Federal Appeals Court Ruling Could Have Major Impacts to State Renewable Mandates

A decision last week by the 7th U.S. Circuit Court of Appeals to uphold a cost allocation plan backed by the Federal Energy Regulatory Commission (FERC) for siting electric transmission lines, which would bring wind from the Midwest into the Great Lakes region, may have major implications for state renewable power mandates that have provisions giving preferential treatment to renewable energy sourced within its borders. In the decision, the federal appeals court ruled against utilities and officials form Illinois and it declared Michigan's state renewable portfolio standard was unconstitutional because it discriminated against out of state renewable energy sources when meeting the mandate.

The 7th Circuit determined that Michigan's Clean, Renewable and Efficient Energy Act violates the Commerce Clause and places an undue burden and barrier on interstate commerce by prohibiting utilities from counting out of state power towards meeting the renewable power mandate. 

Opponents of a 2011 plan approved by FERC allowing the Midwest Independent Transmission System Operator to spread costs for new "multi value projects" argued that the standards for these projects were too loose and would interfere with current state laws that favor in-state renewable power, as well as saddling customers with costs for power lines that may not provide them many economic or reliability benefits. The Midwest Independent Transmission System Operator, or MISO, is the regional transmission organization which is a non-profit organization that manages bulk power systems. These organizations are designed to ensure reliability and optimize supply and demand bids for wholesale electric power. According to the Energy Information Administration, regional transmission organizations or RTOs, managed roughly 60%  of the nation's power in 2009. MISO manages power over parts of 15 states and the Canadian province of Manitoba. The state of Michigan, however, receives very little power from MISO's network and a coalition of state officials that included the attorney general and state public service commission argued that utilities should only have to pay for local generation and transmission lines rather than financing other multi value projects. 

Despite the arguments made by Michigan and the Illinois Commerce Commission that costs of transmission projects were being socialized across MISO membership for the benefit of few states and stakeholders, the Court dismissed those arguments by saying that burgeoning wind markets and cheap wind power from the Western US would provide additional benefits beyond the MISO footprint and would potentially drive down costs for customers in a region that currently has large amounts of fossil fuel generation, which may have future regulatory and pollution control costs to consider. The Judges opined:

"The promotion of wind power by the MVP (multi value projects) program deserves emphasis. Already wind power accounts for 3.5 percent of the nation’s electricity, U.S. Energy Information Administration, and it is expected to continue growing despite the downsides of wind power that we summarized in Muscarello v. Winnebago County Board. The use of wind power in lieu of power generated by burning fossil fuels reduces both the nation’s dependence on foreign oil and emissions of carbon dioxide. And its cost is falling as technology improves. No one can know how fast wind power will grow. But the best guess is that it will grow fast and confer substantial benefits on the region served by MISO by replacing more expensive local wind power, and power plants that burn oil or coal, with western wind power. There is no reason to think these benefits will be denied to particular subregions of MISO. Other benefits of MVPs, such as increasing the reliability of the grid, also can’t be calculated in advance, especially on a subregional basis, yet are real and will benefit utilities and consumers in all of MISO’s subregions.

It’s not enough for Illinois to point out that MISO’s and FERC’s attempt to match the costs and the benefits of the MVP program is crude; if crude is all that is possible, it will have to suffice. As we explained in Illinois Commerce Commission v. FERC, if FERC “cannot quantify the benefits [to particular utilities or a particular utility] . . . but it has an articulable and plausible reason to believe that the benefits are at least roughly commensurate with those utilities’ share of total electricity sales in [the] region, then fine; the Commission can approve [the pricing scheme proposed by the Regional Transmission Organization for that region] . . . on that basis. For that matter it can presume [as it did in this case] that new transmission lines benefit the entire network by reducing the likelihood or severity of outages.”
The long-term impacts of how this will impact other state renewable energy laws is unknown, but many electric transmission and energy analysts expect that more challenges are likely to follow now that a legal marker has been set. The ruling could also provide stronger legal footing for FERC as it is still undergoing legal challenges across the country with Order 1000which was passed by the agency and intended as a national roadmap to revamp transmission planning and cost allocation.