Regulatory Reform

Constitutionality of Renewable Energy Mandates in Question

With a potentially striking blow to renewable mandate advocates, a recent federal court ruling calls into question the constitutionality of key components of many states’ renewable energy mandates.

On Friday, June 7th U.S. Circuit Court of Appeals sided with the Federal Energy Regulatory Commission (FERC) against the state of Michigan (among other petitioners) in a dispute over FERC’s plan to apportion costs for new power lines to transport millions of megawatts of wind power around the Great Lakes region.  The state of Michigan argued that this plan would, in effect, force them to pay for expensive new power lines in the region designed to transport out of state renewable energy.  According to the law creating Michigan’s 2008 Renewable Energy Standard, only renewable energy derived within the state’s borders is eligible to satisfy Michigan’s requirement to use 10% of eligible renewable energy sources by 2015.

Writing for the Court, Judge Richard Posner opined:

“Michigan’s first argument—that its law forbids it to credit wind power from out of state against the state’s required use of renewable energy by its utilities—trips over an insurmountable constitutional objection. Michigan cannot, without violating the commerce clause of Article I of the Constitution, discriminate against out-of-state renewable energy (emphasis added).”

Thirty states plus the District of Columbia have renewable energy mandates that force electric utilities to procure a certain percentage or quota of renewable energy by a certain year. While Michigan has an outright ban on wind generated in other states from counting toward their mandate, several other states also “discriminate” against out-of-state renewable energy.  When tabulating mandate compliance, some states count in-state generation at a higher rate than out of state generation, a practice commonly referred to as “multipliers” :

  • Colorado has a 1.25 multiplier for all in-state generation;
  • Delaware has a triple credit multiplier for customer-sited, in-state photovoltaic (PV), a 350% multiplier for a specific offshore wind project, and a 150% multiplier for all other in-state wind projects;
  • Kansas has a 1.1 multiplier for all in-state resources;
  • Michigan offers an additional 0.1 credit for projects that use Michigan components and the Michigan workforce;
  • Missouri has a 1.25 multiplier for all in-state generation.

Additionally, several state renewable mandates have a schedule of renewable energy tiers, where certain generation sources can only be used to satisfy a portion of the mandate.  A few have tiers devoted specifically to in-state generation that may now be problematic in light of the recent federal court decision:

  • Massachusetts’ Tier IV is limited to in-state PV projects;
  • New Mexico’s Tier V is for customer-sited resources;
  • New York’s Tier II is for customer-sited resources.

This recent ruling is important because one of the key defenses made by mandate proponents is that they will create jobs in the respective state.  Of course, these assertions only consider the gross “green” jobs created, while completely ignoring the net jobs lost as a result of increasing electricity rates driven by these mandates.  The court ruling could very well end the state green job employment argument since renewable energy can be imported from others states to comply with the mandate.

State lawmakers would then need to ask themselves if it is worth increasing electricity rates on their state ratepayers in order to subsidize “green” job creation in a neighboring state.  If nothing else, this ruling exposes the complexities and problems with a government created market for renewables.

In Depth: Regulatory Reform

In his first inaugural address, Thomas Jefferson said that “the sum of good government” was one “which shall restrain men from injuring one another” and “shall leave them otherwise free to regulate their own pursuits of industry.” Sadly, governments – both federal and state – have ignored this axiom and…

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