Celebrating our Declaration of (Energy) Independence
This month, we witnessed the Nation’s 237th anniversary of the signing of the Declaration of Independence. Last week, I celebrated by signing my own declaration of independence, a contract to install PV on our newly purchased home!
This got me thinking about the role that our founding documents still play in the regulation, governance, and market drivers for renewable energy today. And in particular, I read up on two sections of the constitution that continue to shape the solar industry, a mere 262 years after Ben Franklin published his seminal text Experiments and Observations on Electricity.
The first of these influential stipulations is the Interstate Commerce Clause, one of the enumerated powers bestowed on Congress by the constitution. It essentially binds the nation as a singular economic unit and prevents states from creating barriers that would inhibit the free flow of commerce across state lines. To do this, Congress prohibits states from favoring local industry to the disadvantage of out-of state competitors, with only a few exceptions. Through their power to regulate the commerce of energy, Congress created the Federal Power Commission in 1920, which subsequently evolved into the Federal Energy Regulatory Commission (FERC). You may have heard of it.
The second significant section, the Supremacy Clause, establishes the U.S. Constitution, federal statutes, and U.S. treaties as “the supreme law of the land.” In other words, federal laws are valid and supreme over any conflicting state law, so long as those laws were adopted pursuant to the constitution.
Both of these clauses manifest themselves in various ways through our policies and regulations for renewable energy. And throughout the years, both have continuously been interpreted and reinterpreted by various courts and lawmakers to adapt to increasingly complex markets.
For example, we have seen evidence of their impact play out in California a few years ago, as the state established feed-in tariffs for certain combined heat and power (CHP) projects. This process sparked a conflict between California and FERC over the Public Utilities Commission’s right to set resource-specific prices that exceeded the state’s typical avoided cost rate. FERC’s decisions fairly clearly opened the door for states with renewable portfolio standards (RPS) to establish avoided cost pricing tailored to the specific type of generation. While many of the issues raised in this discussion were rooted in the Commerce Clause, it was the Supremacy Clause that allowed FERC to have the final word.
There are many other ways in which these clauses come into consideration in the rulemaking process. For instance, these clauses dictate whether a state RPS could specify a location-based or delivery-based requirement for generation. Generally a delivery-based requirement (i.e. can the generation theoretically be delivered to the state) is allowable under the Commerce Clause, whereas requiring generation to actually be located in the state would raise questions.
The role a state plays within an RPS regime can also affect its constitutionality under the Commerce Clause. Under the “market participant” exception, a state government does not run afoul of the Commerce Clause if it is acting as a participant in the market rather than a regulator. For instance, a municipal utility deciding to procure power from only in-state sources is a market participant, whereas a state agency mandating private utilities do the same would likely face a constitutional challenge. There are additional ways in which states may need to carefully consider program regulations so as not to set up a program that can be perceived as discriminatory under the Commerce Clause. If you’re interested in reading further, there are several interesting papers on this topic: Threading The Constitutional Needle With Care: The Commerce Clause Threat To The New Infrastructure Of Renewable Power and The Commerce Clause and Implications for State RPS Programs.
The drafters of our founding documents probably weren’t thinking about ways to spur a prosperous renewable energy market when they set quill to parchment, but their words continue to be influential. And those words will likely continue to be interpreted along with the evolution of policies, markets and state and federal goals that direct our engagement on the renewable energy front going forward.
Happy Independence Day!
Image credit: flippo | 123RF Stock Photo