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FIT in the USA

Constitutional questions about state-mandated renewable tariffs.

Fortnightly Magazine - June 2010

wholesale sale and transmission of electricity. 13 In doing so, the Act bestows upon FERC broad powers to shape the energy market and affect all stakeholders: generators, retailers, and consumers. By exercising exclusive authority over “just and reasonable” rates and terms, FERC ensures that wholesale generators of electric power will charge fair rates to retailers, and that wholesale generators receive a fair rate of return, and thus “have the incentive to continue to produce and supply power.” 14 The act creates a bright line between state and federal jurisdiction with wholesale power sales falling on the affirmative federal side of the line. 15 FERC jurisdiction preempts state regulation of wholesale power transactions and prices. Where federal law occupies the field and there is evidence of a pervasive federal scheme in a given area, by inference, courts will find state or local legislation preempted. Even where there is no congressional intent evident to federally occupy a field, the conflict principle requires that a court strike inconsistent state or local law. State regulation isn’t allowed to veto the regulatory scheme of a superior level of government. FERC jurisdiction is plenary and extends to all sales in interstate commerce. 16

There’s no doubt that renewable power sales are typically both wholesale power transactions and interstate power transactions. Both of these are subject to exclusive federal jurisdiction; state authority is preempted. Recent jurisprudence has accentuated the exclusivity of FERC’s power in not only setting “just and reasonable rates” but also exclusively ensuring the performance of the energy market. As the Ninth Circuit has remarked, and the Supreme Court confirmed, when combined with federal preemption precedent, energy market regulatory reforms have contributed to “a massive shift in regulatory jurisdiction from the states to the FERC.” 17

The Filed-Rate Doctrine

The so-called filed-rate doctrine 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.. 18

Pursuant to the filed-rate doctrine, the filed federal rate becomes “the legal rate.” 19 Outside the regulatory scheme, the filed rate can’t be attacked on the grounds that it was the result of improper conduct. 20 “[T]he filed rate doctrine bars all claims—state and federal—that attempt to challenge the terms of a tariff that a federal agency has reviewed and filed.” 21

FIT rates above avoided cost result in at least a temporary, and perhaps longer, increased cost of electricity. And here lies the conundrum: Does this conflict with either the requirements of PURPA, which are part of the FPA, or the general rate-setting requirements of FERC under the FPA? A series of court decisions over the past two decades makes this a very appropriate question under the Supremacy Clause of the U.S. Constitution.

PURPA was designed to promote renewables while protecting consumers from the resulting artificially increased costs of electricity. The promotion of renewable energy is premised on renewable energy generators receiving only the utility’s avoided cost. 22 Thus, retail energy consumers should be