Putting the dormant Commerce Clause back to sleep: adapting the doctrine to support state renewable portfolio standards.

Author:Lee, Daniel K.
Position::I. Introduction through IV. A Broad and Robust Attack on the Colorado Res, p. 295-329
  1. INTRODUCTION II. THE DORMANT COMMERCE CLAUSE A. Discrimination Against Out-of-State Commerce 1. Facial Discrimination 2. Discriminatory Effect 3. Discriminatory Effects of Subsidies and Taxes 4. Discriminatory Purpose 5. Defeating Discrimination Through Virtual Representation B. Strict Scrutiny and Deferential Pike Balancing C. The Extraterritoriality Principle: Regulation of Out-of-State Commerce. D. The Market-Participant Exception and Discrimination Favoring State-Owned Entities III. LITIGATING THE CONSTITUTIONALITY OF STATE RPSS A. In-State Carve-Outs and the Massachusetts RPS: TransCanada v. Bowles B. Prohibiting Nonrenewable Energy: The Minnesota RPS and North Dakota v. Swanson C. REC Bundling Requirements and the Missouri RES D. Conclusion IV. A BROAD AND ROBUST ATTACK ON THE COLORADO RES A. Facial Discrimination and Discriminatory Effect 1. Distributed Generation Requirements 2. In-State Multipliers B. Discriminatory Purpose C. Extraterritoriality D. Burdens on Interstate Commerce E. The Market-Participant Exception and Virtual Representation F. Standing, ATI's Membership, and Incentives Not to Settle V. CHALLENGING CALIFORNIA'S RPS AND AB 32 IMPLEMENTATION A. Cowlitz County's Claim Before the California Public Utilities Commission B. There Is No Discriminatory Purpose Evident in the California RPS C. Rocky Mountain Farmers: Challenging the Low Carbon Fuel Standard 1. The LCFS and the District Court's Reasoning 2. The Court Misapplied the Extraterritoriality Principle and Failed to Recognize Congress's Intent Under the Clean Air Act Exemption 3. Implications for State RPSs a. Extraterritoriality Concerns b. Regulation of the Channels of Interstate Commerce c. Differential Treatment of Substances of Identical Composition D. The Ninth Circuit's Rationale in Pacific Merchant Supersedes Rocky Mountain Fanners 1. The Ninth Circuit's Reasoning in Pacific Merchant 2. How the Result in Pacific Merchant Undermines the Court's Reasoning in Rocky Mountain Farmers 3. Other Potential Implications o/Pacific Merchant on RPSs VI. IMPLICATIONS AND PRESCRIPTION A. Apply Intermediate Scrutiny as the Standard of Review for State RPSs. B. Expanding the Market-Participant Exception C. A Broken Federalism and Regulatory Voids D. Conclusion I. INTRODUCTION

    There is widespread agreement on the value of renewable energy development: renewable energy reduces greenhouse gas emissions, decreases the country's reliance on fossil fuel reserves, (1) and combats our dependence on the energy resources of hostile nations. (2) Despite the importance of renewable energy development, however, the federal government has not mandated this development. (3) Although the federal government has taken some steps to encourage renewable energy developers, including loan programs and expedited permit review for renewable energy projects, (4) the task has largely fallen on state governments to ensure that renewable energy development actually takes place. (5) Thus, the states have served as "laboratories" for testing various policy mechanisms in pursuit of protecting the environment. (6) Perhaps the most popular of these policy mechanisms is the renewable portfolio standard (RPS), (7) which requires that a certain fraction of total installed capacity or total generation come from renewable technologies. (8) Indeed, thirty states and the District of Columbia had adopted an RPS by 2012. (9)

    Although RPSs have become a popular policy tool to encourage renewable energy development, many have questioned the validity of state renewable energy mandates under the dormant Commerce Clause. (10) Several state RPSs include in-state delivery or location requirements and incentives, while other states limit the amount of out-of-state power that a utility may use to satisfy the RPS. (11) In addition, some states "carve-out" a portion of energy that a provider must obtain from in-state distributed generation. (12) These incentives, requirements, and limitations arguably run afoul of the dormant Commerce Clause's general prohibition on discrimination against interstate commerce. (13)

    Despite the seeming vulnerability of state RPSs to a dormant Commerce Clause challenge, no party had formally challenged renewable mandates in court until 2010. (14) This lack of enforcement could be attributed to the wide dispersion of the costs that renewable mandates place on out-of-state actors. If individual out-of-state parties are each burdened with only minor costs, they would forego suing to invalidate these mandates even if the total costs and burdens on out-of-state parties are significant when viewed as a whole. Further, companies that attack a renewable energy mandate would almost certainly risk bad publicity (15) and difficulty getting necessary approvals from the same state regulators they would be suing.

    Although the costs of litigation and the likelihood of bad publicity may have previously hindered dormant Commerce Clause challenges to renewable mandates, within the last few years plaintiffs have begun to attack these mandates. These challenges include an energy company's settled claim attacking the Massachusetts RPS16 and an organization's ongoing litigation against the Colorado renewable energy standard (RES). (17) The attorneys general of Alabama, Texas, Nebraska, and North Dakota have also recently threatened to challenge California's RPS. (18)

    This Article focuses initially on the Colorado litigation, American Tradition Institute v. Colorado (ATI), (19) which may become the first case to result in a definitive ruling on the constitutionality of an RPS. Because of the organizational plaintiffs' interests in the case, settlement is doubtful and the case is instead "likely to end up before the Tenth Circuit." (20) In the worst-case scenario, ATI could become a model that would be used in attacks on RPSs across the country. (21) Thus, the ATI case threatens one of the most important tools for encouraging renewable energy development. If successful, there is no question that the attack on the Colorado RES would largely halt renewable energy development and investment in Colorado, and would likely slow development and investment across the country as entrepreneurs and industry wait to see whether the decision will find traction in other circuits.

    Indeed, the outcome of the Colorado case may determine whether the state attorneys general will make good on their threatened attack against California's RPS. (22) The California RPS is particularly important because of the large market it regulates and because of its ambitious goal of obtaining 33% of energy from renewable sources. Therefore, this Article also addresses the vulnerability of the California RPS in the wake of challenges to other related California statutes and regulations under the California Global Warming Solutions Act of 2006 (AB 32). (23) We conclude that the California RPS is unlikely to be vulnerable to a constitutional challenge under the dormant Commerce Clause given recent Ninth Circuit jurisprudence regarding AB 32.

    The viability of the American Tradition Institute case highlights several problems, however, with dormant Commerce Clause doctrine as currently formulated by courts. Thus, following this introduction, Part II of this Article explores this doctrine and relevant case law. Part III discusses pending and previous challenges to state RPSs, including attacks on the Massachusetts, Minnesota, and Missouri RPSs, while Part IV focuses specifically on ATI, in which an organization representing coal interests has brought a broad challenge seeking to invalidate the Colorado RES. Part V evaluates the implications of other litigation on California's RPS, and explores the vulnerability of California's RPS to dormant Commerce Clause challenges in light of the Rocky Mountain Fanners Union v. Goldstene (Rocky Mountain Farmers) (24) decision at the federal district court level and the Ninth Circuit's decision in Pacific Merchant Shipping Association v. Goldstene (Pacific Merchant). (25) In addition, it considers the important differences between California's RPS statute and other state statutes and regulations mandating renewable energy procurement. Finally, Part VI provides legislative and judicial solutions to prevent the invalidation of state RPSs under the dormant Commerce Clause.


    Article I of the U.S. Constitution states in part that Congress shall have the power "[t]o regulate Commerce with foreign Nations, and among the several States, and with the Indian tribes." (26) The negative implication of this enumerated power for the federal government is known as the dormant Commerce Clause, which impliedly restricts state regulation of interstate commerce. (27) The purpose of the dormant Commerce Clause is "to prohibit state or municipal laws whose object is local economic protectionism." (28) To determine whether a state or municipal law constitutes economic protectionism under the dormant Commerce Clause, courts apply one of two levels of scrutiny. (29)

    First, if a court determines that a statute discriminates against interstate commerce or regulates commerce beyond a state's jurisdiction, the court will use "strict scrutiny" to determine whether the statute is constitutional. (30) Although it is theoretically possible for a statute to withstand strict scrutiny, the standard is very difficult to meet and invalidation is likely. (31) To survive strict scrutiny, a state must show 1) that the law in question protects a legitimate state interest, and 2) that the statute is narrowly tailored to the goal of protecting that interest. (32) In other words, the statute must be the only reasonable means to protect the interest at stake. (33) Because of the unlikelihood of a state law surviving strict scrutiny, courts oftentimes refer to this standard as "a virtually per se rule of invalidity." (34)

    On the other hand, if no discrimination is present, the statute evenly...

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