CINCINNATI (CN) — Energy companies and an advocacy group argued before a Sixth Circuit panel on Thursday that Michigan’s restrictions on who can provide electricity in the state are unconstitutional.
In a hearing that lasted over 45 minutes, plaintiffs Energy Michigan Inc. and the Association of Businesses Advocating Tariff Equity said that the challenged restrictions unlawfully hamper out-of-state providers.
The regulations state that all entities must either purchase or produce a specified percentage of electricity capacity — a capacity standard known as a “local clearing requirement” — within the State of Michigan to sell to customers.
Purportedly, these requirements are made to ensure that most of the electrical generation capacity provided in a state comes from capacity physically located within that state, to ensure better reliability of service.
Opponents of the regulation claim that they function as a “buy or build” mandate that favors local utility providers, because those looking to get into Michigan’s market would have to make economically unviable investments to meet the capacity requirements.
“When a state conditions the retail sale of goods within its borders on the location where a good has been manufactured, that is discrimination under the commerce clause. That has been true for milk, for solid waste, for coal and for alcohol, it is equally true for electricity,” said the association's attorney Zach Larsen from the Lansing law firm of Clark Hill PLC.
The Commerce Clause of the U.S. Constitution gives the U.S. Congress broad power to regulate interstate commerce and is often invoked in court cases to block laws or regulations that would hamper interstate commerce.
Larsen, along with Grand Rapids Attorney Brion Doyle from Varnum LLP, argued that while on its face these rules levy the same restrictions on all electricity providers, in practice it drastically favors those located in Michigan.
Michigan Assistant Attorney General Nicholas Taylor represented the state’s Public Service Commission during the arguments and said that the regulations have not been shown to be discriminatory.
“The evil that the dormant commerce clause seeks to prevent is economic protection, for the sake of protecting in-state economic interests,” Taylor said. “What we have here is a realization and recognition of the laws of physics that demand that a certain percentage of electricity be produced in zones to reach the accepted reliability standards that are applicable in this case.”
The zones refer to geographical areas given numbers by the Midcontinent Independent System Operator, a non-profit that aims to help deliver low-cost energy.
The upper peninsula of Michigan is mostly part of the non-profit’s zone 2 with a small portion being in zone 1, whereas the lower portion of the state rests in zone 7.
The commission claims that the law cannot be seen as discriminatory because it applies equally to both electricity providers in Michigan and those in other states.
U.S. Circuit Court Judge Danny Boggs, questioned Taylor on the effects of the regulations should they be implemented.
“Does that mean that they would have to build or buy capacity in the State of Michigan?” asked the Ronald Reagan appointee.
“They would have to meet the local clearing requirement,” Taylor said.
Joining Boggs on the panel was U.S. Circuit Court Judge Chad Readler, appointed to the court by Donald Trump, and by U.S. Circuit Court Judge Richard Suhrheinrich, a George H.W. Bush appointee.
No timetable was released for when a decision in the case would be made.
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