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FIT in the USA

Constitutional questions about state-mandated renewable tariffs.

Fortnightly Magazine - May 2010

The attempt by many U.S. states to copy verbatim the European model of feed-in tariffs (FIT) to promote renewable power will not fit through the eye of the needle regarding requirements of the U.S. Constitution. Feed-in tariff rates are set by the state above the already-set mandatory federal wholesale price of energy and above avoided cost rate levels. With U.S. states now advancing FIT, Constitutional impediments will complicate the exercise of this state regulatory authority. As many as 10 states have introduced actual FIT legislation, while others are considering FIT policies: Arkansas, California, Florida, Hawaii, Illinois, Indiana, Iowa, Maine, Michigan, Minnesota, New Jersey, New Mexico, New York, Oregon, Rhode Island, Vermont, Virginia and Washington.

The Supremacy Clause of the U.S. Constitution creates a legal barrier to certain state-mandated regulatory actions. The legal gauntlet already was thrown: Recently, the first legal challenge to state regulation of carbon emissions from power plants was filed and settled in favor of the challenger to the state of New York.

How U.S. courts decide challenges yet to come will determine whether feed-in tariffs become part of the American energy-policy landscape.

FIT are the most widely employed renewable energy policy in Europe and, increasingly, the rest of the world. Forty-five countries as well as 18 states, provinces or territories have implemented FIT. This includes some form of FIT in approximately 28 developing countries. Germany, Denmark, and Spain, while only a small fraction of the size of the United States in square miles, were responsible for more than half of total installed global wind power capacity between 1990 and 2005.

European nations’ penchant for mandating that utilities and their ratepayers pay more for renewable power through FIT, if attempted in the United States, would run afoul of four U.S. Supreme Court precedents interpreting energy and environmental state regulation permissible under the Constitution. These Constitutional limitations on state authority affect only regulation of investor-owned utilities, which collectively serve approximately three-quarters of American consumers; they don’t affect government-owned utilities that aren’t subject to the Federal Power Act (FPA). However, several states have enacted, or are considering using, their regulatory powers to mandate that in-state private investor-owned utilities pay higher-than wholesale power FIT for renewable power.

There still can be powerful renewable energy incentives that pass legal muster. Aside from global warming emission-reduction requirements, other green-power policies include tax incentives, renewable trust funds, and carefully sculpted renewable portfolio standard (RPS) requirements. RPS programs exist in 29 states plus the District of Columbia; six more states have nonbinding RPS

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