Friday, April 30, 2010

Commerce Clause Challenge to Renewable Portfolio Standards

TransCanada Power Marketing Ltd. is suing the Commonwealth of Massachusetts under the Commerce Clause and 42 U.S.C. § 1983 for declaratory and injunctive relief and damages for facially discriminating against out-of-state renewable energy sources.

According to its April 16, 2010 complaint, TransCanada Power Marketing is a power marketing company that purchases electricity wholesale and sells it to distribution utilities and retail customers in the northeastern U.S., and it is affiliated with other corporations that generate power in the northeastern U.S., Arizona, and Canada. It is also licensed to supply retail electricity in Massachusetts. TransCanada Power Marketing is an indirect wholly owned subsidiary of TransCanada Corporation, a company that develops and operates energy infrastructure in Canada and the U.S.

The thrust of TransCanada's complaint in this lawsuit is that Massachusetts has statutes and regulations that explicitly favor in-state renewable energy generation to the detriment of out-of-state renewable generation, and that the Massachusetts laws therefore harm TransCanada, and, more generally, will harm the efficient, economic development of renewable energy resources in the region and the country.

Massachusetts has a renewable portfolio standard (RPS), which mandates that every retail electric supplier in the state provide a certain minimum percentage of its power from renewable energy sources. The RPS can be satisfied in part by purchasing renewable energy certificates (RECs) from renewable sources. Buying a REC is essentially buying the renewable aspect of renewable energy, without purchasing the actual energy. Thus, RECs allow Massachusetts utilities to meet the RPS requirements without necessarily changing the sources they use to supply power to customers - a utility can still purchase power from non-renewable sources, but meet the RPS by purchasing RECs from a renewable source. According to TransCanada's complaint in this lawsuit, until recently, utilities could meet the RPS requirements by purchasing all of the renewable power and/or RECs from renewable sources located in other states. But in 2008, the Massachusetts Legislature mandated that each utility must meet a portion of its RPS requirement from "new on-site renewable energy generating sources located in the Commonwealth," and the Legislature gave the Department of Energy Resources (DOER) the authority to "specify that a certain percentage of these requirements shall be met through energy generated from a specific technology or fuel type." Mass. Gen. Laws ch. 25A, § 11F(g). DOER has since exercised its statutory authority and now requires that utilities must purchase a portion of their RECs from solar generation that is located within Massachusetts. 225 C.M.R. 14.05.

In addition to the RPS, Massachusetts recently enacted a law requiring retail electric providers ("distribution companies") to solicit bids for long-term electricity contracts from renewable electricity generators who are located within the Commonwealth. The law states that, beginning July 1, 2009, distribution companies must, within 5 years, solicit proposals for long-term contracts from in-state renewable energy generators at least two times. If the distribution companies receive "reasonable proposals," they must "enter into cost-effective long-term contracts to facilitate the financing of renewable energy generation within the jurisdictional boundaries of the Commonwealth." Green Communities Act, Section 83 (2008). TransCanada is claiming that both of these provisions of Massachusetts law - the RPS and solar REC requirements and the requirement to solicit bids for long-term contracts from in-state renewable energy generators - facially discriminate against out-of-state renewable energy sources in violation of the Commerce Clause. Additionally, the company seems to be crafting an argument that Massachusetts knew that these programs violated the Commerce Clause.

In its complaint, TransCanada cites a guide published by the National Asssociation of Regulatory Utility Commissioners in 2001 that notes that if states limit RPS-type standards to in-state resources, they should “expect invalidation” of those standards under the Commerce Clause. Further, the complaint cites a 2008 memo issued by DOER in which the agency recognizes that “restrictions on commerce that discriminate based on location face strict scrutiny” and that such regulations can survive such scrutiny only when there are “no other means to advance a legitimate local interest.” The company is asking the Federal District Court for the District of Massachusetts to permanently enjoin Massachusetts from enforcing the provisions of the Solar REC regulation and the long-term contract statute, and it is seeking damages and attorney's fees for the harm that TransCanada has incurred as a result of these programs.

According to the federal court's docket, all answers are due in this lawsuit on May 11, 2010.

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