Clark Hill Earns Reversal in Dormant Commerce Clause Challenge to Michigan’s Local Energy Mandate

In the latest court ruling as part of an eight-year dispute between Michigan’s largest industrial energy customers along with their competitive energy suppliers, and the Michigan Public Service Commission (“MPSC”) and Michigan’s incumbent utilities, the Sixth Circuit Court of Appeals reversed and remanded a case in favor of the Association of Business Advocating Tariff Equity (“ABATE”), represented by Michael Pattwell and Zach Larsen, holding that the Michigan Public Service Commission’s Individual Local Clearing Requirement (“ILCR”) unlawfully discriminates against interstate commerce and must be evaluated under strict scrutiny.

After a 2016 law was signed allowing the MPSC to require capacity demonstrations, the MPSC entered orders to force alternative energy suppliers to source at least a portion of their electricity from within Michigan. ABATE immediately challenged those orders in state court, and thereafter, it filed suit in 2020 in federal court alleging a violation of the Commerce Clause.

Larsen and Pattwell convinced the Sixth Circuit that the MPSC’s orders violated the dormant Commerce Clause of the Constitution by discriminating against interstate commerce. “The ruling means that Michigan presumptively cannot have a buy local mandate to force energy users to buy or manufacturers to make in-state energy because that is discrimination against interstate commerce,” Larsen said. “The Commerce Clause says that Congress has power over interstate commerce, so states cannot restrict the interstate sale of electricity and discriminate against commerce based on its state of origin.”

In its opinion, the court found that the MPSC’s orders are “explicitly territorially based” to require companies that sell electricity in Michigan’s lower peninsula to procure a certain percentage of their electrical capacity from that region.

“We can conceptualize the individual local clearing requirement in the same way we would think of a law that wholly prohibits the procurement of out-of-state electrical capacity,” the court wrote. “That leaves perhaps the clearest example of a dormant Commerce Clause violation.”

The Sixth Circuit also rejected the MPSC’s justification that the MPSC orders “equitably” ensure a reliable grid—saying that this justification merely repackaged forbidden discrimination under the Commerce Clause.

While the defendants have argued that the law would provide security for the state’s energy supply, Larsen and Pattwell have argued that the law would further monopolize the energy supply statewide. A pair of incumbent utilities hold a monopoly to provide 90% of electric capacity in Michigan, but Larsen’s and Pattwell’s industrial clients source energy from a few remaining competitive suppliers that compete with monopoly utilities for the remaining 10% of the market.

When the case returns to trial court, Larsen said the defendants will have to prove the law survives strict scrutiny—meaning that the MPSC has no other option than to implement the orders to accomplish its goal of energy security.

That is “no easy task,” the court said of its remand.

“This mandate is not necessary because, for the last eight years since they proposed the ILCR, the orders have been voluntarily stayed by the MPSC, and yet the grid has remained reliable,” Larsen explained. “This ruling determined that the local requirement is presumptively unlawful unless it can satisfy strict scrutiny. We’ve shown that it cannot because there are other, non-discriminatory alternatives available. And we are confident that the courts will agree after this remand.”