Energy Challenges in the 21st Century - The Constitutional Challenge

I recently attended a conference at Suffolk University Law School about energy law in the 21st century. Participants got to listen to three separate panels of alumni who now work in the energy industry. Finally, we were treated to a talk by the EPA Administrator in charge of the office of Air and Radiation, Gina McCarthy. This post summarizes regional issues and then fleshes out one particular talk, where the broader legal issue of constitutionalism intersects with energy laws.

Troubles in Transmission

My region, the Northeast United States, has transmission constraints in several ways. There are constraints on the amount of natural gas that can enter the state due to the number of pipelines entering the Northeast. (According to ISO-New England employee Michael Giaimo, five pipelines and two LNG storage facilities serve the region.) There are constraints on renewable energy, mainly wind power, but also hydropower, due to the need for long-distance transmission lines from Maine and eastern Canada to the hubs of population, which include Portland, ME, Boston, MA, and Hartford, CT. Then, consumers’ wallets are also constrained by the price of power in New England. For example, the Energy Information Administration tells us that commerically priced electricity–one factor affecting job growth–in Massachusetts as of February 2014 was 15.85 cents per kilowatt hour as compared with, say, 8.99 cents in North Carolina. The EIA also indicates that the price of wholesale power is about double most of the country’s. I hope to discuss all these energy issues in future posts, but for now I’ll focus on the presentation of professor and everyday energy expert, Steven Ferrey.

Constitutionalism

For those hoping to build more renewable power resources, such as wind or solar power—or interesting new technology like anaerobic digestion—legal roadblocks as well as physical ones crop up. For example, a number of states have tried to encourage renewable energy in their state code but have run up against what Ferrey terms, in the title of one of his articles, “constitutional barriers.” More renewable energy means less carbon going into the atmosphere and less chance of raising the planet’s temperature to an unsustainable level. Renewable energy resources are important because by far the largest emitters of carbon dioxide, or CO2, are fossil-fuel fired generation plants, particularly coal and oil plants. Unfortunately, our nation’s nifty constitutional government throws a wrench in states’ works.

“[I]t 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.” FERC v. Mississippi, 456 U.S. 742, 747 (1982). When an item is in interstate commerce, basic constitutional law applies. An individual state can not raise the price of out-of-state goods or services so as to give an advantage to in-state providers. Nor can an individual state block out-of-state goods or services entirely. For example, Massachusetts tried to keep traditional dairy farms in business despite price competition. It did so by levying a tax on dealers providing wholesale milk, two-thirds of which was from out-of-state, and using that to subsidize in-state dairy farms only. See West Lynn Creamery v. Healy, 512 U.S. 186 (1994). The state also argued it wanted to keep these pastoral farms on the landscape. That’s not how we might think of environmentalism today, but basically, it’s an environmental reason—preserving the New England environment. The Supreme Court discounted the farm landscape as an environmental purpose, and went further, stating that even if there were an environmental purpose (in this case, preservation), being unconstitutional, an in-state preference regardless could not go forward.

Why do state efforts to increase renewables run up against constitutional barriers?  I’ll explain a few of the dicey ones.

Renewable Portfolio Standards/Renewable Energy Credits

Renewable Portfolio Standards, or RPS, are mandates codified into state law that say power generators have to supply or procure a certain amount of renewable energy in their energy portfolio. The way this is done is that the generators have to make or purchase a certain number of RECs, or Renewable Energy Credits. The REC is a “renewable attribute” – basically, a concept, separated from the power generated itself, and given a price tag by the state. If a generator makes RECs itself by having a renewable energy facility, great. If it does not have enough RECs at the end of the year, and can’t purchase them from other entities, some kind of penalty will be levied. In Massachusetts, for example, that generator has to pay the difference to the state. There’s an incentive! But many states across the U.S. have prejudicial RPS rules. Namely, a multiplier may be added to in-state RECs so that they are worth more than out-of-state RECs. Or a state might just say that power has to be generated in-state in order to garner a REC. Some states allow only a certain percentage of renewable energy credits to come from outside the state, leaving the lion’s share to in-state business. Ferrey summarizes them all in his law review article presented to conferencegoers, Threading the Constitutional Needle with Care.

Feed-in Tariffs

A few states have tried European-style feed-in tariffs. A feed-in tariff is simply a state telling distributors who wish to purchase renewable power that that power is going to come at a certain price. (In Europe, this was done by national governments, making the mechanism completely legal.) The price is set above the market price in order to give renewable developers the peace of mind they need in long-term contracts. These have not been tried much because the Federal Energy Regulatory Commission, or FERC, sets the price of wholesale electricity, and no one else. Mississippi Power & Light Co., 487 U.S. 354, 371 (1988).

The Unchallenged: System Benefit Charges

In contrast, the third renewable incentive has seemed to work: a system benefit charge is a penny or two levied on each consumer’s electricity bill. The funds are aggregated and put into a pool to support the development of renewable energy infrastructure. This is on both the retail charge side and the retail distribution side of the electron chain, landing it within a state’s purview alone.

The Midwest 7th Circuit Case – In-State Requirements Are Clearly Unconstitutional.

In a June, 2013 7th Circuit decision, Judge Posner noted in dicta that the state of Michigan was acting unconstitutionally by refusing to allow its utilities to credit out-of-state wind power against a state RPS. (Discussed succinctly here.) Citing to Ferrey’s law review article, Posner said this “trips over an insurmountable constitutional objection.”

So what are we to do? The United States consumes a whole lot of energy, the Northeast needs new pipelines and new transmission lines, and in the absence of a national RPS, it is hard to conceive of a tamping down of CO2 emissions through embattled state RPS. Meanwhile, if we’re looking to lower greenhouse gases in the atmosphere, what’s going on in China, anyway?

Believe me, I don’t have the answer. I appreciate Ferrey’s search for the constitutional as instruction for the states, but the United States and the Earth need something broader than this. Meanwhile, without natural gas, electricity, and its associated infrastructure, how would I be typing away today?

More by | Jennifer Harris Jennifer Harris , Law.com Contributor
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