North Dakota v. Heydinger

• Decision Date: 18 April 2014
• Docket Number: Case No. 11–cv–3232 SRN/SER.
• Citation: 15 F.Supp.3d 891
• Parties: State of NORTH DAKOTA, et al., Plaintiffs, v. Beverly HEYDINGER, Commissioner and Chair of Minnesota Public Utilities Commission, et al., Defendants.
• Court: U.S. District Court — District of Minnesota

15 F.Supp.3d 891

State of NORTH DAKOTA, et al., Plaintiffs

v.Beverly HEYDINGER, Commissioner and Chair of Minnesota Public Utilities Commission, et al., Defendants.

Case No. 11–cv–3232 SRN/SER.

United States District Court, D. Minnesota.

Signed April 18, 2014.

John A. Knapp, Thomas H. Boyd, Derek R. Allen, and Brent A. Lorentz, Winthrop & Weinstine, P.A., Minneapolis, MN, Casey Jacobson and Claire M. Olson, Basin Electric Power Cooperative, Office of General Counsel, Bismarck, ND, John Neumann, The North American Coal Corporation, Piano, TX, Sandi Tabor, Lignite Energy Council, Bismarck, ND, David Sogard, Minnkota Power Cooperative, Inc., Grand Forks, ND, Wayne K. Stenehjem, Office of the Attorney General, State of North Dakota, Bismarck, ND, William Taylor, Woods Fuller Schultz & Smith, Sioux Falls, SD, Wyatt Hogan, Great Northern Properties L.P., Houston, TX, for Plaintiffs.

Lisa A. Crum, John S. Garry, and Michael T. Everson, Office of the Attorney General, State of Minnesota, St. Paul, MN, for Defendants.

Scott Strand and Elizabeth Goodpaster, Minnesota Center for Environmental Advocacy, St. Paul, MN, Howard A. Learner, Environmental Law & Policy Center, Chicago, IL, Vickie Patton and Sean Donahue, Environmental Defense Fund, Boulder, CO, Joanne Spalding, Sierra Club, San Francisco, CA, Benjamin Longstreth, Natural Resources Defense Council, Washington DC, for Amici Minnesota Center for Environmental Advocacy, Environmental Law & Policy Center, Environmental Defense Fund, Sierra Club, Natural Resources Defense Council, Fresh Energy, and Izaak Walton League of America.

David L. Sasseville, Lindquist & Vennum PLLP, Minneapolis, MN, Benjamin L. Gerber, Minnesota Chamber of Commerce, St. Paul, MN, for Amici Minnesota Chamber of Commerce and National Mining Association.

John M. Baker, Erin Sindberg Porter, and Karl C. Procaccini, Greene Espel PLLP, Minneapolis, MN, for Amici American Public Power Association and National Rural Electric Cooperative Association.

MEMORANDUM OPINION AND ORDER

SUSAN RICHARD NELSON, District Judge.

This matter is before the Court on Defendants' Motion for Summary Judgment [Doc. No. 128] and Plaintiffs' Motion for Summary Judgment [Doc. No. 135]. Also before the Court is Defendants' Motion to Strike Plaintiffs' Demand for a Jury Trial, Amend the Scheduling Order, and Set the Case for a Trial to the Court [Doc. No. 123] (“Motion to Strike”). For the reasons set forth below, Defendants' Motion for Summary Judgment is denied in part and denied as moot in part, Plaintiffs' Motion for Summary Judgment is granted in part and denied as moot in part, and Defendants' Motion to Strike is denied as moot.

I. BACKGROUND

A. The United States Electric Utility Sector

This lawsuit arose from Minnesota's enactment of a statute regulating certain aspects of the use and generation of electric energy, and thus affecting the United States electric utility sector. The electric utility industry is comprised of many different types of entities (e.g., for-profit or investor-owned utilities, municipal utilities, generation and transmission cooperatives, and distribution cooperatives) engaged in three basic activities: generation, transmission, and distribution of electricity. (See Blumsack Aff., Ex. 2 [Doc. No. 168–1] (“Blumsack Report”) ¶ 8; Hempling Aff., Ex. 2 [Doc. No. 167–1] (“Hempling Report”) ¶ 9.) Generation assets convert energy sources—such as coal, natural gas, biomass, wind, and sun—into electricity. (Hempling Report ¶ 11.) To the extent carbon dioxide emissions occur, they occur at this stage.¹ Transmission lines, which are interconnected and form a network, or “grid,” carry the electricity from the generation source to distribution centers. (Id. ¶¶ 19–20.) There are three major power grids in North America: the Western Interconnection, the Eastern Interconnection, and the Texas ERCOT Interconnection. (Am. Compl. [Doc. No. 9] ¶ 45; Answer to Am. Compl. [Doc. No. 10] ¶ 33.) During distribution, the electricity is transported from the transmission network to the consumer over distribution lines. (Hempling Report ¶¶ 20, 23.)

At one point in time, “most electricity was sold by vertically-integrated utilities that had constructed their own power plants, transmission lines, and local delivery systems.” New York v. FERC, 535 U.S. 1, 5, 122 S.Ct. 1012, 152 L.Ed.2d 47 (2002). In 1935, however, under the Federal Power Act (“FPA”), Congress granted to the Federal Energy Regulatory Commission (“FERC”) the “exclusive authority to regulate the transmission and sale at wholesale of electric energy in interstate commerce.” New Eng. Power Co. v. New Hampshire, 455 U.S. 331, 340, 102 S.Ct. 1096, 71 L.Ed.2d 188 (1982) (citations omitted); see 16 U.S.C. § 824(a) (granting FERC the responsibilities of regulating “the transmission of electric energy in interstate commerce and the sale of such energy at wholesale in interstate commerce”).² And, FERC issued an order in 1999 encouraging the creation of regional transmission organizations (“RTOs”). Regional Transmission Organizations, 89 FERC ¶ 61,285 (FERC Dec. 20, 1999) (hereinafter “FERC Order 2000”). RTOs coordinate and monitor the minute-to-minute transmission of energy on the grid in a region or large state. Id. They also ensure open access to the grid and coordinate transmission planning, (Boyd Decl., Ex. A [Doc. No. 138–1] (“Porter Report”) ¶ 18), as well as oversee the safety and reliability of the regional electric system, see FERC Order 2000 at p. 3. Their purpose is to ensure that the transmission grid is operated in a non-discriminatory fashion to benefit consumers. Id.³

The Midcontinent Independent System Operator (formerly, the Midwest Independent System Operator) (“MISO”) was approved as an RTO in 2001. (Porter Report ¶ 22.) MISO is an independent, non-profit organization whose members include transmission owners, investor-owned utilities, public power utilities, independent power producers, and cooperatives. (Id. ¶ 24.) It operates and controls transmission facilities in the Midwest (including in Minnesota, North Dakota, Wisconsin, and Iowa). (Id. ¶¶ 22–23.) Its operating area is depicted in the dark-shaded portion of the map below:

(Id. ¶ 23.)

MISO also operates organized energy and capacity markets. (Hempling Report ¶ 41.) In order to maintain the reliability of the transmission system, MISO must ensure that the amount of electricity being supplied and the amount of electricity being consumed at any given time are equal. (See Hempling Report ¶ 44; Porter Report ¶ 30.) Thus, MISO operates short-term energy markets in which MISO actively monitors supply and demand. (See Porter Report ¶ 30; Hempling Report ¶ 46; Blumsack Report ¶ 20.) In the “Day–Ahead Market,” each buyer indicates what quantity of electricity it will need for each hour of the following day. (Hempling Report ¶ 46.) Likewise, generators notify MISO of the amount of electricity they will sell for each hour of the following day, and the price that they will accept. (Id. ) MISO then ranks the generators' bids according to price and selects for each hour the amount of electricity needed to satisfy the buyers' demand, beginning with the lowest-priced bid. (Id. ) When MISO reaches the required quantity, the last-selected bid becomes the market price for all electricity consumed during that hour. (Id. ) All of the generators that were selected receive that price, and all of the buyers pay that price. (Id. )

MISO also ensures the reliability of the transmission system by requiring buyers to demonstrate that they have the legal rights to an amount of capacity (i.e., the capability of producing electricity) sufficient to meet their customers' expected demand. (Id. ¶¶ 13, 26, 48.) MISO participants usually obtain this capacity through ownership of generation assets or through bilateral purchase agreements. (See id. ¶ 49; Porter Report ¶ 38; Blumsack Report ¶ 29.) Due to the nature of the grid, however, whether the electricity that a buyer ultimately receives is from the generation resources that it bid into the market or that it contracted for is unknown. (Porter Report ¶¶ 38, 40; Hempling Report ¶¶ 19, 22.) As described by Defendants' expert witness, “[o]nce the generating facility injects its output into the interconnected transmission network, the electrons move according to physical laws, unresponsive to any state law or contract provisions.” (Hempling Report ¶ 22.) He analogizes the grid to a “reservoir”: “If I want to buy 10 buckets of water, my chosen seller would dump in 10 buckets at [its] location, and I would take out 10 buckets at my location. The molecules I take out are not the ones my seller dumped in.” (Id. ¶ 19.) In other words, as noted by Plaintiffs' expert witness, “MISO does not match buyers to sellers.” (Porter Report ¶ 33.) Moreover, once electricity is generated and injected into the power grid, there are no qualitative differences based on generation source, so the buyer is unaware of the type of resource that generated the electricity it receives. (See Porter Report ¶ 33.)

In addition to demonstrating to MISO that they have sufficient capacity to meet their demand, some of the buyers in the MISO market (e.g., retail utilities) are regulated by a state public utility commission and must also submit an integrated resource plan to that agency for approval. (Hempling Report ¶¶ 24, 26; Blumsack Report ¶ 16.) The resource plan describes the entity's portfolio of assets that it plans to use to satisfy demand. (Blumsack Report ¶ 16.) As discussed above, these resources often include generation assets the entity owns and/or long-term capacity contracts. (Id. ¶¶ 16–17, 20, 25.)

B. Minnesota's Next Generation Energy Act

The statute at issue in this lawsuit is Minnesota's Next Generation Energy Act (“NGEA”). The Minnesota legislature passed the NGEA in 2007, establishing energy and environmental standards related to carbon dioxide emissions. 2007 Minn. Laws Ch. 136, art. 5, § 3. Minn.Stat. § 216H.03,...