Putting the Dormant Commerce Clause Back to Sleep: Adapting the Doctrine to Support State Renewable Portfolio Standards

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V. Challenging California's RPS and AB 32 Implementation

Perhaps learning from the TransCanada litigation, California has strived to protect its renewable standards from constitutional invalidation by removing location classifications from its RPS. Initially, California largely prevented use of renewable energy credits generated out-of-state to meet its RPS. (267) This changed in 2006 when California amended its RPS to allow energy suppliers to use renewable energy that was generated out-of-state. (268) In 2010, California passed legislation specifying that 25% of a supplier's RPS obligations could be met using unbundled RECs. (269) California created three categories of energy resources that could be used to satisfy the RPS. (270) Category 1 includes energy that either has its first point of interconnection with a California balancing authority (271) or uses a dynamic transfer (272) from another balancing authority. (273) Because dynamic transfers are uncommon, complicated processes, most out-of-state renewable energy projects are unlikely to qualify for this first category. (274) This is problematic because Category 1 comprises a large portion of the energy eligible to satisfy California's RPS-utilities must obtain 50% of their RPS compliance from this category by 2013 and 75% by 2017. (275) Category 2 is for firmed and shaped energy. (276) By 2016, utilities must obtain between 15% and 25% of their RPS compliance from renewable energy in this category. (277) Finally, under Category 3, other renewable energy products, including unbundled RECs, may comprise no more than 10% of RPS compliance after 2016. (278)

In a recent decision, the California Public Utility Commission (CPUC) determined that unbundled or transferable RECs (TRECs) would not qualify for meeting Category 1 (from which 75% of RPS compliance must be obtained by 2017); instead, only energy that was bundled together with its associated renewable energy would qualify. (279) Thus, just as with the Missouri case, (280) California prohibits TRECs from being used to meet the largest required category for RPS compliance. (281) Utilities must instead meet this energy category by providing credits associated with renewable energy that is actually used inside California. The CPUC decision also provided that RECs associated with distributed generation would be characterized as unbundled, and therefore ineligible for Category 1 status, if the energy is consumed on the site and not sold along with the renewable energy credit. Thus, because distributed generation RECs (which are typically generated in-state) are considered unbundled, they will be competing for Category 3 compliance with other out-of-state unbundled RECs.

A. Cowlitz County's Claim Before the California Public Utilities Commission

Public Utility District No. 1 of Cowlitz County, Washington (Cowlitz County) recently challenged the constitutionality of the California three-category RPS structure and the CPUC rules implementing it. (283) Cowlitz County is both a preference wholesale customer of the Bonneville Power Administration and a project developer that has spearheaded several wind projects to export energy to meet California's RPS. The County claims it was harmed when it lost a contract with Pacific Gas & Electric to provide wind energy to California. (284) Cowlitz County alleged that this harm was caused by the uncertainty inherent in the California RPS and exacerbated by the CPUC's failure to provide standards for out-of-state generators to qualify for Category 1 compliance. (285)

First, Cowlitz County attacked the overall RPS structure directly because of its differential treatment of in-state and out-of-state projects:

   Since the vast majority of out-of-state facilities will be unable
   to connect directly to the California grid and the protocols and
   procedures for dynamic transfers of intermittent renewable
   resources are still under development, few out-of-state
   transactions are likely to be able to qualify for Category L Most
   instate facilities will be connected directly to the California
   grid, however, and will easily qualify for Category l. …