A Colorado federal district court Friday rejected a constitutional challenge to the state’s renewable energy portfolio law, concluding that it did not impose an impermissible burden on interstate commerce. Thirty states and the District of Columbia have enacted renewable portfolio standards, which typically require that a specified percentage of energy supplied by state utilities derive from renewable sources. The Colorado law, for example, mandates that 30% of the energy supplied by investor-owned utilities, 20% of that supplied by large energy cooperatives, and 10% of energy supplied by smaller cooperative and municipal utilities be renewable by 2020.
The plaintiffs contended that the law violated the dormant commerce clause, which prohibits state laws which seek to regulate or discriminate against foreign commerce or otherwise impose excessive burdens on interstate commerce. The power that utilities ultimately distribute to their consumers is typically generated from a variety of sources, many of which are out-of-state. Consequently, the plaintiffs argued that the law functionally imposed Colorado’s renewable energy standards upon the foreign jurisdictions where the power supply was actually generated. A Wyoming electricity generator, for instance, would have to abide by Colorado’s standards in order for its power to be credited towards Colorado’s portfolio requirement.
The court turned back the challenge. It explained that while actively regulating wholly extraterritorial economic transactions would be unconstitutional, Colorado had the authority to regulate the sale of power that occurred within the state. Although the standards did provide an incentive for power producers to use solar, wind, biomass, and other qualifying renewable energy sources as compared to traditional fossil fuels, it did not prohibit the latter and did not discriminate between in- and out-of-state providers. Colorado utilities could still buy energy produced by fossil fuel generators (in or out-of-state); such power would only not count towards the utilities’ renewables quota. At most, the Colorado law would marginally alter the distribution of energy production and supply amongst suppliers (away from traditional producers and towards renewables). But, the court observed, the dormant commerce clause does not protect a particular firm’s right to a market share; it only demands that states not discriminate against out-of-state companies or unduly burden the flow of interstate commerce.
State-mandated renewable energy portfolios have been increasing in prominence as legislators seek to encourage the development of renewable resources and ensure that new suppliers have a readily-available market. However, it is important for energy producers and other actors participating in renewable energy development and trading to recognize that, because these standards are usually developed at the state level, the definition of what qualifies as “renewable” often varies from one state to another. The court in this case addressed those inconsistencies and concluded that they would not rise to the level of a constitutional problem unless they actually impeded the flow of electricity across state borders. But energy producers considering developing or expanding a particular energy resource should be diligent in ensuring that the resource qualifies as renewable in their target markets if they wish to utilize it to meet portfolio requirements.
The case is Energy and Environment Legal Institute v. Epel, 11-cv-00859 (D. Colo. May 9, 2014).