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FIT in the USA

Constitutional questions about state-mandated renewable tariffs.

Fortnightly Magazine - May 2010

goals. Because the legal systems of European nations and the United States are distinct, what’s permissible in one doesn’t always seamlessly translate legally to the other.

Federal Preemption

Sections 205 and 206 of the FPA empower FERC to regulate rates for the interstate and wholesale sale and transmission of electricity. The FPA creates a bright line between state and federal jurisdiction, with wholesale power sales falling on the federal side of that line. This preempts state regulation of wholesale power transactions and prices: State regulators are not allowed to veto the regulatory scheme of a superior level of government.

The so-called filed-rate doctrine of federal and Constitutional law holds that state regulatory commissions may not second-guess or overrule on any grounds a wholesale rate determination made pursuant to federal jurisdiction. The Supreme Court in 1986 and again in 1988, 2003, and 2008, upheld the filed-rate doctrine. 1 FIT raise issues under the Supremacy Clause of the United States Constitution. If a state orders or approves a wholesale power sale rate above the federally-approved wholesale power rate pursuant to the FPA, or above the PURPA avoided cost, it not only crosses the no-state-jurisdiction line, but specifically contradicts the federal wholesale rate determination and raises power costs.

Federal courts have struck down state regulatory action when it either raised or lowered the federally jurisdictional rate paid for power to wholesale renewable energy projects. California provides just one example. In Independent Energy Producers Association v. CPUC, the California state utility commission authorized utilities to suspend payment to renewable power-selling qualifying facilities (QF) if the utility found that the QF didn’t comply with federal standards, and substitute a 20-percent lower, alternative rate, which the court found impermissible. 2 Going in the opposite direction, regulations that raise renewable energy prices as an incentive to the power producer also were stricken in a FERC case involving Southern California Edison. 3 The federal Court of Appeals agreed in deciding a third recent California case. 4

The FPA creates a bright line between state and federal jurisdiction, with the wholesale price determination, which involves every FIT for wholesale sale of renewable power to utilities, reserved exclusively to federal authority. 5 Under Constitutional principles of federal preemption, state FIT legislation covering investor-owned utilities can’t mandate a wholesale electric purchase at a rate above the federally established wholesale price or the avoided cost. The prompt recent settlement by the state of New York of all demands raised in the lawsuit pursued on Constitutional bases against New York’s carbon regulatory scheme, the Regional Greenhouse Gas Initiative (RGGI), gives voice to the gravity of Constitutional issues surrounding careful state regulation of renewable energy.

 

Endnotes:

1. Nantahala Power & Light Co. v. Thornburg , 476 U.S. 953, 966–67 (1986); Miss. Power & Light Co. v. Miss. ex rel. Moore , 487 U.S. 354, 371 (1988) (“FERC has exclusive authority to determine the reasonableness of wholesale rates.”); Entergy La., Inc., v. La. Pub. Serv. Comm’n. , 539 U.S. 39, 47 (2003) (noting that the filed-rate doctrine applies to the states through federal preemption); Pub. Util.