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How Far Can States Go In Supporting Renewable Energy?

Renewables and States

State policies promoting the deployment of renewable energy have played important roles in the rapid growth of wind and solar energy.  But over the past few years, those policies are increasingly being challenged as unconstitutional. 

A common theme of the challenges is that State regulations of interstate energy markets face constitutional limits.  According to challengers, such regulation threatens to balkanize interstate energy markets, or is preempted by Federal authority over those markets.  Last week, a Federal Judge in Minnesota ruled that a State law that sought to reduce the State’s reliance on coal-fired generation overreached by regulating out-of-state electricity production.  While the Judge’s decision is premised on the specific language in the Minnesota statute, her logic, if applied by other courts, could threaten the viability of States’ renewable energy policies.

In 2007, the Minnesota legislature passed sweeping energy reform legislation known as the Next Generation Energy Act. The Act strengthened the State’s Renewable Portfolio Standard, increased energy efficiency efforts, and required State agencies to develop a plan for reducing greenhouse gas emissions.  In the absence of such a plan, the law declared that “no person shall . . . import or commit to import . . .” energy from a newly constructed coal-fired power plant or enter into a new long-term power purchase agreement with a coal-fired generator.  The Legislature’s likely intent was to reduce Minnesota utilities’ emissions by barring them from signing new contracts with coal plants. Indeed, a year earlier, California passed a similar law that barred California utilities from signing a long-term contract with a baseload power plant that exceeded a certain greenhouse gas emission limit.  

North Dakota, joined by coal companies and cooperative and municipal utilities, sued in Federal court, arguing that Minnesota’s ban should be struck down as unconstitutional under the doctrine of the dormant Commerce Clause.  In general, under this doctrine, a State may not discriminate against out-of-state businesses or otherwise unduly burden interstate commerce.  In addition, North Dakota and its allies argued that the dormant Commerce Clause also prohibits a State from regulating activity that occurs wholly outside its own borders.  According to their lawsuit, by prohibiting imports of electricity produced from coal, Minnesota’s law was regulating an activity (the burning of coal) that took place in another State. 

The Federal judge agreed, and struck down the law because of its extraterritorial effects.  Under the Judge’s reading of Minnesota’s law, the statute prohibited any “person,” not just Minnesota utilities, from importing energy from a new coal-fired facility into Minnesota.  Therefore, a coal-fired facility injecting energy into the regional grid, regardless of its location, could be in violation of the law.  The Judge found that Minnesota’s attempt to regulate out-of-state electricity generation was barred by the dormant Commerce Clause.

If adopted by other courts, such a broad application of the dormant Commerce Clause to interstate electricity markets could imperil other States’ energy policies.  Electric energy flows according to the laws of physics, and the grid of high-voltage transmission lines crosses across State boundaries.  Energy injected into the grid from a plant in one State could be consumed in another State, so long as they are electrically connected.  In general, at the point of consumption it is not possible to determine where the energy originated or what fuel was used. 

A non-profit group promoting “free market environmentalism” is arguing that because of this interstate movement of electricity, the dormant Commerce Clause limits a State’s ability to choose between renewable and non-renewable sources.  Three years ago, the group filed a lawsuit in Federal court arguing that Colorado’s Renewable Energy Standard (RES) is unconstitutional.  Colorado’s RES requires that utilities procure a certain percent of their total energy needs each year from renewable sources (for example, 12% in 2014).  Like the Minnesota plaintiffs, the Colorado challengers noted that energy on the grid is not distinguishable by fuel source or point of origin.  According to the challengers, the renewable energy mandate effectively limits the amount of power that can be generated by non-renewable sources, reducing the size of interstate markets for fossil-fuel powered electricity and fossil fuels, particularly coal.  While not claiming that Colorado is attempting to regulate extraterritorially, the challengers argue that under the dormant Commerce Clause, a State may not burden interstate markets in this way. 

The Minnesota and Colorado lawsuits are not unique.  Since 2010, lawsuits that challenge renewable energy laws or regulators’ decisions approving renewable energy projects as unconstitutional have been filed in ten States.  Many of these lawsuits posit that requiring renewable energy to be generated within a State or transmitted to customers in the State, or providing incentives to do so, is unconstitutional under the dormant Commerce Clause because it inhibits out-of-state generators from competing on a level playing field. A second line of attack is that States’ energy policies impermissibly intrude on exclusive Federal authority over wholesale electricity markets. Under the Constitution’s Supremacy Clause, Federal law can preempt State action. 

At Statepowerproject.org, Harvard Law School’s Environmental Policy Initiative is tracking these cases.  The site includes summaries of litigation, background about key concepts, and the judicial decisions and filed briefs.  Some of these challenges are likely to be dismissed because they misapply Constitutional doctrine.  Others may go to trial and spend years in litigation.

One key lesson for policymakers is that laws and regulations can be drafted in a way that minimizes Constitutional risk.  There is no doubt that States have authority over their energy production and consumption, but that authority is limited by Constitutional principles.  The Judge in Minnesota did not determine that it was per se unconstitutional for a State to prohibit its utilities from importing coal power.  Rather, she decided that the specific language in Minnesota’s law was overly broad and violated the dormant Commerce Clause.  Language that was more specific and limited the law’s reach to utilities serving Minnesota customers could have achieved the desired effect without running over the State’s Constitutional limits.  

Part 2 of this article, will examine two lawsuits currently before Federal appeals courts about States’ incentives for new generation.  Two Federal District Courts decided that those schemes unconstitutionally overlap with Federal regulation of interstate markets.  Decisions in these cases could shift the boundaries between State and Federal authority.

Photo Credit: Renewable Energy and States/shutterstock

Ari Peskoe's picture

Thank Ari for the Post!

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Michael Craig's picture
Michael Craig on April 22, 2014

Ari,

Thanks for the great article, Ari. In light of the newly-proposed NSPS and the CA law you mentioned, would setting stringent GHG emission limits on coal plants from which power is imported stand up any better? You could effectively acheive the same result. (And MN’s law seems moot anyways, at least in the short-term, once the NSPS are passed, no?)

Michael
Ari Peskoe's picture
Ari Peskoe on April 22, 2014

Hi Michael – Limiting the law’s reach to the utilities’ contracts would be helpful in reducing the Constitutional risk. MN argued in this case that the law was a traditional resource planning statute, akin to State regulators telling a utility that a coal-fired plant is not a prudent investment. But the Judge in this case was focused on the words in the statute, and decided that its application to any “person,” not just Minnesota utilites, meant that it could apply to entities that have no connection to Minnesota. She found that to be an unconstitutional overreach by Minnesota.

If the law had said Minnesota utilities, not “person,” she may have still had a problem with another aspect of the law, not discussed above.  The law prohibits new long-term power purchase agreements with a plant that would increase the State’s GHG emissions. But, a new contract is allowed if the project includes GHG offsets that meet the requirements of Minnesota regulators. As the law was written, it required the “project proponent,” which could be an out-of-state plant, to obtain approval of Minnesota regulators.  Had the law required a MN entity to get approval, she might have seen things differently.

As for whether or not the law was moot, there are few (if any) new coal-fired power plants being proposed. EPA’s new standards for GHGs will require new coal plants to use CCS.  The statute did not include an exemption for facilities using CCS.

Bob Meinetz's picture
Bob Meinetz on April 22, 2014

Ari, I suppose one could argue with similar justification that state limits placed on handguns restrict the ability of out-of-state handgun manufacturers to sell their product there, but this line of reasoning is more than silly, as is the notion that

energy on the grid is not distinguishable by fuel source or point of origin

While the individual electrons traveling through HVDC lines are not traceable to one source or another, the approximate number of them (the amount of electrical energy) most certainly is – an accurate accounting of it is necessary to pay the generation source (in a theoretical situation where Minnesota is using exactly the same amount of energy as it’s generating, not one extra electron is leaving or entering the state, and it’s entirely reasonable to conclude that all the energy used in Minnesota was generated there).

Meanwhile, North Dakotans are free to burn coal any time they like – I’m sure Minnesotans wouldn’t dream of suppressing the joy of that “activity”.

Bob Bingham's picture
Bob Bingham on April 25, 2014

The real  problem with all this is that there are two underlying things going on. The first is that coal is a huge prpducer of CO2 and with the world at 400 ppm the planet has warmed 0.8C already and is commited to 2C even if we stopped burnibg fossil fuels tomorrow. On top of that coal is only cheap if it vents its carbon to the atmosphere for free, if it has to clean up its mess it is expensive. The second problem for the gererators is that sloar PVA panels are being put on houses which reduces the householders demands on the grid and this pattern is hugely popular and growing very fast.. 

The states can fiddle around with the law but in the end the people get what they want and the lawmakers accomadate them.   http://www.climateoutcome.kiwi.nz/clean-energy-alternatives.html

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