POWER August 2013 - 26

The Lurking Threat
to State RPSs
By Thomas Overton
T
he backlash against renewable portfolio standards (RPSs)
has begun in earnest. In more than 20 states across the
country, efforts are afoot to freeze, water down, or repeal
one standard or another.
Some of the attacks are serious. The North Carolina legislature
recently considered a bill that would have had the state's 12.5%
requirement expire in 2021. The bill died in committee, though
the vote was close. Similar bills have gotten traction in Kansas
and Pennsylvania, though so far none have passed.
The campaign is being spearheaded by conservative think
tanks such as the American Legislative Exchange Council (ALEC)
and the Heartland Institute, which have written model legislation
to repeal RPSs and make it much harder to support renewable
energy development.
But there is a deeper threat to RPSs that-if successful-has
the potential to wipe out every standard in the country in one
fell swoop.
Dormant Challenge
The culprit is a lawsuit in Colorado federal court, American Tradition
Institute v. Colorado. The case, filed in 2011, argues that
Colorado's RPS unconstitutionally burdens interstate commerce
by favoring certain generation resources over others. The Denverbased
American Tradition Institute (ATI) is a nonprofit advocacy
group largely funded by fossil fuel interests, and it has fought
public support for renewable energy since its founding in 2009.
What's the problem? Article I of the federal Constitution
gives Congress the power to regulate commerce with foreign nations,
between states, and with the Indian tribes. The Supreme
Court (the " Court " ) long ago read a negative implication into
this section that state laws impairing or regulating commerce
with other states are disfavored. This is known as the " Dormant
Commerce Clause. "
Federal courts apply one of several tests when considering
whether a state law violates the Dormant Commerce Clause.
First, if the law discriminates against interstate commerce, it
must survive " strict scrutiny " and will only pass muster if the
state can show it is protecting a legitimate state interest and
the law is the only reasonable means of doing it. In practice,
this standard is so high that applying strict scrutiny almost
guarantees the law will be invalidated. Where no discrimination
is present, and the law treats in- and out-of-state entities
equally, it will survive as long as the burdens on interstate
commerce are not out of proportion to the in-state benefits. On
the other hand, if it unreasonably benefits local interests at the
expense of outside competition, then it fails. This has come to
be known as the " Pike test " after a 1970 Supreme Court case.
Finally, if a law has the practical effect of regulating commerce
outside the state's borders, it is invalid.
26
Cases of open discrimination are fairly rare, but they do occur.
Perhaps most relevant here is the 1992 case of Wyoming v.
Oklahoma, in which the Court overturned an Oklahoma law requiring
its utilities to burn at least 10% Oklahoma-sourced coal
in their coal-fired plants. Legal scholars who have looked at this
issue with respect to RPSs largely agree that in-state " carveouts "
requiring a certain level of in-state renewable generation
are vulnerable under the Dormant Commerce Clause. Indeed, Massachusetts
in 2010 suspended its in-state requirement in the face
of a lawsuit by TransCanada.
Where there is no open discrimination, the analysis gets murkier,
as might be expected. A discriminatory effect or purpose may
be enough to invalidate the law, or it may not. To make things
more complicated, application of the Pike test has become less
and less frequent as the Court has expanded the number of things
that can trigger a finding of discrimination.
How Great a Threat?
As should be clear, this is a highly fact-specific analysis, and given
the many differences in how the various state RPSs operate, it is
impossible to know whether all or any would survive Dormant Commerce
Clause review. Nevertheless, some RPS elements would appear
to be in danger. In-state carve-outs are the most likely to fail. Some
RPS schemes prohibit utilities from importing power generated by
new nonrenewable sources or entering into power purchase agreements
that increase their carbon emissions, even if generated out of
state. These provisions arguably attempt to regulate power generation
outside that state's borders. Several renewable energy credit
(REC) schemes contain provisions that implicitly or explicitly favor
in-state generation; these too may be found discriminatory.
While ATI complains about certain in-state carve-outs and
REC provisions in the Colorado RPS, the core of its case is
that favoring one generation resource over another places too
great a burden on interstate commerce. ATI's contention is
that the variability of wind and solar generation means that
generators must invest in nonrenewable resources to balance
their output and ultimately incur greater expenses than they
would otherwise. Further, it has the effect of regulating the
behavior of out-of-state generators, who are less likely to
build nonrenewable capacity, thus harming states where coal
mining is a major industry.
It's not clear what ATI's chances are with this argument (the
judge, William J. Martinez, is an Obama appointee), but the
threat it poses to RPSs nationwide ought to be clear. Whatever
the outcome at the district court level, an appeal is certain. A
decision in its favor in the Tenth Circuit, or-should it get a
hearing-the Supreme Court, would have important ramifications
across the country. Stay tuned. ■
-Thomas W. Overton, JD is POWER's gas technology editor.
www.powermag.com
POWER | August 2013
http://www.powermag.com
POWER August 2013

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