Justice Department argues that Minnesota power line construction law is unconstitutional

A Minnesota power line construction law is anticompetitive and violates the U.S. Constitution, according to the U.S. Justice Department.

The department filed a brief Friday in a federal lawsuit by a New York-based electricity provider against two Minnesota state agencies. LSP Transmission Holdings last fall sued over a 2012 state law that gives "incumbent" electricity transmission providers in Minnesota the "right of first refusal" — i.e., first dibs — on power line projects.

LSP had sought to bid on a 40-mile power line between Mankato and Winnebago, Minn. Instead, Xcel Energy and ITC Midwest LLC notified regulators in early 2017 that they intended to build the line, which would connect an Xcel substation with a planned ITC substation.

LSP owns 500 miles of transmission lines — but none in Minnesota, limiting its ability to bid under state law. The company claims the law violates the dormant commerce clause of the U.S. Constitution. In a "statement of interest" filing in U.S. District Court in Minneapolis, the Justice Department agreed.

"Minnesota's right of first refusal law has an unconstitutional discriminatory effect because it favors in-state entities," the Justice Department said. "[The law] causes substantial anticompetitive effects in interstate commerce."

Other states have laws similar to Minnesota's, but they haven't been tested in federal court.

LSP is suing the five members of the Minnesota Public Utilities Commission (PUC), as well as the Minnesota Department of Commerce. The PUC approves new transmission lines in Minnesota, while the commerce department makes recommendations to the PUC and is responsible for enforcing the right-of-first-refusal law.

The PUC and the commerce department, through the Minnesota Attorney General's Office, have asked the court to dismiss LSP's lawsuit. Xcel and ITC Midwest both asked for dismissal, too.

The Minnesota Attorney General's Office argues in court filings that if Minnesota's right-to-first-refusal law is struck down, uncertainty and risk would be injected into Minnesota's electricity market. But the Justice Department, in its Friday filing, said "many state electric markets operate without any right of first refusal law, and defendants offer no reason to believe that in those states the capacity to deliver electricity in retail markets has been jeopardized."

Bidding on transmission projects such as the Mankato-to-Winnebago line goes through the Midcontinent Independent System Operator Inc. (MISO), a federally sanctioned nonprofit that operates the electricity grid in 15 states, including Minnesota. MISO found that the Mankato-to-Winnebago line wasn't eligible for competitive bidding because of Minnesota law.

Mike Hughlett • 612-673-7003