FEDERAL COURT PROHIBITION ON STATE ENERGY REGULATORY INITIATIVES. Professor Steven Ferrey Suffolk University Law School May 2015

Transcription

1 FEDERAL COURT PROHIBITION ON STATE ENERGY REGULATORY INITIATIVES Professor Steven Ferrey Suffolk University Law School May 2015

2 The Loss in Ignoring Legal Requirements The use of inappropriate administrative law tools has tangible implications: Delay: Setting back the California climate change program by a year and striking the electric sector renewable energy program Ass n of Irritated Residents v. Cal. Air Res. Bd., 206 Cal. App. 4th 1487 (2012) Cost: When an administrative legal action is ruled unconstitutional, state citizens are asked to pay the legal costs of the challengers of the state action Lost opportunity: Confidence in, and support of, government

3 5 Techniques Used in Certain States Feed-in Tariff-FiTs: Now Vt., Maine System Benefit Charge: 15 states (30%) Net Metering: 43 states (85%) Carbon Regulation: 10 states (20%) Renewable Portfolio Standard: 29 states (60%)

4 Net Metering

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6 Renewable Portfolio Standards

7 FOLLOW THE MONEY When FiTs overpay market price for wholesale power, When RECs double or quintuple the all-in payment for renewable energy and credits, If net metering triples the value of renewable energy by paying retail for wholesale power Does the utility lose this substantial extra cash?

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10 Wind and Solar Intermittency 10

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13 Supreme Court subsidies for in-state industry... would clearly be invalid under any formulation of the Court s guiding principle for dormant Commerce Clause cases. West Lynn Creamery, Inc. v, Healy, 512 U.S. at 208 (Scalia, J., concurring) FERC v. Mississippi U. S. Supreme Court, 1982: it 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. No State relies solely on its own resources in this respect.

14 Energy Flows to California Source: U.S. Energy Information Administration, based on FERC Form 714 data

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17 A much-overlooked Holding Restricting State Energy Regulation Connecticut Light & Power, Co., FERC Docket No. EL (1995): Contracts over which states do not have authority contracts will be considered to be void ab initio. 4 Sup Court decisions: 1986, 1988, 2003, 2008 Endorse Filed Rate Doctrine

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23 The Ninth Circuit 2013 Reversal and Dissent Majority: No facial geo-discrimination, assumed articulated purpose. Balancing test: Pike v. Bruce Church, Inc, 397 U.S. 137 Majority: a state environmental purpose to reduce GHGs emitted in the state is enough to impose regulation and costs on interstate commerce entering the state. [Cf. West Lynn Creamery, Carbone] 2:2 Judge Tossup : of four federal judges who have ruled on this case at the trial and appellate levels, two found it unconstitutional Dissent: burden is on California to demonstrate that no less burdensome regulatory incentives were available to control GHGs, Dean Milk; dissent stresses that at oral argument, California admitted that there were less burdensome alternatives Dissent: strict scrutiny standard where the state law has a discriminatory effect ~ facial discrimination Rehearing en banc denied and Cert. denied

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30 FiTs are UnConstitutional if Adopted by any U.S. 48 States No decision is contrary Preemption of state wholesale energy prices

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33 Seismic After-Shocks of State Regulatory Choices on Renewables FiTs: Supremacy Clause Federal Power Act of 1935 Bright Line RPS: 8/29 (27%)have in-state multipliers 11/29 (38%) have in-region REC requirements 11/29 (38%) have Distribut. Gen in-state requirement 4/29 (14%) preference for in-state power 4/29 (14%) benefit for use of in-state products LEGAL ISSUE? Constitutional Law Commerce Clause

34 After-Shocks: RPS & In-state Requirement under Commerce Clause Supreme Court: Private (but not public) Power fundamentally is in interstate commerce Cannot rig regulation for use of in-state energy Federal Circuit Courts: State can not favor or recognize only in-state /geographic renewable energy with RECs State cannot hold low-carbon power from leaving state State cannot favor in-state fuel use State cannot use environmental law to favor in-state energy State cannot block external power directly/indirectly Except California/9 th Cir if reason is climate

35 One Outlier Decision: 9 th Circuit & Commerce Regulation Rocky Mountain Farmers Union v. Corey (9 th Cir. 2013). Can discriminate for GHG reduction reasons No other of the 11 federal Circuit Courts in accord IMPLICATIONS for the Western U.S. and CALIFORNIA: Then can regulate with credits, fees or restriction, out-of-state: Wine/Agricultural products (many local substitutes) Trash/methane (Cf. 7 U.S. Supreme Court opinions) Electricity (Cf. FERC v. Mississippi, U.S. Supreme Court holding) Gasoline (not just ethanol 10% additive) tax on plane travel from or to the state

36 Lessons: State Use of Price to Influence Power under Supremacy Clause Supreme Court: State can not adjust wholesale power prices Federal Circuit Courts & FERC: Socialization of renewable transmission $ is OK State cannot vary for any reason from federally mandated avoided cost wholesale rates State cannot demand wholesale price concessions from generators States cannot indirectly augment wholesale price Investor-owned utility FiTs are unconstitutional

37 On Track..? 37

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39 Bulletproofing the Legal Issues There is a solution to all these legal problems 2014: in a law review article a solution that solves all state objectives and avoids all legal issues in all of these states: Steven Ferrey, Solving the Multimillion Dollar Constitutional Puzzle Surrounding State Sustainable Energy Policy, 49 Wake Forest Law Review 121 (2014)

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41 Contact Info: Professor Steve Ferrey (617)

42 Germany in FiTs 3.4% renewable generation 1990, 23.5% in 2012 Household electricity prices are four times as high in Germany as in the U.S. The renewable energy surcharge levied nearly tripled in four years since 2010 ; 18% of a German household's total electric bill = subsidize others E50.62 cents/kwh locked in for 20-year period Now slashed to E13.5 cents/kwh = 80% cut Subsidy is E6.24 euro-cents per kilowatt-hour

43 SPAIN in FiTs Renewable energy: less than 1% 1990, 24.7 % 2009, 54% in 2013 Europe s second largest generator of renewable energy Spanish utilities limited to 2%/yr. increase retail utility prices FiT R.E. price = 575% more than the average price of electricity. 26 billion debt related to its cross-subsidies 1% of GDP for R.E. subsidies; more than $ for higher education Litigation charging a retroactive application of unconstitutional law unsuccessful in Spanish courts Government was forced to guarantee the utilities securitized debts largely resulting from the FiT expenses Spain changes retroactive to existing contracts Similar to what happened to California in 2001

44 Lessons from Supremacy & Commerce Clause dual-challenged state programs Supreme Court: Cannot hold desired renewable power in-state Cannot allocate cheaper wholesale power in state Circuit Courts: Same as above, plus Cannot indirectly influence by price out of state energy Can incentivize location of power generation, but not using any indirect wholesale price incentives

45 PV = A disruptive technology Grid exodus a viable option for residential systems in California in the early 2020s Utilities like phone companies in a new era of total competition??? Not just sell Kwh??? neutral managers of grid infrastructure Hawaii: distributed PV generation already overloaded certain distribution lines Limits on DG on Massachusetts circuits

46 Lessons: RPS & In-state Requirements challenged under Commerce Clause Federal District Court State cannot bar out-of-state power State cannot bar use of specific state fuel Settlements in Federal Courts States can not restrict contracts or incentives to favor or recognize only in-state power States cannot direct renewable RECs in-state

47 OUR KEY EXIT QUESTIONS Three critical legal/polcy questions 1. Does generator or load pay for transmission? Illinois, et al v. FERC (7 th Circuit 2013) Relied on Prof. Ferrey s 2012 U. Texas article 2. How do we price grid services with < Kwh sales? There is much use with net metering, but considered a free bank even though it doubles use & can t be stored/banked Inconsistent with state rate precedent NYT: California estimate that net metering + $1.4 billion/yr in lost revenue, added to the bills of non-net-metering customers San Diego Gas & Electric Company + $34 from each customer 3. Who pays for much greater costs of > spinning reserve power? What Calif does is not the historic norm

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49 Managing the Grid 49

50 Deregulation at Retail Level in States 50