Behind-the-meter energy threatens the utility business model. Does history offer a lesson for crafting a response?
Carbon and the Constitution
State GHG policies confront federal roadblocks.
leakage into the state would stop RGGI’s goal of fostering low-carbon power by increasing the import of less expensive high-carbon power into the state by 26 percent to 35 percent. The New Jersey Public Advocate responded that it would require a subsidy to gas plants of about $50 per MWh to make state gas-fired plants as cost-efficient as out-of-state coal-fired plants.
While these regulatory responses would deal with leakage, they also would enact a form of regulation that discriminates against power based on geographic point of origin. New Jersey state legislation prohibits energy-efficiency measures from being deployed to mitigate potential leakage, unless other methods are found to violate the Constitution. It thus favors regulation of conduct, rather than incentives for demand-side management (DSM) alternatives or conservation. The New Jersey Public Advocate criticized, as creating Commerce Clause violations, another proposal for New Jersey to extend the state’s RGGI cap to cover imported generation. To stem this inflow of power from outside the RGGI control region, the RGGI states now are discussing implementing some type of control, regulation, or tax to discourage cheaper power imports to LSEs from unregulated states external to the RGGI regions. 26 Such regulation by the RGGI states will have to target power flows based on their state of power generation origin, distinguishing between those from RGGI states and non-RGGI states. Such controls on the free flow of electricity from other states, where electricity is a commodity or service that is a quintessential article in interstate commerce, run up against the dormant Commerce Clause.
The effort against leakage by the early states is ultimately a fight of “us” (a state regulating carbon from its power generators) versus “them” (neighboring states or foreign countries that do not similarly regulate carbon emissions from their power sectors). This raises dormant Commerce Clause concerns, and invokes the most exacting strict-scrutiny legal standard, under which few similar state regulations have survived.
Commerce Clause Requirements
The specific mechanism for structuring and protecting state RGGI or California carbon regulations must not run afoul of constitutional Commerce Clause requirements. The Supreme Court has recognized that “it is difficult to conceive of a more basic element of interstate commerce than electric energy, a product used in virtually every home and every commercial or manufacturing facility.” 27 Therefore, although states are permitted to promote in-state businesses, they are not permitted to protect those businesses from out-of-state competition by enacting laws that “benefit in-state economic interests by burdening out-of-state competitors.” 28 The power of the Commerce Clause “has long been understood to have a ‘negative’ aspect that denies the States the power unjustifiably to discriminate against or burden the interstate flow of articles of commerce.” 29
Geographically-based discrimination is evaluated under a strict-scrutiny test applied by the federal courts, and such a statute, with rare exceptions, is found to be per se a violation of the dormant Commerce Clause. 30 Unless the state can identify a legitimate and compelling local interest that can be served by no other means, any statute or regulation that facially discriminates against interstate commerce by giving