10th Circuit Slated To Hear Constitutional Suit Over State Renewable Mandate

Source: By Dawn Reeves, Inside EPA • Posted: Wednesday, January 21, 2015

The U.S. Court of Appeals for the 10th Circuit will hear oral arguments Jan. 21 in a case that could pose a crucial test for whether state renewable energy mandates are constitutional, and could also have a significant impact on states’ ability to use their mandates to comply with EPA’s greenhouse gas (GHG) rule for existing power plants.

The Denver-based court will hear arguments in the case, Energy & Environmental Legal Institute (EELI), et al., v. Joshua Epel, et al., where free-market groups are appealing a lower court ruling that upheld Colorado’s renewable electricity standard (RES) as constitutional.

EELI is arguing that the RES, which requires in-state utilities to sell a fixed percentage of renewable electricity, no matter where the power is generated, is barred by the Constitution’s dormant commerce clause because the requirement unlawfully regulates out-of-state utilities that may export power to Colorado.

The “practical effect of the RES is to restrict the means companies may use to produce electricity to meet this set-aside quota, regardless as to where the company operates or whether the electricity generated even enters Colorado,” the group argues.

If the appeal is successful, the suit could undermine RESs that scores of other states have adopted and which EPA expects states will use in part when they craft plans to reduce GHG emissions from the power sector to comply with the agency’s existing source performance standards (ESPS).

According to EPA, as many as 29 states and the District of Columbia have enforceable renewable portfolio standards (RPS) or other mandatory renewable capacity policies, while nine states have voluntary goals.

EPA proposed to set the renewable portion of states’ ESPS goals in part by using state-level RPS requirements, signaling the agency’s view that the policies have been integral to driving renewable generation deployment. And though it based the targets on RPS requirements, EPA says states are not limited to such policies to complying with the ESPS.

States “may also consider a broad variety of other [renewable energy] policies to increase generation, such as performance-based incentives, financial assistance programs, regulatory changes to facilitate the development of renewable sources and their interconnection to the grid and ‘lead by example’ strategies integrating [renewable energy] generation into state properties,” EPA says in a technical support document released alongside the proposal.

Colorado’s is not the only state clean energy policy facing similar attack. The 8th Circuit is currently weighing a contrasting case, North Dakota, et al. v. Beverly Heydinger, et al., challenging the constitutionality of a Minnesota law — the Next Generation Energy Act (NGEA) — that seeks to limit GHGs from the power sector in part by prohibiting utilities from importing or contracting with new coal-fired power plants.

Both appellate challenges concern arguments that state standards are in violation of the dormant commerce clause by regulating “extraterritorially” out-of-state utilities that sell energy into a state.

In the Minnesota case, the state is appealing a district court ruling holding the NGEA law as unconstitutional and in a Nov. 4 filing urged the appellate court to reverse. The filing also highlighted the difficulty state GHG laws face absent EPA rules.

A coalition of national environmental groups filed an amicus brief on behalf of the state which argues the law is critical to efforts to cut power sector emissions and encourage renewable energy. They also argue that plaintiffs lack standing to challenge the law, and that the lower court erred in its decision to reject the law. The wind industry and state electricity regulators are also backing Minnesota’s appeal.

Supreme Court Decision

Colorado’s defense of its law may have been bolstered by the Supreme Court, which last June declined to hear a similar case, Rocky Mountain Farmers Union v. Corey, over California’s low-carbon fuel standard (LCFS), which the 9th Circuit had upheld as constitutional.

Colorado is relying heavily on the high court’s decision, noting for example in a Sept. 24 filing that the 9th Circuit rejected charges that California’s fuel standard has extraterritorial effects. “The RES regulates only the Colorado market. . . . Out-of-state entities are free to generate electricity in whatever manner they wish, and can sell electricity to whomever they choose,” the state said.

Colorado is also arguing that EPA’s proposed ESPS, as well as statements from the Federal Energy Regulatory Commission (FERC), indicate that federal agencies back the state’s standard. EPA “recently endorsed the states’ renewable standards as critical ‘building blocks’ for its proposed” ESPS, while FERC has indicated that “states have the authority to dictate the generation resources from which utilities may procure electricity.”

But EELI lawyers are seeking to downplay the precedential value of the 9th Circuit’s LCFS ruling. In an Oct. 14 brief in the Epel case, the group argued that the high court’s decision not to hear the LCFS challenge is not on point with its challenge to the Colorado RES in part because the LCFS regulates liquid fuel, not electricity, which can not be shipped to a particular point.

The group’s brief also rejected Colorado’s claim that the preamble to EPA’s ESPS puts the state RES on firmer legal footing because it is the courts, not the executive branch, that determine whether a law is legal.

Meanwhile, the Colorado legislative session is getting under way with several state lawmakers seeking to show broad support for EPA’s ESPS. State Rep. Max Tyler (D) and Environment Colorado’s Anna McDevitt wrote a Jan. 15 op-ed for the Denver Post, “A call to climate action in Colorado legislative session” that seeks support for the ESPS and touts the state’s RES — at issue in the legal challenge — as putting the state “in [a] good position to meet the proposed EPA’s standards.”