The economy has put state commissioners and regulated utilities in precarious positions. Seven state chairmen explain how they’re applying fair rate treatment.
Commerce Clause Conflict
In-state green mandates face Constitutional challenges.
A doesn’t give rise to a complaint under the Commerce Clause from State B for failure to construct the factory in State B; a factory has to be built somewhere, and the ultimate choice of a site doesn’t, on its own, interfere with interstate commerce.
The Dormant Commerce Clause doctrine is potentially implicated, however, with regard to the plant’s products. If a power plant is a factory, its product is electricity. Electricity is in many ways a commodity like tangible products such as milk, phosphates, and alcohol. It flows in interstate commerce pursuant to the laws of physics, regardless of its buyers’ and sellers’ intentions, regulatory compacts, or contractual arrangements. While the end product (electrons) is fungible, there’s considerable variety in the sources of that end product (coal, geothermal, etc.). Power plants, whether developed under traditional utility cost-of-service ratemaking, or through long-term PPAs between a utility and a developer, involve the dedication of resources to serve a load, but the plant’s electrons can be sold and resold, at wholesale or in some instances across state lines, into a regional pool, or even across regions, so long as transmission capacity and economics are capable of supporting the sale.
Finally, most power plants have significant byproducts, including solid waste and air emissions. Most of these byproducts are subject to comprehensive regulatory regimes administered by the U.S. Environmental Protection Agency, with much of that authority delegated to the states for implementation. Indeed, a major aspect of states’ quest for renewable power is the desire to avoid or displace power plants with significant emission profiles ( e.g., coal) and to replace them with resources that have minimal emissions ( e.g., wind or solar facilities). The Commonwealth of Massachusetts and numerous other states have indicated clearly that these emissions are a critical component of their resource decisions, i.e., that it matters to them what fuel creates their electricity. That public policy choice—reflected, as noted, throughout Massachusetts’ energy and environmental policy—suggests a colorable state defense against a dormant Commerce Clause attack, based on “a legitimate local purpose that cannot be adequately served by reasonable nondiscriminatory alternatives.” 24
Programs that involve building in-state power plants can thus simultaneously trigger scrutiny under two aspects of Dormant Commerce Clause case law: state programs that provide significant benefits to develop in-state resources or to keep such resources in-state (see New England Power Co. v. New Hampshire, 455 U.S. 331, 344 (1982), striking down state law prohibiting out-of-state export of hydroelectric power) , and state programs that seek to keep out articles of commerce that the state wants no part of, such as garbage (see Philadelphia v. New Jersey, 437 U.S. 617, 628 (1978), striking down state law prohibiting importing trash collected out-of-state) .
States haven’t waited for Congress to enact a federal RPS standard. Those that have already established their own RPS programs have set their sights on a major shift in the fuels America uses to make its electricity. That shift will require new infrastructure, which will in turn require significant capital and involve significant financial