(CN) — A split Sixth Circuit Court of Appeals panel sided with a pair of energy companies in a 2-1 decision issued on Thursday, finding that Michigan’s regulations on energy purchases likely discriminate on out-of-state energy.
The panel’s majority ruled that state regulations that require Michigan energy retailers to either purchase or produce a specific percentage of electricity within the state likely violate the Commerce Clause of the U.S. Constitution, which is often used to strike down laws or regulations that put restrictions on in-state commerce. This capacity standard is known as an “individual local clearing requirement.”
“It is difficult to see how this provision authorizes, let alone unambiguously so, Michigan to use its authority over local energy generation to discriminate against interstate commerce through the ILCR,” wrote U.S. Circuit Judge Chad Readler, a Donald Trump appointee, for the majority.
Readler, joined by U.S. Circuit Court Judge Richard Suhrheinrich, a George H.W. Bush appointee, notes that the requirement for electricity in Michigan to only be generated from a zone of the electricity market that encompasses the state makes the law discriminatory on its face.
“That leaves a law that is explicitly ‘territorially based,’ requiring those that sell electricity in Michigan’s lower peninsula to procure a certain percentage of its electrical capacity from that region,” Readler wrote. “We can conceptualize the ILCR in the same way we would think of a law that wholly prohibits the procurement of out-ofs tate electrical capacity.”
The panel now sends the 2020 lawsuit by Energy Michigan Inc. and the Association of Businesses Advocating Tariff Equity back down to federal courts, which first dismissed the challenge in February 2023.
Readler said that the lower court will need to examine the case to determine if Michigan’s clearing requirement is the only way to achieve its goal of a reliable supply of energy, something it failed to do initially.
“The district court, however, never reached that question. Instead, it looked at plaintiffs’ alternatives to the ILCR to see how they stacked up against the ILCR vis-à-vis the interests of the state. But the burden was on defendants to make this showing,” Readler wrote.
While the case will head back down for further proceedings, the majority remained skeptical of the state’s chances of defending its regulations.
“Yet that is no easy task. Remember, state laws that discriminate explicitly against interstate commerce are almost always invalid,” Readler wrote.
Proponents of the rules argue that they help ensure the reliability of the local power grid by having more electricity produced within the state, while opponents claim that the rules unfairly favor local energy producers and make it unviable for companies to enter a new geographical market.
In a dissent, U.S. Circuit Judge Danny Boggs disagreed that the regulations were unconstitutional.
“Declining to give full weight to the judgment of state and local regulators on a matter of state and local concern is a fraught exercise, particularly considering the intricate area of energy regulation at play here and the small, non-captive market in which the majority hopes to amplify competition,” wrote Boggs, a Ronald Reagan appointee.
Boggs argued that the local clearing requirements do serve a legitimate purpose and that eliminating it could harm the reliability of the state’s energy grid.
“Geographic proximity to generation improves grid reliability, and without the requirement to secure in-state capacity, Michigan would be at risk of falling short of federal reliability standards,” Boggs wrote.
The majority opinion responded to the dissent, by claiming that Boggs was attempting to work backwards in his argument.
“Only by reverse engineering the district court proceedings and invoking an argument defendants never made in district court can the dissenting opinion now give ‘full weight’ to the views of local regulators expressed at trial,” Readler wrote.
The three-judge panel of the Sixth Circuit heard oral arguments in December 2023.