9-2500-8207-2

The motion of Peoples Cooperative Power Association, Inc. for an Order of the Administrative Law Judge recommending to the Minnesota Public Utilities Commission that the proceeding be dismissed is DENIED.

The memorandum following this Order states the reasoning of the Administrative Law Judge for the denial of the motion and is incorporated into this Order by reference.

Dated this _______ day of ______, 1995.

/s/ Phyllis A. Reha

PHYLLIS A. REHA

Administrative Law Judge

MEMORANDUM

On November 28, 1994, the Administrative Law Judge received Peoples’ Notice of Motion and Motion to Dismiss the Acquisition Proceeding on behalf of Peoples Cooperative Power Association, Inc. and a memorandum of law in support of the motion. The motion argues that the supremacy clause of Article 6 of the United States Constitution prevents the Public Utilities Commission from applying Minn. Stat. § 216B.43 (1994). Rather, it is contended that recent federal decisional law requires the Commission to determine that an application of the statute in this proceeding would frustrate the federal purposes underlying the Rural Electrification Act and to conclude that federal preemption has occurred.

The primary impetus for this motion appears to be the decision in City of Stilwell v. Ozarks Rural Electric Cooperative Corp., 870 F. Supp. 1025 ( E.D. Okl. 1994) filed on November 4, 1994. This decision and the decision of the Fifth Circuit Court of Appeals in Morgan City v. South Louisiana Electric Cooperative Association, 31 F.3d 319 (5th Cir. 1994), postdate the Notice of and Order for Hearing in this case. These decisions were also rendered after the 1993 decision of the Minnesota Court of Appeals in City of Rochester v. Peoples Cooperative Power Association, 505 N.W.2d 621 (Minn. App. 1993).

The initial argument of the City is that it is inappropriate for the Administrative Law Judge to consider the preemption issue because it was not specified for hearing in the Notice of and Order for Hearing issued in this case by the Minnesota Public Utilities Commission. The issue of federal preemption, however, is jurisdictional in this proceeding. If, in fact, the supremacy clause of Article 6 of the United States Constitution prevents the Public Utilities Commission from applying Minn. Stat. § 216B.43 (1994), the Administrative Law Judge and the Commission are without jurisdiction to fix compensation in this proceeding.

A decisional body may, at any time, consider its jurisdiction or ability to render a decision, even if that ability is questioned after the proceeding has commenced through the issuance of a notice of and order for hearing. Doerfer Division of CCA v. Nicol, 359 N.W.2d 428 (Ia. 1984); Tigges v. City of Ames, 356 N.W.2d 503 (Ia. 1984); Strom v. Lindstrom, 201 Minn. 226, 275 N.W. 833 (1937); In re Crane’s Estate, 166 Neb. 268, 89 N.W.2d 44 (1958). In fact, a decisional body may at any time and on its own motion consider whether it has appropriate jurisdiction. Qualley v. Chrysler Credit Corp., 261 N.W.2d 466 (Ia. 1978); In re Crane’s Estate, 89 N.W.2d 44 (Neb. 1958); State v. Sadowski, 329 N.W.2d 583 (N.D. 1983).

Jurisdiction is defined simply as the ability of a decisional authority to make a binding determination with respect to a proceeding before it. State ex rel. Peterson v. Bentley, 216 Minn. 146, 12 N.W.2d 347 (1944); Robinette v. Price, 214 Minn. 521, 8 N.W.2d 800 (1943); King v. Menz, 75 N.W.2d 415 (N.D. 1958). If, in fact, federal preemption has occurred, the Commission must dismiss the proceeding and it is without jurisdiction to proceed further.

Since a decision by the Administrative Law Judge and the Commission on the subject matter of the proceeding contains an implied conclusion that jurisdiction is present, it is appropriate to consider the preemption motion of Peoples, even though it was not assigned by the Commission for hearing in the original Notice of and Order for Hearing.

The Administrative Law Judge must initially determine whether she may refuse to apply an otherwise applicable statute on the basis of federal preemption. In considering the ability to rule on what is, in essence, a constitutional issue, the Administrative Law Judge will not distinguish between her authority as hearing officer for the Commission and authority of the Public Utilities Commission itself. Pursuant to the Minnesota Administrative Procedure Act, Minn. Stat. c. 14 (1994), the rules of the Office of Administrative Hearings and the rules of the Commission, an Administrative Law Judge may exercise the full authority of the Commission in conducting its hearings. The Administrative Law Judge may, herself, make a recommendation to the Commission on any subject matter within its competence.

Federal preemption is a constitutional issue. In City of Stilwell v. Ozarks Rural Electric Cooperative Corp., 870 F. Supp. 1025, 1028 (E.D. Okl. 1994), the court recognized that the issue of preemption of state law by federal law is really an exercise in the application of the supremacy clause of Article 6 of the United States Constitution. See, Wabash Valley Power Association, Inc. v. Rural Electrification Administration, 988 F.2d 1480, 1485 (7th Cir. 1993). Article VI, clause 2 of the United States Constitution provides:

The laws of the United States . . . shall be the supreme law of the land and the judges in every state shall be bound thereby . . . .

In determining an issue of preemption, therefore, both the Administrative Law Judge and the Commission are engaged in resolving a federal constitutional issue.

It is hornbook law that an administrative agency, which is to function primarily as a fact-finding agency, does not have authority to decide constitutional issues. Johnson v. Robinson, 415 U.S. 361, 368 (1974); Palm Harbor Special Fire Control District v. Kelly, 516 So.2d 249, 250 (Fla. 1987); Adams Packing Association, Inc. v. Florida Department of Citrus, 352 So.2d 569, 571 (Fla. App. 1977); Prisk v. City of Poulsbo, 732 P.2d 1013, 1017 (Wash. App. 1987); Belco Petroleum Corp. v. State Board of Equalization, 587 P.2d 204, 214 (Wyo. 1978); Chelsea Community Hospital v. Michigan Blue Cross Association, 436 F. Supp. 1050, 1060 (E.D. Mich. 1977); Buckeye Industries, Inc. v. Secretary of Labor, 587 F.2d 231, 235 (5th Cir. 1979); Finnerty v. Cowen, 508 F.2d 979, 982 (2d Cir. 1974); Goodwin v. Metropolitan Board of Health, 656 S.W.2d 383, 387 (Tenn. App. 1983); Johnson v. Elkin, 263 N.W.2d 123, 126 (N.D. 1978); Nodell Investment Corp. v. City of Glendale, 254 N.W.2d 310, 316 (Wis. 1977); Jackson County Education Association v. Grass Lake Community Schools, 291 N.W.2d 53, 56 (Mich. App. 1979); Wronski v. Sun Oil Company, 310 N.W.2d 321, 324-25 (Mich. App. 1981). The only contrary holding of which the Administrative Law Judge is aware was overruled by the State of California adopting a constitutional amendment. Reese v. Kizer, 760 P.2d 495, 496 (Cal. 1988). The reasons for this doctrine are bottomed on considerations of separation of powers, the proper rule of an administrative agency and the general lack of subject matter expertise on constitutional law in agencies.

Minnesota has adopted the general rule regarding a lack of ability on the part of an administrative agency to resolve constitutional issues. See, Starkweather v. Blair, 71 N.W.2d 869, 884 (Minn. 1955); Neeland v. Clearwater Memorial Hospital, 257 N.W.2d 366, 368 (Minn. 1977); Buettner v. City of St. Cloud, 277 N.W.2d 199, 204 (Minn. 1979); Holt v. Board of Medical Examiners, 431 N.W.2d 905, 906 (Minn. App. 1989). A typical general statement by our court on the subject matter is as follows:

The record leaves no doubt that the constitutional issue was not and could not have been presented to or passed upon by the administrative bodies below. This court has previously ruled upon a constitutional issue raised for the first time on an appeal from an administrative tribunal. Eldred v. Division of Employment and Security, 209 Minn. 58, 295 N.W. 412 (1940). We have done so in recognition that the party appealing has raised the issue at the first opportunity in a forum possessing subject matter jurisdiction. See, Metropolitan Utilities Dist. v. Merritt Beach Co., 179 Neb. 783, 140 N.W.2d 626 (1966); West Central Producers Co-Op, Assn. v. Commr. of Agriculture, 124 W. Va. 81, 20 S.E.2d 797 (1942); 73 C. J. S. Public Administrative Bodies and Procedure,. § 215.

Neeland v. Clearwater Memorial Hospital, 257 N.W.2d 366, 368 (Minn. 1977).

In his initial administrative law treatise, Professor Davis argued strongly that a distinction should be recognized between constitutional applicability of legislation to particular facts and constitutionality of the legislation on its face, the so-called “facial” and “as applied” unconstitutionality distinction. Administrative Law Treatise, Davis, § 20.04 (West 1958). The reason advanced by Professor Davis for recognizing the distinction is that when a decisional authority passes upon constitutional applicability, it is carrying out the legislative intent, either express or implied. When a decisional authority passes upon the facial constitutionality of legislation, the question is whether it shall take action which runs counter to the legislative intent. This last function has been determined by the doctrine of separation of powers to be entrusted solely to the judicial branch. Traditionally, administrative agencies have determined constitutional applicability to particular facts, but have not had authority to determine facial unconstitutionality. While a number of courts have adopted the distinction between questions involving facial unconstitutionality and unconstitutionality as applied, other courts have failed to make that distinction. Prisk v. City of Poulsbo, 732 P.2d 1013, 1017 (Wash. App. 1987); Belco Petroleum Corp. v. State Board of Equalization, 587 P.2d 205, 214 (Wyo. 1978).

As previously noted, the Minnesota court has adopted the general rule that an administrative agency may not determine constitutional questions. The Administrative Law Judge believes, however, that the Minnesota court has inherently recognized the distinction between facial unconstitutionality and unconstitutionality as applied. In Buettner v. City of St. Cloud, 277 N.W.2d 199, 204 (Minn. 1979), the court cited the general rule, but stated that even when a constitutional issue is involved, the challenged determination of an administrative body may be due judicial deference if “the underlying decision-making process is designed to effectively produce a correct or just result of if the decision is informed by considerable expertise”. To the extent that constitutionality, as applied, requires a generation of facts and findings within a particular subject matter area, there is a reason for an administrative agency to render a decision on a constitutional question which would be of assistance to a reviewing court.

For purposes of analysis, it will be assumed throughout the remainder of this memorandum that the Minnesota court would recognize the distinction between facial unconstitutionality and unconstitutionality as applied. It will further be assumed that the issue in this case is unconstitutionality as applied, rather than facial unconstitutionality. If the Minnesota Court chose, however, to adhere to the general rule, making no such distinction, the motion would still have to be denied at the administrative level and determined on appeal. Neeland v. Clearwater Memorial Hospital, 257 N.W.2d 366, 368 (Minn. 1977); Holt v. State Board of Medical Examiners, 431 N.W.2d 905 (Minn. App. 1989).

The second major issue that must be determined is whether the Administrative Law Judge and the Commission are bound by the decision of the Minnesota Court of Appeals in Rochester v. Peoples Co-op Power Association, 505 N.W.2d 621 (Minn. App. 1993), and the test of preemption therein stated, or whether the Commission may disregard the Rochester test and apply the more recent federal authority, which takes a more expansive approach to preemption. It should be noted that the decision of the Minnesota Court of Appeals in Rochester, supra, has not been reviewed by the Minnesota Supreme Court, and that the issue involved in this case is one of interpreting the federal, rather than the state constitution.

As might be expected, the position the parties take on the issue raised is determined by their interests. The City of Rochester asserts that the Public Utilities Commission must apply a relevant decision of the Minnesota Court of Appeals. Peoples, on the other hand, states that it is not the responsibility of the Court of Appeals to set policy and that the Commission is free to disregard the Rochester decision and apply more recent federal precedent, specifically, Morgan City v. South Louisiana Electric Co-op, 31 F.3d 319 (5th Cir. 1994), and City of Stilwell v. Ozarks Rural Electric Co-op Corp., 870 F. Supp. 1025 (E.D. Okl. 1994). Neither of the parties, however, has engaged in the type of analysis necessary to determine whether the Commission is free to substitute federal precedent for the decision of the Minnesota Court of Appeals in Rochester, supra.

Generally, an administrative agency must follow a decision of an intermediate court of appeals rendered within the territorial jurisdiction of that court of appeals. Allegheny General Hospital v. NLRB, 608 F.2d 965 (3d Cir. 1979); Ithaca College v. NLRB, 623 F.2d 224 (2d Cir. 1980); Lopez v. Heckler, 713 F.2d 1432 (9th Cir. 1983). In Allegheny General Hospital v. NLRB, 608 F.2d 965, 970 (3d Cir. 1979), the court well stated the general rule:

A decision by this court, not overruled by the United States Supreme Court, is a decision of the court of last resort in this federal judicial circuit. Thus, our judgments in Memorial Hospital and St. Vincent’s Hospital are binding on all inferior courts and litigants in the third judicial circuit, and also on administrative agencies when they deal with matters pertaining thereto.

See also, Pacific Greyhound Lines v. Brooks, 220 P.2d 477 (Ariz. 1950).

With respect to constitutional questions and applying the law, an administrative agency functions within the system the same as a lower, district court. In Ithaca College v. NLRB, 623 F.2d 224, 228 (2d Cir. 1980), cert. den, 449 U.S. 975 (1980), the court recognizes that an administrative agency has the same responsibility to follow the “law of the circuit” as does a district court. If the Commission has the same responsibility for following a decision of the Minnesota Court of Appeals that a district court has, then the Commission must apply in this proceeding the preemption test adopted by the Minnesota Court of Appeals in its Rochester decision. Richardson v. General Motors Corp., 363 N.W.2d 22 (Mich. App. 1984).

A district court has no discretion in the matter; it must follow a decision of its intermediate appellate court until another panel of the court of appeals or the state supreme court changes the precedent. Matter of Hague, 412 Mich. 532, 315 N.W.2d 524 (1982); Moorhouse v. Ambassador Insurance Co., Inc., 383 N.W.2d 219 (Mich. App. 1985); Exstrum v. Union Casualty & Life Insurance Co., 91 N.W.2d 632 (Neb. 1958); State v. Clark, 507 N.W.2d 172 (Wis. App. 1993).

The relationship between the federal circuit courts and federal administrative agencies is also illustrative. It is the federal rule that a federal agency must follow the decisions of the circuit court of appeals for decisions arising within that circuit. The contrary practice of intracircuit nonacquiescence by agencies has been virtually universally condemned. Allegheny General Hospital v. NLRB, 608 F.2d 965, 969-70 (3d Cir. 1979); Ithaca College v. NLRB, 623 F.2d 224, 228 (2d Cir. 1980), cert. den, 449 U.S. 975 (1980); Lopez v. Heckler, 713 F.2d 1432 (9th Cir. 1983); Stieberger v. Heckler, 615 F. Supp. 1315 (S.D.N.Y. 1985).

In Ithaca College v. NLRB, 623 F.2d 224, 228 (2d Cir. 1980), the Second Circuit Court of Appeals stated the governing analysis:

The position of the Board is one in which we cannot acquiesce. While deference is to be given to an agency’s interpretation of the statute it administers, see Ford Motor Co. v. NLRB, 441 U.S. 488, 497, 99 S. Ct. 1842, 1848, 60 L.Ed.2d 586 (1978), it is the courts that have the final word on matters of statutory interpretation. See International Brotherhood of Teamsters v. Daniel, 439 U.S. 551, 565-66, 99 S. Ct. 790, 799-80, 58 L.Ed.2d 808 (1979); SEC v. Sloan, 436 U.S. 103, 118-19, 98 S. Ct. 1702, 1712, 56 L.Ed.2d 148 (1978); Volkswagenwerk Aktiengesellschaft v. Federal Maritime Commission, 390 U.S. 261, 272, 88 S. Ct. 929, 935, 19 L.Ed.2d 1090 (1968); Marbury v. Madison, 5 U.S. (1 Cranch) 137, 177, 2 L.Ed. 60 (1803); Safir v. Gibson, 417 F.2d 972, 976 (2d Cir. 1969), cert. denied, 400 U.S. 850, 91 S. Ct. 57, 27 L.Ed. 2d 88 (1970). “The position of any administrative tribunal whose hearings, findings, conclusions and orders are subject to direct judicial review is much akin to that of a United States District Court,” Morand Bros. Beverage v. NLRB, 204 F.2d 529, 532 (7th Cir.), cert. denied, 346 U.S. 909, 74 S. Ct. 241, 98 L.Ed. 407 (1953), and as must a district court, an agency is bound to follow the law of the Circuit. See Mary Thompson Hospital, Inc. v. NLRB, No. 79-1374, 621 F.2d 858 (7th Cir. March 5, 1980); Allegheny General Hospital v. NLRB, 608 F.2d 965, 969-70 (3d Cir. 1979); NLRB v. Gibson Products, 494 F.2d 762, 766 (5th Cir. 1974); Stacey Manufacturing Co. v. Commissioner, 237 F.2d 605, 606 (6th Cir. 1956); cf. Cleveland v. Federal Power Commission, 561 F.2d 344, 346 (D.C. Cir. 1977) (agency must follow law of the case).

Of course, we do not expect the Board or any other litigant to rejoice in all the opinions of this Court. When it disagrees in a particular case, it should seek review in the Supreme Court. During the interim before it has sought review or while review is still pending, it would be reasonable for the Board to stay its proceedings in another case that arguably falls within the precedent of the first one. However, the Board cannot, as it did here, choose to ignore the decision as if it had no force or effect. Absent reversal, that decision is the law which the Board must follow. The Board cites no contrary authority except its own consistent practice of refusing to follow the law of the circuit unless it coincides with the Board’s views. This is intolerable if the rule of law is to prevail.

For discussions by commentators on the federal rule prohibiting intracircuit nonacquiescence by federal agencies, see, Administrative Law Treatise, Davis and Pierce,. § 2.9 (3d Ed. Little Brown); Nonacquiescence of Federal Administrative Agencies, Estreiker and Revesz, 98 Yale LJ 679 (1989).

It could be argued that the Commission could rationally believe that the Minnesota Court of Appeals might, itself, change the test announced in Rochester, supra, and apply the more recent federal decisions, if it were again presented with the question. Under that analysis, the Commission would not be ignoring a decision of the Minnesota Court of Appeals, but would merely be applying the most current judicial authority.

The Administrative Law Judge believes, under the judicial authority previously stated, that it is not for an administrative agency or an inferior tribunal to second-guess a reviewing court. The Commission is bound by the decision of the Court of Appeals unless and until that decision is overruled by the Minnesota Supreme Court or it is the subject of a contrary opinion by another panel of the Court of Appeals. Matter of Hague, 412 Mich. 532, 315 N.W.2d 524 (Mich. 1982), Moorhouse v. Ambassador Insurance Co., Inc., 383 N.W.2d 219 (Mich. 1985); Richardson v. General Motors Corp., 363 N.W.2d 22 (Mich. App. 1984); Exstrum v. Union Casualty & Life Insurance Co., 91 N.W.2d 632 (Neb. 1958).

It might also be suggested that the Commission may apply the more recent federal decisions rather than the Rochester test because the issue involves a construction of the federal constitution, a matter primarily commited to the federal courts. The Administrative Law Judge believes, on the basis of the judicial decisions previously discussed that it is not open to the Commission to make its own interpretations of federal law, when that subject has been defined by a decision of the Minnesota Court of Appeals.

Even assuming, however, the validity of the argument that the federal question presented makes it appropriate to look to federal precedent, the Administrative Law Judge must apply the “law of the circuit” analysis used by the federal courts. In that analysis, an administrative tribunal is required to follow the decisions of the circuit court of appeals having jurisdiction, throughout the relevant geographic area. Steiberger v. Heckler, 615 F. Supp. 1315 (S.D.N.Y. 1985); Ithaca College v. NLRB, 623 F.2d 224 (2d Cir. 1980), cert. den, 449 U.S. 975 (1980). Minnesota is located within the Eighth Circuit. The Eighth Circuit Court of Appeals has not decided a similar preemption question, nor adopted a test similar to that contained in Morgan City v. South Louisiana Electric Co-op, 31 F.3d 319 (5th Cir. 1994), and City of Stilwell v. Ozarks Rural Electric Co-op Corp., 870 F. Supp. 1025 (E.D. Okl. 1994). Nor has the United States Supreme Court adopted a position different from that relied upon by the Minnesota Court of Appeals in its Rochester decision. Arkansas Electric Co-op v. Arkansas Public Service Commission, 461 U.S. 375, 103 S. Ct. 1905, 76 L.Ed.2d 1 (1983).

It is also important to note that no intercircuit stare decisis exists, even at the federal level, which would require our Public Utilities Commission to attempt to apply every decision of every federal district court and every federal court of appeals. For a discussion of the lack of intercircuit stare decisis, even at the federal level among federal courts, see, Nonacquiescence of Federal Administrative Agencies, Estreiker and Revesz, 98 Yale LJ 679 (1989). The suggestion that the Minnesota Public Utilities Commission, in the absence of an authoritative statement by the Eighth Circuit Court of Appeals, should adopt decisions from every federal court outside of the Eighth Circuit on the appropriate preemption test applicable to the REA is an exaggerated and unworkable position.

The Administrative Law Judge determines, therefore, that the Public Utilities Commission must apply the preemption test stated by the Minnesota Court of Appeals in its Rochester decision previously cited. There is no rule of law or reason supporting a contrary approach.

Having determined that the Public Utilities Commission may express a position with respect to the preemption issue, and that it must apply the decision of the Court of Appeals in City of Rochester v. Peoples Co-op Power Association, 525 N.W.2d 621 (Minn. App. 1993), that test must now be applied to the instant motion.

The Minnesota courts and the courts generally have recognized that there may be, possibly, three distinct types of federal preemption. In Pikop v. Burlington Northern Railway Co., 390 N.W.2d 743, 748 (Minn. 1986), cert. den, 480 U.S. 951, the Minnesota court stated:

Against this theoretical backdrop, the United States Supreme Court has recognized three distinct kinds of cases in which the doctrine applies to preempt state law. The first arises when Congress explicitly states that the federal scheme preempts any state action in the field. See, Jones v. Rath Packing Co., 430 U.S. 519, 525, 97 S. Ct. 1305, 1309, 51 L.Ed.2d 604 (1977). This instance, however, is rare, for Congress seldom expressly precludes all state law in a given regulatory field. The second case, in which Congress implicitly preempts state law, is somewhat more common. In such a case, preemption is inferred from either the extent of the federal involvement or the scope of the federal interest. See, Fidelity Federal Savings & Loan Association v. DeLaCuesta, 458 U.S. 141, 153, 102 S. Ct. 3014, 3022, 73 L.Ed.2d 664 (1982); Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 230, 67 S. Ct. 1146, 1152, 91 L.Ed. 1447 (1947). Even where Congress has not, either explicitly or implicitly, displaced all state action in a specified field, the preemption doctrine will invalidate any state law that, in fact, conflicts with the federal law. This third case arises when compliance with both the federal and state law is a physical impossibility or when the state law is an obstacle to the accomplishment of the purposes of the federal scheme. See, Florida Lime & Avocado Growers, 373 U.S. at 142, 143, 83 S. Ct. at 1217; Hines v. Davidowitz, 312 U.S. 52, 67, 61 S. Ct. 399, 404, 85 L.Ed. 581 (1941).

A number of federal courts have stated a similar preemption analysis. New Orleans Public Service, Inc. v. Council of the City of New Orleans, 911 F.2d 993, 998 (5th Cir. 1990); City of Stilwell v. Ozarks Rural Electric Cooperative Corp., 870 F. Supp. 1025 (E.D. Okl. 1994). If preemption is involved in this case, it is preemption of the third type, that is, when the application of a state statute would stand as an obstacle to the accomplishment of the purpose behind the federal statute, here, the REA.

In determining whether such implied preemption for conflict with the federal purpose exists, the issue is one of congressional intent: did Congress intend to prevent application of the state law at issue. Oliver v. Johnson and Johnson, Inc., 863 F. Supp. 251, 253 (W.D. Pa. 1994); Pikop v. Burlington Northern Railroad Co., 390 N.W.2d 743, 747 (1986); State, by Malone v. Burlington Northern, Inc., 247 N.W.2d 54, 55 (Minn. 1976); Caucus Distributors v. Commissioner of Commerce, 422 N.W.2d 264, 272 (Minn. App. 1988), rev. den, June 10, 1988, cert. den, 488 U.S. 1006; Blackburn v. Doubleday Broadcasting, 353 N.W.2d 550, 554 (Minn. 1984); Holiday Acres No. 3 v. Midwest Federal Savings and Loan Association of Minneapolis, 308 N.W.2d 471, 475 (Minn. 1981).

Preemption, particularly implied preemption, is a disfavored doctrine, particularly when strong, traditional state interests are involved. Wabash Valley Power Association, Inc. v. Rural Electrification Administration, 988 F.2d 1480, 1485 (7th Cir. 1993); Oliver v. Johnson & Johnson, Inc., 863 F. Supp. 251, 253 (W.D. Pa. 1994); New Orleans Public Service, Inc. v. Council of the City of New Orleans, 911 F.2d 993, 998 (5th Cir. 1990); Gulf States Utilities Company v. Public Utility Commission of Texas, 841 S.W.2d 459, 466 (Tex. App. 1992); Pikop v. Burlington Northern Railway Co., 390 N.W.2d 743, 747 (Minn. 1986), cert. den, 480 U.S. 951; Blackburn v. Doubleday Broadcasting Co., 353 N.W.2d 550, 554 (Minn. 1984); Holiday Acres No. 3 v. Midwest Federal Savings and Loan Association of Minneapolis, 308 N.W.2d 471, 475 (Minn. 1981).

With this background in mind, it is necessary to formulate the test for determining whether conflict preemption exists. In Rochester v. Peoples Co-op Power Association, 505 N.W.2d 621, 625-26 (Minn. App. 1993), the court stated the applicable considerations as follows:

The United States argues alternatively that the City’s quick-take procedure is preempted because it impermissibly interferes with the purposes of the RE Act. See Hines v. Davidowitz, 312 U.S. 52, 67, 61 S. Ct. 399, 401, 85 L.Ed. 581 (1941) (preemption may occur when a state law “stands as an obstacle to the accomplishment and execution of the full purposes and objects of Congress”).

The stated purpose of the RE Act is to make loans “for rural electrification and the furnishing of electric energy to persons in rural areas.” 7 U.S.C.A. § 902. In Decatur County Rural Elec. Membership Corp. v. Public Serv. Co. of Indiana, 261 Ind. 128, 301 N.E.2d 191 (1973), it was determined a state statute did not interfere with the policy of rural electrification. The court explained:

[T]he purpose for [a cooperative’s] existence expires when the area which it serves becomes “urbanized”. Once an area, which was theretofore “rural”, is included within a municipality of 1,500 or more and becomes urban, it clearly falls outside the ambit of the Rural Electrification Act. Therefore, [the statute authorizing municipal annexation] in no way contravenes the Supremacy Clause.

Id. 301 N.E.2d at 198. Similar, here, after the City annexed the Willow Creek area, such area became “urban”; therefore any subsequent condemnation of the utility property in that area did not interfere with the purpose of the RE Act.

The United States also argues that municipal condemnation of an REA-financed cooperative has the potential to interfere with the entire REA system. The United States cites three federal cases that have reached this same conclusion. See Public Utility Dist. No. 1 of Franklin County v. Big Bend Elec. Coop, Inc., 618 F.2d 601 (9th Cir. 1980); Public Util. Dist. No. 1 of Pend Oreille County v. United States, 417 F.2d 200 (9th Cir. 1969); City of Morgan City v. South Louisiana Elec., No. 91-0523, 1993 WL 118087, (W.D. La. Feb. 25, 1993).

We recognize the concerns raised by the cited cases; however, we find more persuasive the views stated by the Supreme Court in Arkansas Elec. Coop Corp. v. Arkansas Pub. Serv. Comm’n, 461 U.S. 375, 387, 103 S. Ct. 1905, 1914 n. 11, 76 L.Ed.2d 1 (1983). There, the court concluded that the RE Act did not preempt a state’s assertion of jurisdiction over an REA-financed utility’s wholesale rates. The court examined the argument that the state’s assertion of jurisdiction over rates interfered with the REA’s pervasive involvement in the management of the utilities to which it loans funds. The court concluded that the legislative history and the REA’s own published policy indicated an intent that the states could set rates and that the REA was expected to operate “within the constraints of existing state regulatory schemes” Id. at 386, 103 S. Ct. at 1913. The Arkansas Electric court noted, however, that federal preemption of a cooperative’s wholesale rates could occur if a particular rate set by the state “may so seriously compromise important federal interests, including the ability of the [cooperative] to reply its loans, as to be implicitly preempted by the Rural Electrification Act.” Id. at 388, 103 S. Ct. at 1915.

Similarly, here, we conclude a municipality’s condemnation of an REA-financed cooperative’s property is authorized unless such condemnation so seriously compromises the REA’s interests, including the ability of the cooperative to repay its loans, as to be implicitly preempted. In the present case, the United States has not demonstrated that the City’s condemnation of Peoples’ utility rights will compromise the REA’s interests to a greater degree than any other condemnation.

Applying the Rochester test of the Minnesota Court of Appeals to the facts asserted in the affidavits submitted on the Motion, the Administrative Law Judge must conclude that the test for conflicting interest preemption has not been met. Peoples has presented no evidence that the acquisition in this case so seriously compromised the goals of the Rural Electrification Act, including the ability of Peoples to repay its loans, so as to be implicitly preempted under the Rochester test. Peoples has only stated in its Motion and supporting documentation that 50 of its customers are being acquired and that an additional 938 customers would come on line in the acquired territory over the next ten years. Peoples has not made any attempt to show why fair compensation, as determined under Minn. Stat. § 216B.43 (1994), would not be adequate compensation for the loss of those customers. The Administrative Law Judge also notes that there is no indication that the United States believes that federal interests will be impaired by this taking or that it has any evidence to present on this subject. Under the test established in Rochester, supra, the Motion must, therefore, fail.

The Administrative Law Judge also recognizes that the City of Rochester, in its written submissions, has attempted to distinguish the federal precedent relied upon by Peoples to support its Motion to Dismiss. The Administrative Law Judge need not consider the validity of those distinctions because, under her analysis of governing law, the Public Utilities Commission must apply the analysis of the Minnesota Court of Appeals in City of Rochester v. Peoples Co‑op Power Association, 505 N.W.2d 621 (Minn. App. 1993).

PAR