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Court Upholds Transmission Owners' Right of First Refusal Under Minnesota Statute

On March 25, 2020, the United States Court of Appeals for the Eighth Circuit (Eighth Circuit) affirmed the decision of the United States District Court for the District of Minnesota upholding Minnesota’s “right of first refusal” (ROFR) law that gives an incumbent transmission owner the right to construct, own, and maintain new transmission facilities that are connected to its transmission system. The Eighth Circuit ruled in LSP Transmission Holdings, LLC v. Sieben that the ROFR law does not discriminate against out-of-state transmission companies and therefore affirmed the dismissal of LSP Transmission’s lawsuit. The decision is significant as it allows incumbent transmission owners in Minnesota to construct, own, and maintain new transmission facilities connected to their existing transmission systems regardless of whether the new transmission facility was selected in a regional transmission plan for purposes of cost allocation and would otherwise be subject to a competitive selection process.

The Eighth Circuit affirmed the District Court’s conclusion that Minnesota’s ROFR statute is not facially discriminatory, agreeing with the lower court that the statute draws a neutral distinction between existing electric transmission owners and other entities, whether in-state or out-of-state. The Eighth Circuit also affirmed that the Minnesota statute is not discriminatory in purpose. Minnesota’s purpose in regulating electricity is to provide consumers with adequate and reliable service at reasonable rates. The Eighth Circuit found that Minnesota’s ROFR law did not produce a discriminatory effect against out-of-state companies because it treats entities other than the owner of a facility to which a new facility will interconnect the same whether they are in-state or out-of-state, and because the law allows a non-incumbent developer to seek to construct a facility if the incumbent does not exercise its ROFR. Finally, the Eighth Circuit affirmed that the ROFR statute does not create an undue burden. Minnesota’s authority over the location and construction of electrical transmission lines, combined with the lack of evidence that the cumulative effect of state ROFR laws would eliminate marketplace competition, indicates that Minnesota’s ROFR is not clearly excessive in relation to the state’s legitimate interest in regulating its electric industry.

The LSP Transmission suit arose after two incumbent Minnesota transmission owners exercised their state-granted right of first refusal to construct the Huntley-Wilmarth line, which had been approved by the Midcontinent Independent System Operator, Inc. in its regional transmission expansion plan.