A Recent Sixth Circuit Dormant Commerce Ruling and Michigan’s Hybrid Electricity Market
Claire Hipps
Do you want cheaper, cleaner energy? Do you want to minimize blackouts and brownouts? Michigan’s energy is relatively unclean and high-priced, and its reliability metrics are abysmal.[1] Increased competition could lead to lower consumer pricing and reduce the market power of incumbent investor-owned utilities.[2] Alternative electric suppliers often have expertise in supplying renewable energy, and renewables help meet demand and increase grid reliability.[3]
Many states have fostered retail competition,[4] with customers in thirteen states plus the District of Columbia having some choice between retail electricity providers as of 2022.[5] The investor-owned utilities continue to own the infrastructure required to distribute electricity while the alternative electric suppliers would have the right to sell electricity through the incumbent utility’s distribution infrastructure.[6]
In 2000, the Michigan Legislature attempted to afford Michigan consumers an opportunity to select a retail electricity provider other than investor-owned utility incumbents like Detroit Edison Company (DTE) and Consumers Energy (Consumers).[7] In 2008, the Michigan Legislature backpedaled. PA 286 required that no more than 10% of an electric utility’s average retail sales for the preceding calendar year may take service from an alternative electric supplier at any time.[8] So, Michigan’s energy market is barely competitive – the incumbent utilities maintained their control over 90% of the market in their service territories.
To address reliability concerns, in 2016 the Michigan Legislature compelled the Michigan Public Service Commission (MPSC) to require load serving entities (LSEs), which include utilities and alternative electricity suppliers, to show that they can supply certain amounts of energy going forward.[9] If a LSE did not own or have contractual rights sufficient to meet their capacity obligations, they were required to buy from the incumbent utility (i.e., Consumers or DTE) or an alternative energy supplier at a set capacity charge.[10] The investor-owned utilities were to be suppliers of last resort, should an alternative energy supplier fail to meet its capacity obligations.
So, the MPSC established the Individual Local Clearing Requirement (ILCR), which effectively required all LSEs serving Michigan’s lower peninsula to procure some amount of their total capacity from within the lower peninsula.[11] In January of 2025, in a 2-1 decision, the U.S. Court of Appeals for the Sixth Circuit held in Energy Michigan, Inc. v. Michigan Pub. Serv. Comm’n that the ILCR violates the Commerce Clause of the U.S. Constitution because it discriminates against interstate commerce.
So, what is the dormant Commerce Clause, anyway? The U.S. Constitution grants Congress the power to regulate commerce.[12] The Supreme Court has long held that the “dormant” aspect of the Commerce Clause places limits on what states can do, even without federal law to the contrary. The dormant Commerce Clause prohibits states from differentiating between “in-state and out-of-state economic interests” to benefit the former and burden the latter.[13]
Traditionally, there are three ways state law can violate the dormant Commerce Clause: facially, purposefully, or in practical effect.[14] Facial discrimination occurs when a law expressly favors in-state commerce at the expense of comparable out-of-state competitors.[15] Purposeful discrimination occurs when a state law intends to favor its own commerce at the expense of out-of-state competitors.[16]Discrimination in practice depends on the effects of an apparently neutral state law that creates new market conditions that depend on geography.[17] Courts employ the “Pike balancing test” for facially neutral laws that do not discriminate based on geography but may impact other states more harshly than the regulating state. Under the Pike test, courts may consider whether the law imposes more burdens on out-of-state entities than comparable in-state counterparts.[18]In 2023, the Supreme Court limited the reach of the dormant Commerce Clause in Nat’l Pork Producers Council v. Ross, when it heldthere was no per se rule forbidding the enforcement of state laws that have the practical effect of controlling commerce outside of the state when those laws do not purposely discriminate against out-of-state economic interests.[19]
Returning to Michigan, the court in Energy Michigan found that the ILCR facially discriminated against out-of-state energy providers. The court reasoned that what capacity counts towards the ILCR hinges on the location of an electricity supplier’s resources. So, electricity suppliers couldn’t meet their capacity requirements without sourcing their electricity from within Michigan. Although defendants and the dissenting opinion argued that the purpose of the ILCR was to promote resource adequacy, not protect domestic industry, the majority said that because the law was facially discriminatory, “an assessment of purpose is irrelevant” and that justifications for discriminatory laws are a topic for strict scrutiny, not for the threshold question whether there is discrimination.[20]
The majority and the dissent disagreed on the proper interpretation of General Motors Corp. v. Tracy. In Tracy, the Supreme Court upheld an Ohio policy levying taxes on natural gas purchasers from in and out of state that did not meet a statutory definition of “natural gas company,” a definition only Ohio’s state-regulated natural gas utilities satisfied.[21] In essence, the law explicitly exempted Ohio natural gas utilities from the tax.
The Tracy Court reasoned that there were essentially two natural gas markets operating side-by-side in Ohio – one dominated by the regulated monopolies, and one dominated by alternative natural gas producers.[22] It’s not a stretch to argue that Michigan’s electricity market is similarly designed. 90% of the market is regulated by the incumbent investor-owned utilities, and the other 10% is composed of alternative electricity suppliers, which the Energy Michigan dissent points out.[23] Regardless, the majority adopted a narrow reading of Tracy, arguing that it should be limited to its factual setting.[24]
The majority focused on the difference between a tax and geographic discrimination and emphasized the difference between a “natural” monopoly and an artificial one created by the legislature’s regulatory regime.[25] The court asserted that there was no evidence that Michigan utilities relied on the ILCR’s effects on the noncaptive (competitive) market to subsidize or prop up the captive one dominated by the investor-owned utilities to distinguish from Tracy.[26] The court distinguished between natural and artificial monopolies and pointed out that Michigan created its hybrid deregulated market.[27]
The majority thus distinguished between the historic system of energy regulation featuring vertically integrated utilities that owned the generation, transmission, and distribution systems providing electricity to customers regulated by state actors, from new, deregulated forms of regulation, where the state required utilities to divest some or all of their generation assets. The Sixth Circuit distinction between natural and artificial monopolies signals a lack of sympathy for policies protecting the markets of investor-owned utilities in the context of partially unregulated markets, even if those policies may increase grid reliability in the lower peninsula.[28] The ILCR program could also force consumers to buy more electricity from the providers of last resort (the investor-owned utilities themselves), an outcome not foreclosed by the statute restructuring Michigan’s energy market.[29]
The dissent argued forcefully that the ILCR’s respond to reliability concerns.[30] It pointed out that “Zone 7,” the area in Michigan’s lower peninsula at issue in this case, was defined by the regional grid operator, MISO, for purposes of ensuring grid reliability.[31] The dissent emphasized that electricity regulation is traditionally an area delegated to the states,[32] which failed to persuade the majority.[33]
The plaintiffs in Michigan Energy successfully invalidated an MSPC order on dormant Commerce Clause grounds despite the Pork Producers case. Certainly, the dormant Commerce Clause doctrine is less robust after Pork Producers. However, Energy Michigan affirms that facially discriminatory laws are still unconstitutional. Energy Michigan also makes an important distinction between natural monopolies and new regimes of energy regulation, whether it be hybrid restructuring adopted by Michigan or more complete restructuring to promote more competition as adopted by other states. The Energy Michigan court refused to expand Tracy’s doctrinal exception for the captive markets dominated by “natural” monopolies to the hybrid energy market in Michigan created by statute. Judges are less likely to make such an exception for new regulatory regimes that are less historically established than the regulated utility model that the country’s grid was built upon. Regulators cannot rely on differences between historical markets dominated by traditional monopolies and newly-minted competitive markets to justify geographic discrimination. Despite Pork Producers, the U.S. Constitution still poses a barrier to states trying to redesign their regulation of the energy system to ensure low rates,[34] grid reliability,[35] and a transition to clean energy.[36]
[1] See “Michigan Utility Reliability Performance Worse Than Ever, New CUB Report Finds,” Citizen’s Utility Board, https://cubofmichigan.org/blog/michigan-utility-reliability-performance-worse-than-ever-new-cub-report-finds/ (Sept. 5, 2025).
[2] See, e.g., FERC’s comments accompanying their issuance of Order 888,61 Fed. Reg. 21540, 21550 (“non-discriminatory open access to transmission services is critical to the full development of competitive wholesale generation markets and the lower consumer prices achievable through such competition”); 61 Fed. Reg. 21540, 21554 (“increased competition resulting from open access transmission may reduce or even eliminate generation-related market power in the short-run market”).
[3] For example, solar is very effective at helping meet peak demand on hot summer days. For more information, see, e.g., National Renewable Energy Laboratory, “Top 10 Things to Know about Power Grid Reliability” (Jan. 26, 2024) https://www.nrel.gov/news/detail/program/2024/top-10-things-to-know-about-power-grid-reliability
[4] This is true for customers of investor owned utilities, not rural electric cooperatives or municipally-owned utilities, which are publicly owned and operated.
[5] See, e.g., Frequently Asked Questions: Can electric utility customers choose their electricity supplier, Energy information Administration https://www.eia.gov/tools/faqs/faq.php?id=627&t=3#:~:text=Some%20electric%20utility%20customers%20have,and%20other%20renewable%20energy%20sources (last updated Feb. 6, 2024). States with retail choice include New York, Texas, Illinois, and Massachusetts.
[6] Id.
[7] See Customer Choice and Electricity Reliability Act, S. 937, 2000 Reg. Sess., (Mich. 2001) (codified at Mich. Comp. Laws § 460.10). Sec 10(2)(a) explains that the purpose of the act is to “ensure that all retail customers in [Michigan] of electric power have a choice of electric suppliers; Sec 10(2)(b) explains that the Michigan Public Service commission should be allowed and encouraged to “foster competition… in the provision of electric supply and maintain the regulation of electric supply for customers who continue to choose… incumbent electric utilities.”
[8] See Customer Choice and Electricity Reliability Act, H.5524, 2008 Reg. Sess., (Mich. 2001) (codified at Mich. Comp. Laws § 460.10a). Sec. 10a(1)(a) states that “the commission shall issue orders … [p]rovid[ing] that no more than 10% of an electric utility’s average weather-adjusted retail sales for the preceding calendar year may take service from an alternative electric supplier at any time.”
[9] See S.437 § 6w(8)(b), 2016 Reg. Sess., (Mich. 2016) (codified at Mich. Comp. Laws § 460.6w).
[10] Id. at § 6w(7)-(8). Recall that only 10% of retail energy can come from the alternative electricity suppliers, so the incumbent utilities functionally supply energy to help other LSEs meet their capacity requirements.
[11] See Section IV.B, In the Matter, on the Commissions Own Motion, to Open A Contested Case Proceeding for Determining the Process & Requirements for A Forward Locational Requirement Under Mcl 460.6w for the Following Named Parties: Alpena Power Co., et al., No. U-18444, 2018 WL 3302792 (June 28, 2018) (analyzing resource adequacy needs and reliability concerns for the lower peninsula (Zone7), setting capacity obligations for Zone 7).
[12] U.S. Const. art. I, § 8, cl. 3.
[13] Energy Michigan, Inc. v. Michigan Pub. Serv. Comm’n, 126 F.4th 476, 486 (6th Cir. 2025), quoting Granholm v. Heald, 544 U.S. 460, 472 (2005).
[14] E. Ky. Res. v. Fiscal Ct. of Magoffin Cnty., 127 F.3d 532, 540 (6th Cir. 1997).
[15] Energy Michigan, Inc. v. Michigan Pub. Serv. Comm’n, 126 F.4th 476, 487 (6th Cir. 2025).
[16] See, e.g., Hunt v. Washington State Apple Advert. Comm’n, 432 U.S. 333 (1977), where the Supreme Court struck down a North Carolina law requiring labelling practices that appeared facially neutral, but were designed to push Washington apple producers out of the apple market in North Carolina.
[17] See Energy Michigan at 477, discussing Nat’l Pork Producers Council v. Ross, 598 U.S. 356 (2023).
[18] See Pike v. Bruce Church, Inc., 397 U.S. 137, 142 (1970); see also Pork Producers, 143 S. Ct. at 1164, n.4 (a majority of the Supreme Court agrees that the purpose of the Pike test is to smoke out purposeful discrimination in state laws or to protect the instrumentalities of interstate transportation; some Justices on the current Supreme Court want to limit the reach of the Pike balancing test).
[19] Pork Producers refined the ways in which a law can discriminate in practical effect by requiring evidence of purposeful discrimination. For more information on the extraterritoriality principle, see Robin Feldman & Gideon Schor, Constitutional Law: Lochner Revenant: The Dormant Commerce Clause & Extraterritoriality, 7 The Judges Book 21 (2023).
[20] See Energy Michigan at 491.
[21]Gen. Motors Corp. v. Tracy, 519 U.S. 278, 299 (1997), holding that the dormant Commerce Clause applies only if “the companies are indeed similarly situated.”
[22] Id. at 293-294, 313.
[23] Energy Michigan at492-493; 503-504.
[24] Id. at 492-497.
[25] Id. at 494-496
[26] Id. at 495.
[27] Id.
[28] Id. at 495, recognizing that “a state’s generic interest in local energy reliability does not exempt it from Commerce Clause scrutiny,” citing Wyoming v. Oklahoma, 502 U.S. 437, 456 (1992).
[29] Recall that the incumbent utilities are suppliers of last resort if the alternative electric suppliers cannot demonstrate that they can meet their capacity requirements under Act 341. See also id.at 495, observing that “to this day, there is a long waiting list to obtain electricity from an AES in Michigan, as electricity prices have increased since the end of full deregulation.”
[30] Energy Michigan at 506.
[31] Id. at 504.
[32] Id. at 505-506.
[33] Id. at 497, arguing that adopting the dissent and MPSC’s view would “exempt a major sector of the U.S. economy from the Commerce Clause [and] … license blatant economic protectionism when a state favors a utility in a noncaptive market.”
[34] See n.2, supra.
[35] Recall that the dissent and the MPSC justified the ILCR as an essential measure to increase grid reliability and ensure access to electricity generation capacity in the lower peninsula.
[36] See n.3, supra.