Colorado Ruling Upholds Renewable Energy Standard but Leaves Questions Unanswered

A Colorado federal judge has dismissed a suit challenging the constitutionality of Colorado’s Renewable Energy Standard (“RES”). Colorado’s RES was created by the passage of Amendment 37 in 2004 and codified in 2005 as Colorado Revised Statute § 40-2-124, [enhanced version available to lexis.com subscribers], requiring certain Colorado electric utilities to procure a specific percentage of its retail electricity sales from renewable energy resources (“renewable energy quota”). The Energy & Environmental Legal Institute (“EELI”) sued the commissioners of the Colorado Public Utilities Commission in April 2011, arguing that Colorado’s RES violates the dormant Commerce Clause, [enhanced version available to lexis.com subscribers]. EELI argued, in line with prior Supreme Court rulings, that the dormant Commerce Clause prohibits state and municipal laws whose purpose is local economic protectionism at the expense of interstate commerce.

EELI argued that the RES violates the dormant Commerce Clause by restricting how out-of-state goods are manufactured because it requires out-of-state electricity generators to comply with Colorado-approved methods for renewable energy, and thus projects policy decisions made by voters in Colorado onto surrounding states. In granting the defendants’ motion for summary judgment, United States District Court Judge William J. Martinez ruled that Colorado’s RES does not impact transactions between out-of-state business entities. The RES only regulates Colorado energy generators and companies that do business with Colorado energy generators.

The District Court also held that the RES “does not mandate that an out-of-state energy generator do business in any particular manner,” and Colorado energy companies may buy and sell electricity from both in-state and out-of-state generators. Instead, the RES regulates whether energy purchased by a Colorado utility from a generator will count towards the renewable energy quota, and thus “does not impose conditions on the importation of electricity into Colorado.”

Although the RES might provide an incentive for Colorado utilities to purchase electricity to satisfy the renewable energy quota, the court found that this does not violate the dormant Commerce Clause. “The dormant Commerce Clause neither protects the profits of any business nor the right to do business in any particular manner…[t]hus, the fact that the RES may economically harm companies – both in-state and out-of-state – that produce non-renewable energy does not mean that it violates the dormant Commerce Clause.” Further, the “dormant Commerce Clause does not prevent states from creating incentive structures to attract certain kinds of business.” In light of this analysis, the court granted the defendants’ motion for summary judgment and dismissed the suit.

While this ruling may help other states defend their own renewable energy standard laws from similar challenges, the scope of its application is still unclear. EELI attacked Colorado’s RES as facially violative of the dormant Commerce Clause. Other issues remain unresolved, however, such as the constitutionality of provisions that require a certain percentage of renewable electricity to come solely from in-state generators or provisions that give additional “credit multipliers” to renewable energy generated from in-state generators.

Previously, Colorado’s RES contained a requirement that a certain amount of its retail sales be procured from Colorado-distributed renewable generation resources, such as customer-sited solar photovoltaic panels. It also contained a “credit multiplier” for electricity generated by in-state renewable generators, meaning that for every one megawatt-hour of renewable energy actually produced by an in-state renewable generator, the utility procuring that energy could apply one and one-quarter megawatt-hours to the renewable energy quota. These provisions were repealed, however, by 2013 legislation (SB 252).

Although the explicit in-state requirements were removed, Colorado’s RES arguably still contains an implicit requirement that a specific quantity of renewable electricity must be procured from in-state resources. Investor-owned utilities must procure 1.25% of its retail electricity sales from distributed generation resources in 2013 and 2014. Of that 1.25%, at least one-half must be obtained from retail distributed generation. Retail distributed generation is defined, in relevant part, as “a renewable energy that is located on the site of a customer’s facilities and is interconnected on the customer’s side of the utility meter.” For investor-owned utilities whose retail customers are located within Colorado, this requires that an amount of renewable energy must be procured from in-state distributed generation resources equal to 0.625% of their total retail sales.

Despite Judge Martinez’s ruling in Colorado, holding that Colorado’s RES on its face does not violate the dormant Commerce Clause, there is still a lack of clarity regarding the constitutionality of specific provisions of renewable energy standards. As states look for ways to expand their renewable energy portfolios, there will likely be more litigation to define the boundaries of state renewable energy standards with respect to the dormant Commerce Clause and other federal laws and regulations.

Energy & Env’t Legal Inst. et al. v. Epel et al., Case 11-cv-00859 (D. Colo., May 9, 2014), [enhanced version available to lexis.com subscribers].

By Marc C. Bryson

Marc Bryson concentrates his practice in matters involving energy law, environmental law, environmental litigation, and administrative law. His practice consists of cases involving permitting and regulatory requirements for water and wastewater utilities, solid waste, coalbed methane, oil, and natural gas.

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