Texas Journal of Oil, Gas, and Energy Law, Vol. 7, p. 59, 2012
66 Pages Posted: 25 Oct 2012
Date Written: 2012
To date, the federal initiatives for renewable energy primarily focus on tax incentives and credits. State incentives comprise most of the other renewable energy incentives. Chief among these are Renewable Portfolio Standards (RPSs), feed-in tariffs, net metering, and system benefit charges/trust funds (SBCs). Government lacks the power to do anything it chooses. And this is especially true with the current state policy to build a new power infrastructure. The new energy infrastructure is all about renewable energy. Both SBC and RPS programs raise revenue by a charge reflecting the amount of power produced or transacted, and then distribute that revenue to certain businesses, in several states based on geographic discrimination. The SBC program involves a direct tax or charge, while the RPS program has the government create a virtual attribute that must be purchased by suppliers of power. In-state consumers of power ultimately bear the entire cost of those charges.
This article examines RPS and SBC state programs, the two most popular state renewable energy incentives, against the significant caveats of the Commerce Clause of the U.S. Constitution. While the mechanism in each program is somewhat different, the legal issues presented are similar. If these programs imposed just a tax — fine. As long as a state taxes only in-state services, a state can use the tax or surcharge revenues to benefit its own citizens. Therefore, it is important that states structure their SBC charges to apply only to the in-state distribution of power over in-state power lines.
If this were just a subsidy — fine. However, state renewable energy programs that discriminate against power in interstate commerce bear some resemblance to earlier discriminatory programs that states set up for giving preferences to in-state dairy and other interests. These former state programs were declared by the Supreme Court to violate the U.S. Constitution. Here, similarities, at the very least, put some of these state renewable energy policies in constitutional play.
As examined in detail, many of these programs restrict eligibility of out-of-state sited projects from participation. Several states are now being challenged on the legality of their renewable energy policies. And to date, the states have failed in several instances to justify the legality of their discriminatory programs. These challenges have taken on the most sophisticated states, which can muster ample legal defense: New York, California, Massachusetts, Colorado, and New Jersey.
However, state RPS and SBC programs also can feature key distinctions that might create a safe harbor from a successful constitutional challenge. It is in these legal interstices that the legal future of American energy policy will be sculpted. This article climbs into the comparative reality of American legal policy and examines these interstices, comprising the American legal foundation for renewable energy policy.
Suggested Citation: Suggested Citation
Ferrey, Steven, Threading the Constitutional Needle with Care: The Commerce Clause Threat to the New Infrastructure of Renewable Power (2012). Texas Journal of Oil, Gas, and Energy Law, Vol. 7, p. 59, 2012; Suffolk University Law School Research Paper No. 12-46. Available at SSRN: https://ssrn.com/abstract=2166508