric transmission owner a right of first refusal to build new high-voltage transmission lines that connect to the incumbent’s facilities." Incumbents can exercise the right to build transmission lines adjacent to its territory even where the new entrant proposing to build those lines has invested in conceiving of the new project, proving the merits of the new line, and winning approval for construction, it was noted.

The challenged state law was enacted following the issuance of a FERC rule in 2011, Order No. 1000, that eliminated certain federal rights of first refusal. The FERC Order followed decades of state and federal initiatives to increase competition in interstate markets, and was based upon a finding that rights of first refusal restricted competition, were not just and reasonable, and created opportunities for undue discrimination and preferential treatment, the Statement observed. Although the Order—which has since its issuance withstood challenges in two Courts of Appeals—did not expressly preempt rights of first refusal under state law, neither did it nor any other FERC order grant states any new authority to create rights of first refusal or suggest that such assertions of rights would be consistent with the dormant Commerce Clause.

The Justice Department contends that Minnesota’s right of first refusal statute has a discriminatory effect on interstate commerce. The law favors in-state entities by benefitting only those that already have the required presence in the state, in the Justice Department’s view. Similarly, the law discriminates by explicitly disfavoring out-of-state entities. These effects are sufficient to render the law unconstitutional even if the rule is "facially neutral" because the favored incumbents need not be Minnesota corporations, the Statement argues.

The incumbent transmission owners and out-of-state developers are similarly situated for constitutional purposes, plausibly competing in the same geographic and product markets, the agency asserts. Public utilities hold no general exemption from the dormant Commerce Clause, it was noted.

Furthermore, the statute does not advance a legitimate local purpose that could justify its discriminatory effects on interstate commerce, and the excessive burden imposed by the statute on interstate commerce is not justified by a legitimate local interest, the Antitrust Division maintains.

Other Statements of Interest. The Department of Justice Antitrust Division has recently increased its efforts to offer Statements of Interest in pending litigation. It filed a statement of interest in March in TIKD v. Florida Bar (S.D. Fla.), arguing that the Florida Bar was not automatically immune under the state action doctrine, but must instead show "active supervision" and "clear articulation," as required under the Supreme Court’s North Carolina Board of Dental Examiners v. FTC decision. In addition, the Antitrust Division filed a statement of interest in late February in Marion Healthcare v. Southern Illinois Healthcare (S.D. Ill.), to rebut an argument that short-term exclusive contracts are always legal as a matter of law.

Attorneys: Charles N. Nauen (Lockridge Grindal Nauen PLLP) for LSP Transmission Holdings, LLC. Jason Marisam, Minnesota Attorney General's Office, for Nancy Lange. Aaron D. Van Oort (Faegre Baker Daniels LLP) for Northern States Power Co. d/b/a Xcel Energy. John Pavelko (Fredrikson & Byron PA) for ITC Midwest LLC. Matthew C. Mandelberg for Department of Justice.

Companies: LSP Transmission Holdings, LLC; Northern States Power Co. d/b/a Xcel Energy; ITC Midwest LLC

MainStory: TopStory Antitrust AntitrustDivisionNews MinnesotaNews

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