Notes Don`t Hide Behind Statutory Roadblocks: How

Transcription

Notes
Don't Hide Behind Statutory Roadblocks:
How the United States Can Resolve Conflicts
to Implementing the German Feed-In Tariff
Model and Contribute to International Efforts
to Control Climate Change
As the international approach to controlling climate
change has shifted from conservation to innovation,
the United States has struggled to develop a regime
for electricity generation that will encourage a transition from fossil fuels to renewable resources. The
primary barriersto this transition are institutionalresistance to change, difficulties in developing a renewable economy that is broad (in terms of varied types of
renewables) and self-sustaining (rather than subsidized by the government), and public apprehension of
increased rates. Germany, however, employs a feedin tariffscheme that eliminates some of these barriers.
As a result of the Renewable Energy Sources Act of
2000 and its predecessor legislation, Germany is projected to derive one-third of its energyfrom renewable
sources by the year 2020. However, U.S. states attempting to replicate Germany's model have encountered resistancefrom local utilities. In 2010, in response to a challenge from local utilities, the Federal
Energy Regulatory Commission (FERC)issued an order declaring that a CaliforniaFeed-In Tariff Act impermissibly encroaches on FERC's exclusive jurisdiction to regulate wholesale electricity rates and
therefore runs afoul of the Supremacy Clause of the
United States Constitution. This precedent significantly limits the ability of states to implement the successful German model in the United States. This Note
discusses the advantages and disadvantages of repli-
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DON'T HIDE BEHIND STATUTORY ROADBLOCKS
cating Germany's feed-in tariff model in the United
States, evaluates FERC's recent decision on the legality of state-level feed-in tarif and offers a potential
solution that could reduce the legal barriersto implementation of a state-level feed-in tariff scheme in the
United States.
IN TRODUCTIO N ................................................................................. 728
1.
FEED-IN TARIFFS, THE POLICY DEBATE AND GERMANY'S
FEED -IN SCHEM E .................................................................... 733
A. Mechanics of a Feed-In Tariff ....................................... 733
B. Policy Arguments in Favor of Implementation of
Feed-In T ariffs ...............................................................
734
C. Policy Arguments Against the Implementation of
Feed-In T ariffs ...............................................................
737
D. The German Legislation on Feed-In Tariffs and
R esu lts ............................................................................
74 1
1. German Legislative History on Feed-In Tariffs ....... 741
2. Results of Germany's Feed-In Scheme .................... 743
II.
THE HISTORY OF U.S. ELECTRICITY RATE POLICY ................. 745
III.
SCHOLARLY ARGUMENTS ON THE LEGALITY OF FEED-IN
TARIFFS IN THE UNITED STATES .............................................
748
A. Steven Ferrey and the Argument that Feed-In Tariffs
A re U nconstitutional ......................................................
749
B. Scott Hempling and the Argument that the FPA,
PURPA and the Constitution are not Complete
Barriers to Im plem entation ............................................
751
IV.
ALTERNATIVES
TO FEED-IN TARIFFS FOR RAPIDLY
DEPLOYING RENEWABLES IN THE UNITED STATES .................
753
753
A. Renewable Portfolio Standards ......................................
B. Other
Methods
of Encouraging
Renewable
Generation in the United States ..................................... 756
V.
CALIFORNIA PUBLIC UTILITIES COMMISSION AND THE
POTENTIAL FOR FEED-IN TARIFFS IN THE UNITED STATES
AFTER THE D ECISION ..............................................................
756
A. California Public Utilities Commission ......................... 757
1. Petition for Declaratory Judgment ............................ 757
B. California Public Utilities Commission Petition for
Rehearing and Clarification ........................................... 760
COLUMBIA JOURNAL OF TRANSNA TIONAL LAW
[50:726
C. The Impact of California Public Utilities Commission
on the Future of Feed-In Tariffs in the United States
and Potential Measures to Increase States' Abilities
to Implement Feed-In Tariff Legislation .......................
763
1. Judicial Measures ........................................
763
2. Adm inistrative M easures ...................................
765
3. Legislative M easures ......................................
766
VI.
ANALYSIS: ARE FEED-IN TARIFFS WORTH THE BATTLE IN
...........................
THE U NITED STATES? ..................................
768
A. The RPS System in the United States ............................
769
B. The Potential for Statutory Amendments ......................
771
C. Administrative Rulemaking as a Solution .....................
772
C ON CLU SION ..................................................................
773
INTRODUCTION
At the United Nations Framework Convention on Climate
Change (UNFCC) conference on the extension of the Kyoto Protocol
in December 2009, the UNFCC nations confirmed that fighting climate change is an international priority.' Correspondingly, member
nations authored the Copenhagen Accord and set a goal of reducing
greenhouse gas (GHG) emissions in all member countries and limiting future global warming to two degrees Celsius. The member nations failed, however, to extend the Kyoto Protocol, which means
that individual governments will have to act unilaterally if they want
to meet these goals.2 Many scholars and environmentalists argue that
the best way for individual nations to meet these goals is to engage in
"rapid deployment of renewable resources in lieu of carbon-rich
1. Ivan Gold & Nidhi Thakar, A Survey of State Rene vable Portfolio Standards:
Square Pegs .br Round Climate Change Holes, 35 WM. & MARY ENVTL. L. & POL'Y REV.
183, 187 88 (2010).
2. Id. The Kyoto Protocol, see Kyoto Protocol to the United Nations Framework
Convention on Climate Change, Dec. 10, 1997, 37 I.L.M. 22, available at
http:Huntreaty.un.org/English/notpubl/kyoto-en.htm, set binding targets for member nations
to reduce their GHG emissions, whereas the Copenhagen Accord, see Conference of the
Parties to the United Nations Framework Convention on Climate Change, Dec. 7-19, 2009,
Copenhagen Accord, U.N. Doc. FCCC/CP/2007/6/Add.1 (Mar. 30, 2010), available at
http://unfccc.int/resource/docs/2009/copl5/eng/llaOl.pdf, set non-binding goals.
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DON'T HIDE BEHIND STA TUTOR Y ROADBLOCKS
fuels." 3 This is a shift in strategy from that of environmentalists and
policy advisors who have advocated in the past for energy conservation as the best way to meet environmental goals. The shift in strategy can be explained easily. Conservationists felt conservation efforts
would address the problem of scarce resources and would reduce the
overall level of pollution from the burning of fossil fuels. However,
two debilitating problems have rendered conservation efforts essentially ineffective. First, conservation requires individual cooperation,
and people are simply not willing to reduce their energy consumption. Recent data show that energy demands are soaring in the modem technology age despite widespread information on the scarcity
and polluting effects of fossil fuels.4 Second, more and more people
today accept that climate change is a grave reality and that simply reducing our use of polluting fuels is not a sufficient solution.' In the
face of the overwhelming demand for energy that has thwarted conservation efforts despite compelling evidence about climate change,
those focused on solving both the climate change and energy crises
have shifted their focus from conservation to innovation.6 Many see
clean technology, an industry focused on developing renewable fuel
sources and improving energy efficiency and storage techniques, as a
promising way to meet increasing energy demands while simultaneously addressing climate change and other environmental concerns.'
In the United States, the problem is particularly critical.
3. See, e.g., Steven Ferrey et al., Fire and ice: World Renewable Energy and Carbon
Control Mechanisms Confront Constitutional Barriers, 20 DUKE ENVTL. L. & POL'Y F. 125,
126 (2010) [hereinafter Ferrey et al., Fire and ice].
4. Conservationists of the 1970s and 1980s quickly realized that energy demands
continued to soar as the United States progressed industrially and that the significant
deadweight loss caused by conservation (i.e., reduction in consumption caused unhappiness
and made life more uncomfortable for Americans) served as a significant impediment to the
success of a conservation regime. In more recent years, the focus of solving the energy
crisis has been on efficiency. This means that the United States is investing in technology
that increases energy productivity per unit of energy consumed, reduces energy waste and
utilizes renewable resources (such as wind and solar) in lieu of scarce resources (such as oil
and coal) to meet demand. See generally Energy Conservation vs. Energy Eficiency:
Whats the Di/jkrence?, ALLIANCE TO SAVE ENERGY, http://ase.org/resources/energyconservation-vs-energy-efficiency-whats-difference (last visited Feb. 26, 2012).
5. Brad A. Kopetsky, Deutschland Uber Alles: Why German Regulations Need to
Conquer the Divided U.S. Renewable-Energy Framework to Save Clean Tech (And the
World), 2008 Wis. L. REV. 941,943 (2008).
6. Id.
7. Id. For a more comprehensive discussion about the definition of clean technology,
see What is Cleantech?, CLEANTECH.COM, http://cleantech.com/what-is-cleantech (last
visited Feb. 28, 2012).
COLUMBIA JOURNAL OF TRANSNATIONAL LAW
[50:726
Commentators note that "[s]ince the Industrial Revolution, emissions
resulting from combusting fossil fuels for mechanical and electrical
energy have poured into the atmosphere." 8 Environmentalists urge
that "[i]t is not that we are unable to create a new and different energy future [where we are not dependent on fossil fuels]; it is that we
choose not to." 9 Researchers looking to have the largest impact in
reducing GHG emissions in the United States are focusing on the
electricity generation sector.1 0 An estimated forty percent of U.S.
carbon emissions come from power generation, which relies primarily on coal and other fossil fuels for energy. Approximately seventy
percent of U.S. electricity comes from some type of fossil fuel. 1
These facts make "electricity-generating plants a logical choice for
the regulation of GHG emissions."12 Furthermore, encouraging transition to renewable energy sources would have "national security
benefits by reducing importation of fuels, as well as reducing the
vulnerability of the electricity grid to terrorist attack."13 This effect is
particularly appealing to Americans in a post-9/1 1 world.
Other developed countries are similarly focusing on electricity generation as an industry ripe for regulation in an effort to reduce
GHG emissions. 14 Germany, in particular, has experienced wild success and international acclaim for its efforts to rapidly deploy renewable resources through the use of feed-in tariffs. 15 A feed-in tariff is a
mechanism that governments can use to increase the utilization and
availability of renewable energy resources."1 Under a feed-in tariff,
8.
Ferrey et al., Fire and Ice, supra note 3, at 128.
9.
Lincoln L. Davies, Alternative Energy and the Energy-EnvironmentDisconnect,46
IDAHO L. REV. 473, 474 (2010).
10.
Gold & Thakar, supra note 1, at 184.
11. U.S. ENERGY INFO. ADMIN., Electricity Generation, http://www.eia.doe.gov/cneaf/
electricity/page/prim2/chapter3.html (last visited Apr. 4, 2012) (providing charts and
graphical data about energy production in the United States).
12.
Ferrey et al., Fire and ke, supra note 3, at 130.
13.
Id. at 131.
14.
See INT'L ENERGY AGENCY, DEPLOYING RENEWABLES:
PRINCIPLES FOR EFFECTIVE
POLICIES 17 (2008), available at www.iea.org/g8/2008/G8_Renewables.pdf; Commission
Staff Working Document: The Support o! Electricity.from Renewable Energy Sources, at 5,
COM (2008) 19 final (Jan. 23, 2008) (accompanying the Proposal Ibr a Directive of the
European Parliament and of the Council on the Promotion qf the Use (f" Energy f!rom
Renewable Sources, COM (2008) 19 final (Jan. 23, 2008)).
15.
See Darrel Blakeway, Book Review, 29 ENERGY L.J. 217 (2008) (reviewing
HERMANN SCHEER, ENERGY AUTONOMY:
GETTING SERIOUS ABOUT RENEWABLE ENERGY
(2007)).
16.
See Nancy LaPlaca, Feed-In Tarils--Overvieiv, WIND-WORKS.ORG,
1 (July 7,
2012]
governments obligate utilities to enter into long-term contracts with
renewable electricity generators at a specific rate schedule.17 Feed-in
tariffs can help overcome certain cost, access and grid parity barriers
that normally impede progress towards widespread deployment of
renewables. 8 As a result of Germany's feed-in tariff system, the
country is predicted to derive thirty-three percent of its primary energy consumption from renewables by the year 2020 and has been
characterized by some as the "the world's first renewable energy
economy." 19 Some prognosticators maintain that if supported politically, Germany could run completely on renewable energy by 2050.20
Germany's success in rapidly deploying renewables has led
some U.S. state legislatures in recent years to consider feed-in tariffs
as a method of incentivizing local utilities to rely more heavily on renewable sources. 21 However, as states began to draft legislation
along these lines, legal scholars quickly identified several legal barriers to implementing feed-in tariffs in the United States. These barriers have generated significant debate in energy and environmental
law circles.22 In essence, some scholars argue that under current U.S.
federal law, feed-in tariffs are illegal because a feed-in tariff mandates "a wholesale sale of electricity" between a renewable generator
and a local utility. 23 Characterized in this light, a state-mandated
feed-in tariff may run afoul of the Federal Energy Regulatory Commission's (FERC) exclusive jurisdiction to regulate wholesale elec-
2009), http://www.wind-works.org/FeedLaws/FlTs-two%/o20page%/"20overview /"2OLaPlaca.
doc [hereinafter LaPlaca, Overview]; Nancy LaPlaca, Feed-In Tartf
A Mechanism, Not a
Goal, WIND-WORKS.ORG (June 2, 2009), http://www.wind-works.org/FeedLaws/FiTs
%20-%20overview%20and%20FAQ%2OLaPlaca.doc [hereinafter LaPlaca, A Mechanism,
Not a Goal].
17.
Blakeway, supra note 15, at 224-25.
18.
Id.
19.
Jane Burgermeister, Germany: The World's First Renewable Energy Economy,
RENEWABLEENERGYWORLD.COM
(Apr. 3, 2009), http://www.renewableenergyworld.com/
rea/news/article/2009/04/genany-the-worlds-first-major-renewable-energy-economy.
20. Id.
21. DEUTSCHE BANK CLIMATE CHANGE ADVISORS, PAYING FOR RENEWABLE ENERGY:
TLC AT THE RIGHT PRICE, 60 (Dec. 2009), https://www.dbadvisors.com/content/
-media/ 1196_Paying-forRenewableEnergyTLC
22.
See Steven Ferrey et al., FIT in the USA:
Mandated Renewable Tariff, 148
23.
TARIFFS:
at the Right Price.pdf
Constitutional Questions about State-
PUB. UTILS. FORTNIGHTLY
60 (June 2010).
SCOTT HEMPLING ET AL., RENEWABLE ENERGY PRICES IN STATE-LEVEL FEED-IN
FEDERAL
LAW CONSTRAINTS
ENERGY LAB., TECHNICAL REPORT No.
AND POSSIBLE
SOLUTIONS,
NAT'L RENEWABLE
NREL/TP-6A2-47408, iv-v (Jan. 2010), availableat
http://www.nrel.gov/analysis/pdfs/47408.pdf
[50:726
tricity sales under the Federal Power Act of 1935 (FPA). Furthermore, a feed-in tariff may conflict with the limitations that the Public
Utility Regulatory Policies Act of 1978 (PURPA) places on a state's
discretion to require utilities to purchase from qualified renewable
generators. 21 If state-level feed-in tariffs violate these statutes, the
Supremacy Clause of the United States Constitution could5 render
state legislation providing for feed-in tariffs unconstitutional.
Other commentators disagree with the characterization of
feed-in tariffs as setting the price in a wholesale electricity transaction. These commentators argue that feed-in tariffs can be legally
implemented through careful design, clarification or modification of
existing FERC precedent, or through amendments to current legislation. 26 In July 2010, however, FERC handed down an order in response to a petition by the California Public Utilities Commission
(CPUC) that confirms that FERC agrees with the commentators who
believe state-level feed-in tariffs violate the FPA and PURPA.2 This
decision presents advocates of feed-in tariffs with a formidable barrier to implementing the acclaimed German model in the United
States. Furthermore, the decision raises a number of important questions: Is there a way to create a state-level feed-in tariff without violating FERC's jurisdiction to regulate wholesale rates? Would an
amendment to the FPA or PURPA, other legislative or administrative
measures or judicial review of FERC's decision allow feed-in tariffs
to be implemented legally in the United States? What are the alternatives to feed-in tariffs for rapid deployment of renewable energy
sources in the United States, and can they achieve similar results to
the German regulations? Finally, is finding a way to implement feedin tariffs in the United States worth the effort in light of the legal difficulties?
This Note will address these questions and argue that the
costs associated with implementing feed-in tariffs in the United
24.
Id. at 6 10.
25. See U.S. CONST. art. VI, cl. 2 ("This Constitution, and the Laws of the United
States which shall be made in Pursuance thereof ... shall be the supreme Law of the Land;
and the Judges in every State shall be bound thereby, any Thing in the Constitution or Laws
of any State to the Contrary notwithstanding.").
26.
See, e.g., HEMPLING ET AL., supra note 23, at 19-20, 23, 36-37, 41-43; Scott
Hempling, State-Level Feed-In Tari/#" fi)r Renewable Energy: Comments on FERC's
Calilbrnia Decision, NAT'L REGULATORY RESEARCH INST., http://www.narucmeetings.org
/Presentations/hempling%/"20comments%/o20on%/ 20ferc%/"20fit%/o20order%"20j uly%/"2019.pdf
[hereinafter Hempling, CalifbrniaDecision].
27. See Cal. Pub. Util. Comm'n, 132 FERC 61,047 (2010) (July 15 Order), clarifring
order and reh 'g denied, 133 FERC 61,059 (2010) (Oct. 21 Order).
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DON'T HIDE BEHIND STA TUTOR YROADBLOCKS
States are not insurmountable and do not outweigh the environmental
and security benefits that would come from a well-adapted state-level
feed-in tariff system in the United States. Part I will describe the
basic mechanics of a feed-in tariff, summarize the policy arguments
in favor of and against feed-in tariffs as a method of rapidly deploying renewable energy sources and discuss the legislative measures
that Germany has taken since 1990 to design and implement the feedin tariff system currently in place in that country. Part II will describe the history of electricity rate policy in the United States and
the current policy climate in which proponents of feed-in tariffs must
operate. Part III will summarize the conflicting scholarly arguments
in recent years about the legality of state-level feed-in tariffs under
U.S. constitutional and statutory law. Part IV will consider the alternatives to feed-in tariffs for rapidly deploying renewables in the
United States. Part V will analyze, in depth, FERC's recent decision
in California Public Utilities Commission and its subsequent order
granting clarification, the impact the decision will have on the future
of feed-in tariffs in the United States, and potential legislative, administrative and judicial solutions to the legal barriers to implementation of feed-in tariffs in the United States. Lastly, Part VI will analyze whether it is practical and productive to continue to pursue the
issue of feed-in tariffs in the United States, concluding that the environmental benefits of a feed-in tariff scheme far outweigh the costs
of adapting the wildly successful German model to comport with
U.S. statutory and constitutional law and recommending that FERC
take administrative action to facilitate this process.
I.
FEED-IN TARIFFS, THE POLICY DEBATE AND GERMANY'S FEED-IN
SCHEME
A. Mechanics of a Feed-In Tariff
A feed-in tariff is a price, set by the government, to be paid to
anyone who can supply renewable energy to the local electricity
grid.28 Governments wishing to encourage a transition to renewable
energy can obligate local utilities to enter into long-term contracts
according to a specific rate schedule with renewable electricity generators.29 Feed-in tariffs are distinguished from other methods of in-
28. See Roger Peter & Tim Weis, Feeding the Grid Renewably: Using Feed-in Tarif
to Capitalize on Renewable Energy, THE PEMBINA INSTITUTE 1 (Feb. 2008),
http://pubs.pembina.org/reports/FlTariffs-Primer.pdf.
29.
Joanna Schroeder, FERC Attempts to Improve Grid Access Ibr Solar and Wind,
[50:726
centivizing a transition to renewable energy sources in several important ways: (1) feed-in tariffs generally involve fifteen to twenty
year contracts between a utility and a renewable generator; (2) feedin tariffs provide for guaranteed grid access; (3) feed-in tariffs are a
demand-pull measure (creating a market for innovative technology
rather than subsidizing the cost of supplying the good) and can help
create economies of scale; and (4) feed-in tariffs require different
prices for each type of renewable supplied (i.e., different pricing for
wind, solar, etc.), creating transparency in pricing for renewables.3 °
B. Policy Arguments in Favor of Implementation of Feed-In Tariffs
Proponents of feed-in tariffs argue that the unique attributes
of a feed-in tariff scheme (long-term contracts, guaranteed grid access, demand-pull incentives and differentiated pricing) can overcome barriers that normally impede progress towards increased reliance on renewables and plague other incentive programs for
transitioning to renewable energy sources. First, the contracts under
a feed-in tariff normally provide for guaranteed access to the local
electricity grid, which supplies electricity to a particular region.3 '
Without guaranteed grid access, renewable energy generators can encounter significant problems entering the market because it is difficult for grid operators to recover costs for upgrades to the grid to accommodate renewables. 3 2
Without a regulatory or legislative
incentive, grid operators may be reluctant to take on the added economic burden of providing access to renewable generators. There is
no economic incentive to make these changes when fossil fuel gener-
DOMESTICFUEL.COM (Nov. 29, 2010), http://domesticfuel.com/2010/l11/29/ferc-attempts-to-
improve-grid-access-for-solar-wind.
30.
LaPlaca, Overview, supra note 16, at 1.
31.
See id.; LaPlaca, A Mechanism, Not a Goal, supranote 16, at 1 3.
32. See generally Electric Transmission 203: Planning to Expand and Upgrade the
Grid, ENVTL. AND ENERGY STUDY INST. (June 8, 2010), http://www.eesi.org/electrictransmission-203-planning-expand-and-upgrade-grid-28-jun-2010
[hereinafter
Electric
Transmission 203] ("Cost allocation is now a key issue because integrating renewable
energy into the transmission system requires collaboration between many states,
transmission developers, and customers across many regions. Most do not have systems of
cost allocation that could account for these large-scale projects."); Electric Transmission
102: Policy Challengesto Grid Expansion, ENVTL. & ENERGY STUDY INST. (Feb. 27, 2009),
http://www.eesi.org/electric-transmission-I 02-policy-challenges-grid-expansion-27-feb2009 [hereinafter Electric Transmission 102] ("Cost allocation problems are a serious
roadblock for bringing new generation on line-especially for renewable energy that is
generated in remote, rural areas.").
2012]
ators that do not require additional upgrades can adequately meet
demand. This has been an ever-present problem for alternative energy generators and is often not adequately addressed in clean energy
incentive programs.33 By providing for guaranteed grid access in the
contracts under a feed-in tariff, this political and market barrier is
eliminated.
Second, long-term contracts under feed-in tariffs decrease the
risk for investors interested in funding renewable generators.3 4 Increased investment in renewables would spur development in this
"clean tech" industry.35 Venture capital plays a critical role in the
development of clean technology, particularly in the United States.36
Some reports studying the return on investment in renewable energy
generators suggest that the weighted average cost of capital for renewable electricity projects in Europe is lowest under a feed-in
scheme. 3' This low cost value suggests that an investor would have a
greater return on his investment with a feed-in tariff than he would
under alternative incentive programs.38 This aspect of a feed-in tariff
is arguably the most important, as it reduces the high market risk that
is sometimes prohibitive for investors.39
Third, proponents of a feed-in tariff argue that it can decrease
the time it takes to achieve grid parity. Grid parity occurs when electricity from renewable sources can be generated for approximately
the same cost as electricity from non-renewable sources, such as
coal. 4' Renewable generators generally do not enjoy economies of
scale because "low production lead[s] to higher costs., 41 A feed-in
tariff scheme is a demand-pull measure aimed at creating "wide-
33. See Electric Transmission 102, supra note 32 ("The panel generally agreed that
transmission planning is detached from the larger clean-energy policy discussion. Integrating
the two so that planning for transmission takes into account a desired fuel mix was generally
considered necessary by the panel. A commitment to constraining carbon, or to a large fleet
of electric vehicles, would be significant to transmission planning.").
34. David de Jager & Max Rathmann, Policy Instrument Design to Reduce Financing
Costs in Reneiwable Energy Technology Projects, ECOFYS 127 (2008), http://
www.ecofys.com/files/files/retd-pidO810_main.pdf.
35.
Kopetsky, supra note 5, at 943-45.
36.
Id.
37.
de Jager & Rathmann, supra note 34, at 26.
38.
Id.
39.
Id. at v.
40. David Rotman, Praying.1)ran Energy Miracle, TECHNOLOGY REVIEW (Mar. 2011),
http://mobile.technologyreview.com/energy/32383.
41.
Kopetsky, supra note 5, at 978.
COLUMBIA JOURNAL OF TRANSNA TIONA L LA W
[50:726
spread demand for clean-tech equipment, thereby lowering production costs, energy prices, and ultimately the [tariff itself]."' 2 Proponents argue that by increasing the deployment of renewable energy
through feed-in tariffs, renewables become more widespread.43 This
raises greater revenue more quickly, which allows renewable generators to reinvest, decrease costs and improve efficiency.44 As the cost
of renewable generation declines over time, the feed-in tariff rate
schedule can also decline, decreasing the burden on utilities as the
market adjusts to a new competitor.
Lastly, if properly designed, each type of renewable energy
under a feed-in tariff is based on the cost of generation of electricity
from that source and the rate of return paid to investors.4 5 The advantage of this aspect of a feed-in tariff is that price is "determined
by an open policymaking process ....
This takes the price-setting
out of unpredictable negotiations between utilities and investors and
puts it in a transparent process within the market., 46 Feed-in tariff
proponents argue that transparency is one of the three essential elements for driving investment in the renewable sector, after longevity
and certainty of contracts have been established.4 Through accurate
pricing, a feed-in tariff may enjoy greater industry support and divide
the burden of cost more equally. 48 This aspect of a feed-in tariff distinguishes the feed-in tariff from certain other alternative incentive
programs, such as Renewable Portfolio Standards, discussed infra
Part IV.A. Under Renewable Portfolio Standards, utilities are mandated to purchase a certain percentage of generation from renewable
sources. Under such a system, utilities are free to shop for the least
expensive renewable generator. This system effectively sets the price
for all renewables at the price of the least expensive renewable. Renewables that cannot compete with that price are edged out.
42. Id. at 978-79.
43. See id. at 976 80.
44. See Richard W. Caperton et al., CLEAN Contracts: Making Clean Local Energy
Accessible NoW, CTR. FOR AM. PROGRESS (Jan. 18, 2011), http://www.american
progress.org/issues/2011/01/pdf/clean-contracts.pdf.
45. Id. A feed-in tariff need not contain this element to meet the technical definition;
German advisors and legislators recognized in the 1990s that differentiated pricing is an
essential element to a well-functioning feed-in tariff and incorporated it into the country's
legislation in 2000. See inlra Parts I.A.I.B. for more detail.
46.
Id.
47.
DEUTSCHE BANK CLIMATE CHANGE ADVISORS, supra note 21, at 4.
48. See id. at 29 30.
2012]
C. Policy Arguments Against the Implementation of Feed-In Tariffs
Policy arguments against the implementation of feed-in tariffs
generally fall into three categories: (1) economic disadvantages for
the utility and cost-effectiveness concerns about feed-in tariffs compared to other incentives or conservation efforts; (2) potential liabilities if feed-in tariffs are not carefully implemented or fail; and (3)
conflicts with United States statutory and constitutional law. In this
section, I will discuss the first two arguments and leave the third argument for greater treatment infra Part III.
The costs of a renewable incentive can be borne by the ratepayer or the taxpayer.4 9 Feed-in tariffs are occasionally incorrectly
categorized as government subsidies.5 0 Viewed from that perspective, commentators criticize the notion of a "green economy" as a fallacy and suggest that the incentives merely move money from one
industry to another without creating growth or sustainability.5 1 This
is essentially a free market argument, arguing that a feed-in tariff is a
subsidy essential to the sustainability of the "green economy" and
when the subsidy is removed, the "green economy" cannot survive in
the marketplace on its own. However, feed-in tariffs are not a subsidy because the costs of feed-in tariffs are generally passed on to the
ratepayer directly.5 2 This is the case in Germany.53 This has translated to an increase in cost of C1.45 per month (approximately $3 USD)
or C17.4 per year (approximately $36 USD). 4 Although Germans
largely support feed-in tariffs politically, there is some debate among
the electorate as to whether the increased price is too great a burden
49. Id. at 32; See also Toby D. Couture, E3
ANALYTICS, LONDON,
U.K.,
ANALYTICAL
Feb. 2010, at 1, available at http://www.e3analytics.ca/wp-content/uploads/
2012/05/AnalyticalBrief VolI lIssue 1.pdf.
BRIEF,
50.
Couture, supranote 49, at 1.
51. See, e.g., Jonathan A. Lesser, Gresham'sLaw qf Green Energy, REG. MAG., Winter
2010, available athttp://www.cato.org/pubs/regulation/regv33n4/regv33n4-3.pdf.
52.
See generally Couture, supra note 49. Others have noted,
When governments intervene to accelerate the rate of renewable energy uptake,
there is a cost no matter the type of policy. Policy makers must decide who
should carry the added cost of a feed-in tariff: the ratepayer and/or the
taxpayer. The [tariff] costs can be passed to the ratepayer, to the taxpayer
(individual citizens and businesses), or to a combination of both ....
DEUTSCHE BANK CLIMATE CHANGE ADVISORS,
supra note 21, at 32.
53.
54.
See Ferrey et al., supra note 22, at 62 (currency conversion £1.45 to $3 USD in
original, annual cost added by author).
[50:726
on the German consumer. 55 The feed-in tariff rate is designed to decrease over time as renewables gain market share, but the rate of decline is not predetermined.
It is also important to consider, in evaluating the potential of a
feed-in tariff scheme, the conflicting arguments about the costeffectiveness of a feed-in tariff compared to other methods for incentivizing renewables. While it is clear that feed-in tariffs are less costeffective than conservation schemes, it is difficult to compare the
costs of these two systems because the ultimate goals are different.
In other words, conservation is focused on reducing energy demand,
whereas feed-in tariffs focus on meeting current demand with sources
that emit fewer GHGs. A more relevant comparison is the cost effectiveness of a feed-in tariff versus a Renewable Portfolio Standard
(RPS) or other quota system.
Some argue that the costs of feed-in tariffs do not outweigh
the benefits in light of the alternatives. In particular, these critics
note that the cost of certain renewables is so high that it drives the
overall cost to the consumer up unnecessarily. 56 For example, in
Germany in 2009, the tariff on photovoltaic (PV) was nearly four
times as high as the next most highly subsidized alternative.
With a feed-in tariff of 43 Cents (59 Cents US $) per
kWh... solar electricity is guaranteed by far the largest financial support among all renewable energy
technologies .... [T]he feed-in tariff for PV is more
than eight times higher than the wholesale electricity
price at the power exchange .
.
. and more than four
times the feed-in tariff paid for electricity produced by
on-shore wind turbines ....
This high support for solar electricity is necessary for establishing a market foothold, with the still
low technical efficiencies of PV modules and the unfavorable geographical location of Germany being
among a multitude of reasons for solar electricity's
grave lack of competitiveness. 5
These kinds of mark-ups lead some to question the necessity of subsidizing such an expensive renewable when there are alternative
55.
Id.
56.
See
ECONOMIC
RHEINISCH-WESTFALISCHES
IMPACTS
FROM
THE PROMOTION
INSTITUT
EXPERIENCE 25 26 (2009), available at
genmany/GenranyStudy_-_FTNAL.pdf.
57.
Id. at 10.
FOR
OF RENEWABLE
WIRTSCHAFTSFORSCHUNG,
ENERGIES:
THE
GERMAN
http://www.instituteforenergyresearch.org/
2012]
measures that could accomplish similar goals. Not surprisingly, under the current U.S. system dominated by RPS schemes that operate
under a competitive bid process, the installed capacity for photovoltaic energy is seven times higher in Germany than in the United
States.58
Critics argue that the cost of a feed-in tariff, when the tariff
for extremely expensive renewables is averaged in, does not justify
replacing a renewable energy credit system with a feed-in tariff:
Irrespective of the concrete assumption about the fuel
base of the displaced conventional electricity generation, abatement cost estimates are dramatically larger
than the current prices of CO 2 emission certificates.
Since the establishment of the European Emissions
Trading System (ETS) in 2005, the price of certificates has never exceeded 30 Cper tonne of CO 2 .59
Others suggest that the long term nature of a feed-in tariff
scheme means we cannot yet assess the cost effectiveness of the
scheme in light of our long-term goals.6 ° One point that begs attention is that "in a generic obligation system, the short-term emphasis
on low cost compliance can neglect the investment required to take
more expensive technologies down the learning curve."6 1 Thus, the
low upfront cost of an RPS system as compared to a feed-in tariff
does not necessarily accurately reflect the difference in cost of the
two systems in the long run. Feed-in tariffs are designed to decline
over time and help create economies of scale that should eventually
drive down prices.6 2 RPS systems, as discussed infra in Part IV.A,
may keep the costs of renewables that are passed on to the consumer
lower in the short run as a result of the competitive bidding process;
however, they do not incentivize the diverse array of renewables projects that will be necessary if we want to significantly decrease our
reliance on fossil fuels in the long run. Lastly, some of the RPS costs
are unknown because:
an obligation system is a quantity driven instrument.
Provided that penalties are enforced well and the quo-
58.
See id. at 13.
59.
Id. at 19.
60. See generally Energieonderzoek Centrum Nederland, Review of International
Experience with Renewable Energy Obligation Support Mechanisms (May 2005)
[hereinafter ECN], available at http://eetd.lbl.gov/ea/ems/reports/57666.pdf.
61.
Id. at 14.
62.
Id. at 13.
COLUMBIA JOURNAL OF TRA NSNA TIONA L LA W
[50:726
ta does not exceed readily available supply in the long
term, an obligation is likely to ensure that targets are
met; however, the cost of the system cannot be known
in advance with certainty.63
Therefore, although the upfront costs of feed-in tariffs may
be higher, they may decline over time while RPS costs stay relatively
constant. Moreover, a feed-in tariff may create stability in the market
because of its long-term aspects, which could reduce costs.64
The second criticism of feed-in tariffs comes from case studies of failed feed-in tariff schemes internationally. In Spain, a poorly
designed feed-in tariff caused a "massive solar scale up[,] followed
by a tremendous crash," due to inaccurate pricing, uncontrolled rates
of return on investment, partial funding of the feed-in tariff through
government budget, poorly designed capacity caps, loopholes for the
highest tariff rate and rates that were not market responsive. 65 Learning from these mistakes, advocates for feed-in tariffs now stress that
only well-adapted feed-in tariffs provide environmental benefits
without economic hardship. 66 Proponents argue that feed-in tariffs,
like other measures
that manipulate markets, must be carefully im67
plemented.
The third most common argument against a feed-in tariff is
unique to its implementation in the United States. This criticism is
espoused by American scholars who recognize the "difficult jurisdictional challenges when imposed on investor-owned public utility systems [caused by] the split nature of public utility regulation between
the federal and state governments." 68 For further discussion of this
issue, see infra Part III.
63.
Id. at 14 (citation omitted).
64.
Id. at 13.
65.
Deutsche Bank Climate Change Advisors, supra note 21, at 41.
66. See Commission (fthe European Communities Staff Working Document, supra
note 14, at 3. A well-adapted feed-in tariff would balance cost to consumers with the goal of
deploying a diverse array of renewables, accurately price the cost of renewables and pass on
the cost to consumers to avoid the development of an unsustainable subsidy scheme.
67.
See id.
68. Lyle D. Larson, Clearing the (Jurisdictional) Air on Feed-In Tari/f,, 42 No. 2
ABA Trends 7, 7 (Nov. 2010).
2012]
D. The German Legislation on Feed-In Tariffs and Results
1. German Legislative History on Feed-In Tariffs
In 1990, spurred by "growing environmentalism in the ...
electorate, regulatory obligations ...and concern over rising energy
import dependence," Germany enacted "Stromeinspeisungsgesetz"
(StrEG), or the Electricity Feed Law, which "obligated public utilities to purchase renewably-generated power from wind, solar, hydro,
biomass and landfill gas sources, on a yearly fixed rate basis, based
on utilities' average revenue per kWh."6 9 This was the result of over
a decade of legislative research on how to incentivize renewable energy. StrEG was (in hindsight) a rudimentary feed-in tariff scheme.
The legislation provided that:
[e]lectricity utilities which operate a system for the
general supply are obliged to purchase the electricity
generated from renewable energies in their supply area and to pay for the electricity fed into the system
pursuant to section 3....
Section 3...
1. For electricity from hydro-power, landfill
gas, sewage gas and biomass, the price shall
amount to at least 80 per cent of the average revenue per kilowatt-hour from the delivery of electricity by electricity utilities to all final consumers....
2. For electricity from solar energy and wind
energy, the payment shall be at least 90 per cent of
the average revenue mentioned in paragraph 1 sentence 1.
3. The average revenue applying to paragraphs 1 and 2 shall be the figure published in the
official statistics of the Federation for the respective calendar year before last, excluding turn-over
tax, in pfennigs per kilowatt-hour ....7
69. Paul J. Runci, Renewable Energy Policy in Germany: An Overview and
Assessment, JOINT GLOBAL CHANGE RESEARCH INST. 1, 8 (Jan. 17, 2005), http://
www.globalchange.umd.edu/data/publications/PNWD-3526.pdf.
See also James Cameron,
David J. Robertson & Paul Curnow, Legal and Regulatory Strategies br GHG Reductions
A Global Survey, 15 NAT. RESOURCES & ENV'T 176, 178-79 (2001).
70. Gesetz uber die Einspeisung von Strom aus erneuerbaren Energien in das
offentliche Netz [Stromeinspeisungsgesetz] [Act on Feeding Renewable Energies into the
COLUMBIA JOURNAL OF TRANSNATIONAL LAW
[50:726
Although successful in initiating Germany's renewable energy scheme, StrEG had some shortcomings that legislators and policy
advisors realized over the following decade. 71 The German Bundestag realized that the Act did not adequately incentivize more expensive renewable projects or accurately price renewables so that "the
burden created by the required purchase (at a fixed, minimum price)
of electricity produced from renewable resources" could be shared
among the affected parties to the transaction and investors.72 The law
was amended in 1998 to address these issues. 73 The new law, entitled
"Erneuerbare Energien Gesetz," or Renewable Energy Sources Act
(RESA), recognized that renewable sources were not "economies of74
scale" because production remained too low to drive down costs.
The declared purpose of RESA demonstrates its expanded goals:
(1) The purpose of this Act is to facilitate a sustainable development of energy supply, particularly
for the sake of protecting our climate and the environment, to reduce the costs of energy supply to the
national economy, also by incorporating external
long-term effects, to conserve fossil fuels and to promote the further development of technologies for the
generation of electricity from renewable energy
sources.
(2) To achieve the purpose set out in subsection
(1) above, this Act aims to increase the share of renewable energy sources in electricity supply to at least
30 per cent by the year 2020 and to continuously increase that share thereafter. 7
The amended legislation, implemented in 2000, made several
Grid], Dec. 7, 1990, BGBL. I at 2633 (Ger.). An english language translation is available at
http://www.wind-works.org/FeedLaws/Germany/ARTsDE.html.
A pfennig was a
denomination of German currency prior to Germany's transition to the Euro in 2002.
71.
FED. MINISTRY
FOR THE ENV'T, NATURE
CONSERVATION
RENEWABLE ENERGY SOURCES ACT PROGRESS REPORT 2007, at 3
&
NUCLEAR SAFETY,
(May 7, 2007) (Draft),
available at http://www.jpods.com/JPods/031 Solar/Gennany/GermanyLifeboats070705.pdf.
72. PRACTISING LAW INSTITUTE, Feed-in Tarifin the Real Word, 6 PLI POCKET MBA
1, 1 (July 30, 2008).
73.
Id. at].
74.
75. Emeuerbare-Energien-Gesetz [EEG] [Renewable Energy Sources Act], Oct. 25,
2008, BGBL. I at 2074, last amended by Gesetz [G], Aug. 11, 2010, BGBL. I at 1170, § I
(Ger.), translated in http://www.erneuerbare-energien.de/files/english/pdf/application/pdf/
eeg_2009_en bfpdf.
2012]
important changes to StrEG."6 The legislation in its most recent iteration declares its intention to provide "priority connection to the grid
systems for general electricity supply [generated] from renewable energy[,] ... the priority purchase, transmission, distribution of and
payment for such electricity ... and [a] nationwide equalisation
scheme for the quantity of electricity purchased and paid for."77 One
of the essential changes that RESA made to StrEG was changing the
pricing scheme for renewable energy sources. Under RESA, the
price that utilities are obligated to pay is different for each type of renewable and is based on the cost of generating that renewable. Under StrEG, pricing was based on the average cost of electricity from
renewable sources. This change improved the accuracy of pricing
and reduced the uneven economic burdens that StrEG created.78 The
modified policy also extended the length of contracts (creating fifteen
to twenty year obligations to incentivize investment),7 9 expanded the
scope of qualified generators, expanded the array of renewable
sources covered under the act and instituted a plan to reduce electricity prices over time, based on the expected decline in costs.80 As a result, Germany has met environmental goals, spurred innovation and
exceeded expectations in terms of penetration of renewables in the
market. 81
2. Results of Germany's Feed-In Scheme
RESA was even more successful than legislators originally
hoped. Initially, legislators in Germany set a target of "doubl[ing]
76.
77.
EEG, supra note 75 at § 2.
78. Cameron, Robertson & Cumow, supra note 69, at 178; See also Martin Lythgoe,
Renewable Generation In Argentina: Past Failures and a Plan For Future Success, 31
Hous. J. INT'L L. 263, 316 (2009).
79. Emeuerbare-Energien-Gesetz [EEG] [Renewable Energy Sources Act], Oct. 25,
2008, BGBL. I at 2008 (Ger.), translated in http://www.emeuerbare-energien.de
/files/english/pdf/application/pdf/eeg_2009en bf.pdf, at § 21 ("The tariffs shall each be
paid for a period of 20 calendar years, as well as for the year in which the installation was
commissioned. In derogation of the first sentence above, the tariffs for electricity from
installations in accordance with section 23(3) shall be paid for a period of 15 years, as well
as for the year of commissioning. The period under the first and second sentences above
shall commence when the generator is commissioned, irrespective of whether it was
commissioned using renewable energy sources, mine gas or other sources.")
80.
See Cameron, Robertson & Cumow, supra note 68, at 178 79; Kopetsky, supra
note 5, at 979; Practising Law Institute, supra note 71.
81.
[50:726
the share of renewable energy in the market from 5% to 10% by
2010. ,,82 Yet, by 2006, Germany had already exceeded this goal,
with renewable energy representing nearly 12% of the market share
for electricity-well past expectations and four years early.83 Reports
state that in 2006 alone, "45 million [tons] of CO 2 emissions per year
were eliminated through electricity production [stimulated by
RESA]. No other legal instrument has resulted in similar CO2 reductions. 84 Future predictions suggest that Germany will be able to derive 33% of its primary energy consumption from renewables by the
year 2020 and that Germany will be able to completely rely on renewable energy by 2050.85
Germany's feed-in scheme is attractive to many governments
as a way of deploying renewables without incurring large debt, a fear
associated with direct government subsidies." Although some consumer advocates argue that the increased burden on ratepayers is too
87
great, the savings to the German economy are also worth noting.
Reports from 2006 estimate that Germany saved €900 million in fuel
imports in that year alone.88 Germany's renewable energy industry
created 88,000 jobs between 2004 and 2007, nearly doubling the
number of green jobs in the country in three years.8 9
The sum of the effects of RESA has led some to characterize
Germany as the "the world's first renewable energy economy." 90
Many countries across the world are trying to reproduce these results. 91 Indeed, "[fleed-in tariffs are the most widely employed renewable energy policy in Europe and, increasingly, the rest of the
world." 92 Experts estimate as many as seventy-eight countries
82.
Lythgoe, supranote 78, at 315.
83.
Id. at 315-16; See also Deutsche Bank Climate Change Advisors, supra note 21,
at 60.
84. Thomas Daniel Wuertenberger, The Regulation of C02 Emissions Caused by
Private Households-An Analysis of the Legal Situation in the European Union and
Germany, 16 Mo. ENVTL. L. & POL'Y REV. 1, 51 (2009).
85.
Burgermeister, supra note 19.
86.
See Couture, supra note 49, at 1.
87.
Blakeway, supranote 15, at 225.
88.
Federal Ministry for the Environment, supra note 71, at 3.
89.
Jane
Burgermeister,
RENEWABLEENERGYWORLD.COM
Renewable
Energy
Jobs
Soar
in
Germany,
(Apr. 8, 2008), http://www.renewableenergyworld.com
/rea/news/article/2008/04/renewable-energy-jobs-soar-in-germany-52089.
90.
Burgermeister, supra note 19; see also Burgermeister, supra note 89.
91.
Federal Ministry for the Environment, supra note 71, at 3.
92.
Ferrey et al., Fire and ce, supra note 3, at 169.
2012]
worldwide have implemented some kind of feed-in tariff for deploying renewables.93 Among the non-European countries employing
feed-in tariffs are Brazil, Indonesia, Israel, Nicaragua, Norway, South
Korea, Sri Lanka, Switzerland and Turkey.94
II.
THE HISTORY OF
U.S. ELECTRICITY RATE POLICY
The United States has supported a variety of policy mechanisms designed to relieve the United States of its dependence on foreign fossil fuels since the mid- to late-twentieth century. Any mechanism has to comport with the federalist energy regulatory scheme in
the United States, which divides the power to regulate utilities between state and federal governments. The federal government increased its regulation of the electricity industry in the United States
in the 1930s after fifty years of laissez-faire private utility domination. 95 Three factors led to government regulation of the electricity
industry. First, the government realized that the electric power industry is a natural monopoly in interstate commerce (when a product is
most efficiently provided by one supplier).96 Second, the transition
seemed logical and efficient because the government already owned
most of the nation's hydroelectric resources. 9' Third, federal economic development programs accelerated in general as a result of the
Great Depression." In order to address issues of price volatility in
the electricity market and a large disparity between rural and urban
electrification rates,99 Congress enacted the Federal Power Act of
1935.100 The FPA authorized the Federal Power Commission (today
the Federal Energy Regulatory Commission) to regulate the wholesale sales of electricity by utilities engaged in interstate commerce. 101
93. Kevin Lustig, Davida Wood & Lutz Weischer, Q&A: Policies br Renelvable
Energy in Developing Countries, WORD RESOURCES INSTITUTE (Dec. 13, 2010),
http://www.wri.org/stories/2010/12/qa-policies-renewable-energy-developing-countries.
94. Ferrey et al., Fire and ice, supra note 3, at 169.
95.
ENERGY INFO. ADMIN.,
THE CHANGING STRUCTURE OF THE ELECTRIC POWER
105-06 (Dec.
FTPROOT/electricity/056296.pdf.
INDUSTRY:
AN
UPDATE
1996), available at http://tonto.eia.doe.gov/
96. Id.
97. Id.
98. Id.
99. Id.
100. 16 U.S.C. § 791 et seq. (2006).
101.
Id.; see also 16 U.S.C. § 824(d), (e) (2006).
[50:726
Another major development in federal regulation of the electricity industry came in 1978, when President Carter signed the Public Utilities Regulatory Policy Act into law. PURPA was the first
major policy initiative in United States history focused on developing
renewables to combat air pollution, increase domestic energy produc-
tion and decrease reliance on foreign fuel sources. 02 President Carter
characterized the U.S. energy sector's environmental and political
challenges as "a clear and present danger to our nation."1 °3 PURPA
was designed to attack this problem. It required utilities to purchase
electricity generated from independent generators at prices not exceeding the utilities' avoided cost, or the cost the same utility would
incur to generate the electricity in-house.10 4 Although PURPA
opened the door to non-utility power producers, the legislation was
primarily enacted "in response to the unstable energy climate of the
late 1970s" and "to promote conservation of electric energy," rather
than as a way to stimulate the renewable energy sources industry. 105
Regardless, PURPA was the first measure that pushed06American utilities to rely on energy sources other than fossil fuels. 1
102. See Michael W. Grainey, Recent Federal Energy Legislation: Toward a National
Energy Policy at Last?, 12 ENVTL. L. 29 (1981); See also ENERGY INFO. ADMIN., supra note
95, at 1.
103. President Jimmy Carter, Crisis of Confidence Speech (July 15, 1979), available at
http://millercenter.org/scripps/archive/speeches/detail/3402.
104.
16 U.S.C. § 824a-3 (2005):
(a) ...Not later than 1 year after November 9, 1978, the Commission shall
prescribe, and from time to time thereafter revise, such rules as it determines
necessary to encourage cogeneration and small power production, and to
encourage geothermal small power production facilities of not more than 80
megawatts capacity, which rules require electric utilities to offer to(1) sell electric energy to qualifying cogeneration
qualifying small power production facilities and
(2) purchase electric energy from such facilities.
facilities
and
(b)Rates for purchases by electric utilities. The rules prescribed under
subsection (a) of this section shall insure that, in requiring any electric utility to
offer to purchase electric energy from any qualifying cogeneration facility or
qualifying small power production facility, the rates for such purchase
(1) shall be just and reasonable to the electric consumers of the electric
utility and in the public interest, and
(2) shall not discriminate against qualifying cogenerators or qualifying
small power producers.
No such rule prescribed under subsection (a) of this section shall provide for a
rate which exceeds the incremental cost to the electric utility of alternative
electric energy.
105.
See also Energy Information Administration, supra note 95, at 22.
106.
Ferrey et al., Fire and Ice, supra note 3, at 140; see also Gold & Thakar, supra
2012]
Before PURPA, an independent generator encountered a
number of problems in entering the U.S. utilities market. Utilities
"used their monopoly power to refuse to purchase electric power
generated by [independent generators], . . .refused to interconnect
with [these] facilit[ies], . . . offered the [Qualified Facility or QF] in-
adequate prices for a purchase" or "charged those entities that cogenerated discriminatory rates for supplementary, back-up, and maintenance service."' 7 Furthermore, "[f]ederal and state laws posed a
problem for [a QF] in that it could subject itself to plenary public
utility regulation, under either the Federal Power Act and/or the Public Utility Holding Company Act."' ' PURPA regulated the utilities'
monopolistic behavior and gave special regulatory benefits to those
generators who met the definition of a Qualified Facility as outlined
in the legislation. 109
In recent years, the energy crisis that President Carter identified has become more complex. The United States must meet both
increasing energy demands and rigorous environmental goals that
cannot be addressed without changing the country's electricity industry. Congress has reacted to this challenge by creating more incentives for increasing domestic reliance on renewables for the country's
energy needs. Although criticized for not going far enough in its efforts to address the country's critical energy issues, Congress passed
the Energy Policy Act of 2005 (EPA 2005), which created several incentives for the development of clean energy technology and renewables.11° The EPA 2005 created renewable energy bonds and loan
guarantees for renewable projects and production incentives for certain renewable generators during their first ten years of operation.11
Despite these measures, some criticize the EPA 2005 for fitting
"squarely within [a] broad historical trend of fossil fuel dependence,"
12
despite its "comparatively large support of renewable energy."' 1
Others charge that the EPA 2005 fails to provide any "cohesive, na-
note 1, at 186.
107. Ferrey et al., Fire and Ice, supra note 3, at 140-41.
108.
Id.
109. Id. at 141.
110. See generally Kopetsky, supra note 5, at 944-45 ("In fact, the Energy Policy Act
of 2005 ...created the first true U.S. energy policy in more than a decade.").
111.
Id. at 952-53.
112.
Brad Sherman, A Time to Act Aneiw:
A Historical Perspective on the Energy
MARY ENVTL. L.
Policy Act o12005 and the Changing Electrical Energy Market, 31 WM. &
& POL'Y REV. 211,239 (2006).
[50:726
tional incentive for innovation or investment. 113 EPA 2005 has also
been criticized as taking a "hands-off' approach when it comes to
state implementation schemes for complying with the Act's directives. 114
In the absence of a federal directive, "states are developing
115
their own aggressive incentives for renewable energy production."
Many states have adopted a Renewable Portfolio Standards (RPS)
system, discussed infra Part IV.A. Although this system has been effective in increasing reliance on renewables in many states, critics
argue that portfolio standards fail to effectively encourage a sustainable renewable system. Against this background of renewable energy
policy, proponents of increased reliance on renewables frequently
point to the German feed-in tariff scheme as a more effective method
for rapidly deploying renewables in the United States.
III.
SCHOLARLY ARGUMENTS ON THE LEGALITY OF FEED-IN TARIFFS
IN THE UNITED STATES
Dissatisfied with the current state of renewable deployment in
the United States, many scholars advocate the implementation of
feed-in tariffs in the United States. In order to understand how feedin tariffs might be implemented in the United States, it is important to
understand the "patchwork" distribution of jurisdiction between the
states and the federal government with respect to the U.S. electricity
industry. 116 States regulate "the siting and construction of electricity
generation, transmission, and distribution facilities, as well as resource planning for retail load service [and] retail rates for traditional
public utility electricity supply services." 117 The federal government,
through FERC, "regulates wholesale sales and [services by investor'
owned utilities]."118
Therefore, a feed-in tariff scheme would likely
be implemented through a series of state-level feed-in tariffs, which
113.
114.
Id. at 957.
115. Ferrey et al., Fire and Ice, supra note 3, at 133.
116.
Larson, supra note 68, at 7.
117.
Id.;
See also
MATTHEW
H.
BROWN
ELECTRICITY POL'Y, ELECTRICITY TRANSMISSION:
&
RICHARD
SEDANO, NAT'L COUNCIL ON
A PRIMER 26 (2004).
118. Larson, supra note 68, at 7. There are three main types of utilities in the United
States: government, consumer-owned and investor-owned. The majority of utilities subject
to FERC regulation, and those referred to in this Note as "utilities" in the United States, are
investor-owned utilities. See BROWN & SEDANO, supra note 117, at 23.
2012]
have been described as:
a publicly available, legal document, promulgated by
a state utility regulatory commission or through legislation, which obligates an electric distribution utility
to purchase electricity from an eligible renewable energy seller at specified prices (set sufficiently high to
attract to the state the types and quantities of renewable energy desired by the state) for a specified duration; and which, conversely, entitles the seller to sell
to the utility, at those prices for that duration, without
the seller needing to obtain additional regulatory permission. 119
Operating with this definition, proponents of state-level feed-in tariffs will run into two federal constraints in implementing a state-level
scheme. The first constraint is the avoided cost principle under
PURPA and the second is FERC's jurisdiction to set wholesale electricity rates that are "just and reasonable" and "not 'unduly discriminatory"' under the FPA.120 This section summarizes the leading
scholarship that argues that state-level feed-in tariffs are unconstitutional under the Supremacy Clause because they require states to
usurp FERC's exclusive jurisdiction to set rates for wholesale sales
of electricity. Second, it addresses the opposing scholarly arguments
that state-level feed-in tariffs can be implemented under the current
regulatory scheme without treading on FERC's exclusive jurisdiction
under the FPA.
A. Steven Ferrey and the Argument thatFeed-In Tariffs Are
Unconstitutional
Some legal scholars see the constraints imposed by PURPA
and the FPA as impenetrable barriers to implementing a state-level
feed-in tariff in the United States. A leading scholar on the issue,
Professor Steven Ferrey, argues:
[T]here is a schism between the needed expedited
transition to renewable resources and the requirements
of the U.S. Constitution. The attempt by U.S. states to
copy the European model of feed-in tariffs to promote
renewable power is running afoul of U.S. constitutional requirements. The ten states now launching
119.
HEMPLING ET AL.,
120. Id. at vii.
supra note 23, at iv v.
[50:726
feed-in tariffs will face the stem hand of the Constitution ....
121
The basis of this legal argument is grounded in a belief that
the transaction arising from a feed-in tariff is a wholesale sale of
electricity between the renewable generator and the utility. In this
view, the price that a utility pays for electricity from a renewable
source must not exceed the avoided cost principle under PURPA. If
the feed-in tariff price exceeds this price, the transaction violates
PURPA and is subject to FERC's exclusive jurisdiction to regulate
wholesale prices under the FPA.
FERC's exclusive jurisdiction to regulate wholesale rates is
well supported. The case law supports the argument that Congress's
intent behind the FPA was to "draw a bright line easily ascertained,
between state and federal jurisdiction.., by making [FERC] jurisdiction plenary and extending it to all wholesale sales in interstate commerce except those which Congress has made explicitly subject to
'
regulation by the States."122
If state legislation authorizing feed-in
tariffs interferes with this exclusive jurisdiction, states could find
their legislation preempted by the FPA under the Supremacy Clause
of the United States Constitution. Professor Ferrey argues that the
"filed rate doctrine," which "[a]t its most basic ... provides that state
law... may not be used to invalidate a filed rate nor to assume a rate
would be charged other than the rate adopted by the federal agency in
question ' prevents a state from substituting its judgment as to an
appropriate rate for FERC's judgment when FERC has established a
filed, or "legal rate." 124 Professor Ferrey argues that a feed-in tariff
schedule, set by a state, would seek to substitute the federally established rate and thus violate this doctrine.
Although he adheres to the view that feed-in tariffs are illegal
and unconstitutional in the United States, Professor Ferrey does not
argue that feed-in tariffs are necessarily bad policy or ineffective at
deploying renewable resources. Professor Ferrey states,
For the past two centuries, the Constitution has limited
both good ideas and bad. Even in the interests of abating global warming and promoting renewable energy,
121.
122. Pub. Util. Dist. No. I v. IDACORP Inc., 379 F.3d 641, 646-47 (9th Cir. 2004)
(internal citations omitted); see also Nantahala Power & Light Co. v. Thornburg, 476 U.S.
953 (1986); Fed. Power Comm'n v. S. Cal. Edison Co., 376 U.S. 205 (1964).
123. Transmission Agency ofN. Calif. v. Sierra Pac. Power Co., 295 F.3d 918, 929 (9th
Cir. 2002) (describing the filed rate doctrine).
124.
See Ferrey et. al, supra note 22, at 63-64.
2012]
the Supremacy Clause of the Constitution remains a
legal backstop that may become a barrier. In a federalist system, what the states may do is limited by the
Constitution. European nations' penchant for having
utilities pay more for renewable power through feedin tariffs would run afoul of precedent interpreting energy and environmental regulations permissible under
the Constitution. 125
In light of these issues, Professor Ferrey warns that states
should take "great legal care" in proceeding with feed-in tariff legis126
lation without regard to the American constitutional backdrop.
Professor Ferrey argues that "the [RPS] with tradable RECs [is a] legally viable alternative," and that "[s]tates should look to implement
those elements of FITs that make them successful-namely investor
security, low transaction costs and contract
127 certainty-without treading into Constitutionally suspect waters."
B. Scott Hempling and the Argument that the FPA, PURPA and the
Constitution are not Complete Barriersto Implementation
Other scholars argue that feed-in tariffs, if carefully designed,
are legal under constitutional and statutory law. Scott Hempling, of
the National Regulatory Research Institute (NRRI), is one of the
leading scholars advocating this position. Hempling argues that
state-level feed-in tariffs do not infringe on FERC's jurisdiction to set
wholesale rates under the FPA because they set an offer price for the
renewable rather than commanding the utility to purchase at that
price. Hempling also argues that even if that constitutional argument
is not accepted, there are still two viable methods for implementing
feed-in tariffs in the United States under the current regulatory regime.
Hempling believes that states can legally implement a feed-in
tariff under the Federal Power Act as it currently stands. He notes
that FERC's jurisdiction to regulate wholesale sales of electricity under the FPA means FERC has the jurisdiction to approve any wholesale contract between a utility and a supplier. He states, "[p]ut more
directly, a state-level tariff cannot lawfully command the utility to
purchase at the state-set price. Under Sections 205 or 206 of the
125.
Ferrey et al., Fire and ice, supra note 3, at 127.
126.
See Ferrey et. al, supra note 22, at 67.
127.
Id.
[50:726
FPA, the seller must prove to FERC, that the contract, including ' its
128
price, is 'just and reasonable' and not 'unduly discriminatory.'
Thus, Hempling believes a state may be able to create feed-in tariff
legislation obligating utilities to "make offers to purchase at a specified rate, subject to FERC's ultimate authority to review and approve
the terms" of the sale or contractthat results. 129
Hempling also identifies two ways to implement a feed-in tariff in the United States without conflicting with PURPA, the FPA or
U.S. constitutional law. 3 ' First, Hempling points out that states can
utilize the PURPA mandate that utilities must purchase from QFs to
create a legal feed-in tariff without enacting any separate legislation.131 PURPA "makes state utility regulatory commissions responsible for administering that obligation with respect to retail utilities
over which the state commission has jurisdiction. States can use the
utility's PURPA obligation as a legal vehicle for creating feed-in tar'
iffs." 132
States can implement a feed-in tariff so long as the price set
by states does not exceed the avoided cost limit under PURPA.133
This method limits the scope of the feed-in tariff to sellers who are
QFs. It also limits the state's ability to incentivize technology to the
same extent possible in Germany
by placing a cap on the price paid
134
to renewable generators.
The constitutionality of feed-in tariffs is a hotly debated topic.
While the FPA seems to grant exclusive jurisdiction to FERC to regulate wholesale sales of electricity, PURPA demonstrates that Congress intended for states to have some leeway to require utilities to
purchase from renewable generators at another rate. Furthermore,
there is some room for debate over whether a feed-in tariff actually
sets a wholesale rate. Successful implementation of a state-level
128.
HEMPLING ET AL.,
129.
Id. at 23.
130.
Id. at 3.
131.
Id. at5.
132.
Id.
133.
States can supplement the avoided cost rate:
supra note 23, at vii.
in one of three ways: (a) assigning 'renewable energy credits,' (b) making cash
grants or paying production-based incentives (funded, for example, by
taxpayers through the general budget, or by ratepayers through a 'system
benefits charge'), or (c) establishing a purchase price that exceeds avoided cost
but granting the purchasing utility a tax credit equal to the excess.
Id. at vi (internal citations omitted).
134. See id. at 12-13. In order for a feed-in tariff to work properly, the actual cost of
generation of the renewable must be passed on to the consumer. See supra notes 45 48 and
accompanying text.
2012]
feed-in tariff will require a careful analysis of the state legislation and
these competing congressional interests.
IV. ALTERNATIVES TO FEED-IN TARIFFS FOR RAPIDLY DEPLOYING
RENEWABLES IN THE UNITED STATES
When considering a new method for incentivizing renewables, particularly one that may be constitutionally unstable, it is important to consider and evaluate the alternatives to such a method to
determine if there is another equally effective option for rapidly deploying renewables. There are a number of alternatives to feed-in
tariffs for deploying renewables in the United States, of varying effectiveness and rates of implementation. Many states have enacted
legislation aimed at increasing the proportion of local energy supply
derived from renewables through initiatives other than feed-in tariff
schemes. Most of these states have adopted a Renewable Portfolio
Standards (RPS) system, a supply-side initiative that requires utilities
to earn a minimum number of credits over a period of time by generating electricity from renewable sources. Utilities that come up short
at the end of a period can purchase excess credits from other utilities
for a premium. Other states rely on tax credits, renewable trust funds
and net-metering as a means of incentivizing renewables.135 This
section will first examine and evaluate RPS systems in the United
States and then briefly consider other, less widespread alternatives in
use in various states.
A. Renewable Portfolio Standards
The specific design of an RPS varies from state to state, but
the basic structure is the same for all systems. An RPS
defines which energy resources are 'renewable' and
lists which utilities must comply with RPS requirements. A utility ... must meet its load during a speci-
fied period (the "compliance period") from sources
(the "portfolio") that include a certain percentage of
renewably generated electric power (the "minimum
percentage"). After each compliance period, each
utility must ... present evidence that at least the min-
imum percentage of that power came from RPS-
135.
Ferrey et al., Fire and ce, supra note 3, at 134-35.
[50:726
eligible renewable sources.13 6
The advantage of an RPS is that it does not tend to significantly disadvantage 3the
utility and can be applied in a number of market envi7
ronments. 1
Similar to a feed-in tariff, "[t]he goal of an RPS is to stimulate market and technology development so that, ultimately, renewable energy will be economically competitive with conventional forms
of electric power" and create demand for renewables.138 As of 2009,
thirty-three states and the District of Columbia had an RPS, with the
mandates requiring between four percent and thirty percent of the
states' energy demand to be met with renewables.13 9 Utilities can
comply with an RPS by owning a renewable generator, purchasing
electricity from a renewable generator or purchasing renewable energy credits (RECs) from another utility that obtained more than the
minimum percentage of generation from renewables during a given
time period. 140 RPS systems have been acknowledged for "successfully motivat[ing] new renewable development in certain regions of
the United States."''
Between 1998 and 2007, approximately "8,900
MW of new non-hydro renewable capacity (more 42than half of that
constructed) was built in states with RPS policies."1
Unfortunately, RPS systems have not completely met their
goal of incentivizing renewable growth and making renewables economically viable in the marketplace. There are certain disadvantages
to using an RPS as the primary method for encouraging a transition
to renewables in the electricity sector. In particular, the REC system,
the competitive bid process and the lack of regulations requiring utilities to utilize a diverse array of renewable generators to achieve their
minimum renewable credit level reduces the ability of an RPS system
to stimulate widespread growth in the renewable sector. As a result,
RPS systems create narrower and weaker incentives to the renewable
industry than originally hoped.
136.
Gold & Thakar, supra note 1, at 192 (internal citations omitted).
137.
138. Renewable Portfolio Standards: An Effective Policy to Support Clean Energy
Supply, EPA (April 2009), http://www.epa.gov/chp/state-policy/renewable-fs.html.
139.
Id.
140.
Id.
141.
KARLYNN CORY ET AL., NATIONAL RENEWABLE ENERGY LABORATORY TECHNICAL
FEED-IN
REPORT:
TARIFF
POLICY:
DESIGN,
IMPLEMENTATION,
AND
RPS
POLICY
INTERACTIONS 8 (Mar. 2009), available at http://www.nrel.gov/docs/fy09osti/45549.pdf.
142.
Id.
DON'T HIDE BEHIND STA TUTORYROADBLOCKS
2012]
An RPS requires that a certain percentage of the electricity
demanded by consumers be met with renewables. Under this model,
a utility looking to meet its state RPS requirement will generally request proposals from renewable generators. This begins a competitive process where renewable generators compete to offer the utility
the best "package of siting, operational expertise, and cost., 143 This
has a significant effect on investment in renewables. Investors may
be less likely to invest in renewable generators in a state that employs
an RPS (rather than a feed-in tariff or similar mechanism) because
the renewable generator is not guaranteed to obtain a contract with a
utility under an RPS system. 144 Preparing a bid with a utility can be
expensive, and the odds of obtaining a contract are low. 145 Smaller
renewables and certain more expensive renewables do not attract investors because these generators are not competitive under an RPS
system; it is not cost-effective for a utility to purchase from these
146
generators or from anything but the cheapest renewable generator.
The RPS system thus does not incentivize a wide array of renewables
because only the least expensive or largest generators will obtain
contracts with the utilities.
Additional problems arise when a utility meets its RPS requirements through the purchase of RECs from another utility rather
than buying capacity from a renewable generator itself.14' This system is primarily criticized because allowing a utility to buy an REC
from another renewable project means that that utility does not use its
resources to incentivize new renewable projects. 148 This exaggerates
the issue of RPS systems failing to incentivize a diverse array of renewables. Not only are the least expensive renewable projects the
only ones incentivized by an RPS, but also one inexpensive investment by a utility can provide enough RECs to satisfy the RPS obligation of numerous utilities. Some states have eliminated the right of
utilities to purchase excess renewable credits through case law precedent to control the damaging effect of REC trading
on the economic
149
incentives for renewables under an RPS system.
143. Id.
144.
Id. at 8-9.
145. Id.
146. See id.
Carbon Workshop Comments: Climate Clean on Renewable Energy Credits, FED.
(Jan. 2008), at 13 15, http://www.ftc.gov/os/comments/carbonworkshop/
533254-00038.pdf.
147.
TRADE COMM'N
148. Id.
149. See, e.g., In re Pub. Svc. Co. of New Mexico, No. 10-00037-UT, 2010 WL
[50:726
B. Other Methods of EncouragingRenewable Generation in the
United States.
States that do not employ an RPS system to encourage renewable generation use a variety of other methods to achieve their goals.
The Internal Revenue Code supplies one method for supporting renewable energy. 150 The Production Tax Credit (PTC) creates a tax
credit per kilowatt hour for certain qualifying facilities. 151 Some
states also provide similar state-tax incentives. 152 Additionally, some
states charge a tax on electric consumption and use the revenue to
support various energy projects. 153 Lastly, net-metering is a method
widely employed by states that allows:
customers to use their own generation from on-site renewable energy systems to offset their consumption
over a billing period by allowing their electric meters
to turn backwards when [the consumers] generate
electricity in excess of their demand, enabling customers to receive retail prices for the excess electricity
they generate. 154
Essentially, consumers install a renewable generator in their home,
and the utility pays them if they produce more than they consume.
Although this method could be an effective one for increasing private
investment in renewable generators, customer interest has been low,
rendering it less effective in practice than in theory. 155
V.
CALIFORNIA PUBLIC UTILITIES COMMISSION AND THE POTENTIAL
FOR FEED-IN TARIFFS IN THE UNITED STATES AFTER THE
DECISION
The foregoing debate over the legality of feed-in tariffs in the
United States and the merits of potential alternatives provide the
backdrop for FERC's July 2010 decision in response to the CPUC's
petition for a declaratory order that California's feed-in tariff legisla-
3937778 (N.M.P.S.C. Aug. 31, 2010).
150. Ferrey et al., Fire and Ice, supra note 3, at 135.
151.
Id.
152.
Id.
153. See, e.g., Green Power Markets: Net Metering, U.S. DEP'T OF ENERGY, http:/
apps3.eere.energy.gov/greenpower/markets/netmetering.shtml (last visited March 1, 2011).
154. Id.
155.
2012]
tion did not violate the FPA or PURPA. This section will first analyze, in depth, FERC's decision in California Public Utilities Commission and its subsequent clarification of that order. Next, it will
address the implications of that decision on state-level feed-in tariffs
in the future and potential legislative, judicial and administrative actions that could facilitate the implementation of state-level feed-in
tariffs in light of FERC's decision.
A. California Public Utilities Commission156
In its July 2010 order in response to the California Public
Utilities Commission's petition for declaratory judgment, FERC
made its first adjudicative determination addressing the debate surrounding state-level feed-in tariff compliance with the FPA and
PURPA. In finding that the CPUC's implementation of California's
state feed-in tariff legislation did violate FERC's exclusive jurisdiction to set wholesale rates under the FPA, FERC indicated that its position on the legality of feed-in tariffs in the United States is more
closely aligned with that of Professor Ferrey than that of NRRI's
Hempling. This decision could pave the way for invalidation of several other states' legislation providing for feed-in tariffs to deploy renewables. 5' 7
1. Petition for Declaratory Judgment
In 2009, California passed Assembly Bill 1613, or the "Waste
Heat and Carbon Emissions Act," containing a provision requiring
[investor-owned] electrical corporations ... to offer
to purchase, at a price to be set by the [California Public Utilities Commission], electricity that is generated
by certain [combined heat and power, or CHP,] generators and delivered to the grid. [According to this legislation, these] CHP generators must have a generating
capacity of not more than 20 MW and must meet certain efficiency and emissions standards.158
This legislation would require investor-owned utilities to purchase electricity from renewable sources and deliver that electricity
156. 132 FERC
61,047 (2010) (July 15 Order), clarifying order and rehg denied, 133
FERC ] 61,059 (2010) (Oct. 21 Order).
157.
See Ferrey et. al, supra note 22, at 67.
158.
Cal. Pub. Util. Comm'n, 132 FERC ] 61,047 (2010) at *1 (emphasis added).
[50:726
to the grid through a feed-in tariff scheme. This measure was met
with some resistance from the burdened utilities who argued that the
provision called for CPUC to set rates of electricity sold at wholesale,
impermissibly usurping the power of the Federal Energy Regulatory
Commission (FERC) to set rates for electric energy under the Federal
Power Act (FPA). 159 On May 4, 2010, the California Public Utilities
Commission (CPUC) filed a petition for a declaratory order, asking
FERC to find that the CPUC was not preempted by the FPA, PURPA
or other commission regulations.160 A week later, on May 11, 2010,
the "Joint Utilities" (Pacific Gas and Electric Company, San Diego
Gas and Electric Company and Southern California Edison Company) filed a separate petition arguing that the CPUC had been
preempted.
CPUC cited numerous arguments in support of its request.
For one, it invoked Hempling's reasoning that offers to purchase do
not amount to wholesale transactions and that a regulation of these
offers to purchase therefore did not violate the FPA. CPUC argued
that AB 1613 mandates that "California electric utilities (the buyer)
must offer to purchase under contracts with CPUC-set prices to encourage CHP generators to be constructed, but the CPUC does not
require a CHP generator (the seller) to accept that offer."'' Alternatively, CPUC suggested that AB 1613's mandatory offer price provision was a regulation of the "procurement practices of the purchaser utilities," an area that lies firmly within a state's jurisdiction. 162
CPUC also argued that the purpose behind AB 1613 was environmental protection and the reduction of GHG emissions, rather
than regulation of the wholesale electricity market. CPUC urged
FERC to consider the "compelling nature and urgency of reducing
greenhouse emissions," and the fact that "climate change is posing a
threat to the state of California."' 16 3 CPUC pointed to the differences
in legislative purposes behind AB 1613 and the FPA, noting that AB
1613's primary purpose is environmental protection, not economic
regulation. CPUC reasoned that AB 1613 was much more similar to
the regulation of "resource portfolios and procurement of utilities,"
than to the regulation of the economics under the FPA; therefore, in
light of the legal authority bestowed on the states to regulate these areas, CPUC should not be preempted in its implementation of AB
159. Id.
160.
Id.
161.
Id. at *2 (emphasis added).
162. Id.
163.
Id.
2012]
1613.164
CPUC asked FERC to reconsider the precedent that the Joint
Utilities relied on to support their challenge of the decision implementing AB 1613 in light of the foregoing arguments. It further supported its request for reconsideration of precedent by noting that
FERC's more recent precedent demonstrated a commitment to reducing GHG emissions and that AB 1613's aim is similar to the aim of
PURPA and EPA 2005.165 CPUC urged FERC to embrace "the spirit
of cooperative federalism underlying the16FPA
and PURPA" in an ef6
fort to reduce greenhouse gas emissions.
In response to CPUC's arguments, the Joint Utilities maintained that this issue was not a question of "fact, policy, or environmental concern, but rather [was] a question of law.",6'
The Joint
Utilities invoked several of the arguments espoused by Professor Ferrey in questioning the legality of feed-in tariffs. The Joint Utilities'
argument centered on the assertion that Congress has "preempted the
field" over wholesale power sales. 168 The Joint Utilities acknowledged that PURPA already allowed the CPUC to "require the Joint
Utilities to purchase from [qualified facilities as determined by the
CPUC and PURPA]," but reminded FERC that this purchase could
not exceed the utilities' avoided cost. 169 The Joint Utilities argued
that CPUC's decision implementing AB 1613 would result "in a
price above the avoided cost" in violation of PURPA, thus triggering
the FPA and running afoul of FERC's exclusive jurisdiction to set the
legal rate. 1"
The Joint Utilities furthered disagreed with CPUC's characterization of AB 1613's mandate as an offer to purchase rather than a
regulation of wholesale rates. 1 1 The Joint Utilities argued that
CPUC's characterization of the legislation as limited to the offering
price was
unavailing because an order requiring a utility to 'offer' to buy wholesale power at a CPUC-set price is an
order to actually buy wholesale power at a CPUC-set
164. Id.
165.
Id. at *3.
166.
Id.
167. Id. at *5.
168.
Id.
169. Id. at *6.
170. Id. at *5.
171.
Id.
[50:726
price, insofar as the Joint Utilities have no flexibility
to offer a different price and the offer could not be
withdrawn without CPUC approval. 172
Relying on precedent from Midwest Power Systems, 173 the Joint Utilities argued that FERC had already established that a state utilities
board "lacked the authority to set wholesale rates" 17 4 when it found
that the Iowa Utilities Board lacked authority to set the rate for
wholesale sales of electricity.
FERC ultimately agreed with the Joint Utilities. 175 It stated
that "[t]he Commission's authority under the FPA includes the exclusive jurisdiction to regulate the rates, terms and conditions of sales
for resale of electric energy in interstate commerce by public utilities," and found that "[w]hile Congress has authorized a role for
States in setting wholesale rates under PURPA, Congress has not authorized other opportunities for States to set rates for wholesale sales
in interstate commerce by public utilities" or otherwise indicated that
FERC has the authority to grant such power to the states.,1 76 FERC
clarified, however, that the CPUC is not preempted when "(1) the
CHP generators from which the CPUC is requiring the Joint Utilities
to purchase energy and capacity are QFs pursuant to PURPA; and (2)
the rate established by the CPUC does not exceed the avoided cost of
the purchasing utility.' ' 177 This judgment confirmed Hempling's argument that states can implement a feed-in tariff, albeit limited in
scope, under PURPA without any additional administrative, legislative or judicial action.
B. California Public Utilities Commission Petitionfor Rehearing
and Clarification
Following the July 15, 2010 order, CPUC sought clarification
of the order or rehearing, stating its intention to implement AB 1613
using the PURPA method FERC described in its order. 178 CPUC
172. Id.
173.
Id.
174. Id.
175. Larson, supranote 68, at 7.
176.
Cal. Pub. Util. Comm'n, 132 FERC ] 61,047 (2010) (July 15 Order) at *17.
177. Id.
178. Cal. Pub. Util. Comm'n, 133 FERC
61,059 (2010) (Oct. 21 Order). FERC
dismissed CPUC's request for rehearing on the basis that the July 15 order was "arbitrary
and capricious" and that the decision mischaracterized AB 1613's mandate as setting a
wholesale price for electricity rather than mandating an offer to buy. See id. at *6.
2012]
DON'T HIDE BEHIND STATUTORYROADBLOCKS
sought clarification on the definition of avoided cost under PURPA,
hoping for a confirmation that CPUC need not adopt the "lowest possible avoided costs" and "should properly take into account real limitations on 'alternate' sources of energy ....,179 In essence, CPUC
sought confirmation that it could set avoided costs rates at a higher
level that would facilitate the development of renewable generators
by considering the utilities' avoided cost over a longer period of time.
In this argument, CPUC relied on language from earlier FERC precedent stating that "states have numerous ways outside of PURPA to
encourage renewable energy resources." CPUC requested clarification that it did not have to determine the utilities' avoided cost by
considering only the short term costs and that including an "adder" or
"bonus" to the price paid in "transmission constrained" areas was
consistent with FERC regulations and statutory interpretation. 180
FERC granted the clarification and in its October 21, 2010
order addressed and clarified its earlier precedent in Southern California Edison. "' FERC held, consistent with CPUC's request, that
the concept of a multi-tiered avoided cost rate [, where
certain QFs found to comply with legislative mandates
receive higher rates based on long-term avoided costs,
and non-compliant QFs receive a lower rate based on
short-term costs,] structure can be consistent with the
avoided cost rate requirements set forth in PURPA
and our regulations .... Under the Commission's
regulations, a state may determine that capacity is be-
179. Id. at *6.
180. Id. (citing Southern California Edison, 70 FERC 1161, 215 at
reconsiderationden., 71 FERC 161,269 (1995)).
61,675 76,
181. Id. at *8 9:
Thus, there is language in the SoCal Edison proceeding that would seem to
permit state commissions to base avoided costs on "all sources able to sell to
the utility," and other language that requires a state commission to take into
account "all sources".... That we did not expressly include that phrase in
every instance in SoCal Edison is of no moment; to the extent it was not
express, it was there implicitly....
Furthermore, irrespective of the various phrasings that appear in SoCal
Edison, permitting a state to set a utility's avoided costs based on all sources
able to sell to that utility is consistent with the language of section 210(b)...
and of section 2 10(d) of PURPA [citation omitted] ....
We recognize that our decision herein could be read as inconsistent with the
instances in SoCal Edison where the Commission used "all sources" but did not
include the phrase "able to sell to the utility." To the extent that our decision in
this order (finding that the concept of a multi-tiered avoided cost rate structure
can be consistent with the avoided cost rate requirements set forth in PURPA
and our regulations) can be read as inconsistent with the discussion in SoCal
Edison, we are overruling SoCal Edison's broader language on this issue.
[50:726
ing avoided, and so may rely on the cost of such
avoided capacity to determine the avoided cost rate.
Further, in determining the avoided cost rate, just as a
state may take into account the cost of the next marginal unit of generation, so as well the state may take
into account obligations imposed by the state that, for
example, utilities purchase energy from particular
sources of energy or for a long duration.182
In so finding, FERC somewhat expanded the range of rates
that states have the jurisdiction to set for utilities to purchase from
renewable generators under PURPA, effectively opening a limited,
"back-door-PURPA" approach for implementing state-level feed-in
tariffs.183 Essentially, FERC stated that there are multiple ways to
calculate avoided cost under PURPA and that a utility or state commission can differentiate between types of QFs based on their specific supply characteristics when determining avoided cost.
Although FERC indicated an empathetic position towards
California's goal of containing GHG emissions through a feed-in tariff scheme in its October clarification by authorizing the use of a
multi-tiered avoided cost approach under PURPA, FERC denied the
CPUC's petition for rehearing.184 In doing so, it rejected CPUC's argument that the commission erred in its characterization of AB
1613's mandate as setting the price for a wholesale transaction. Further, FERC rejected CPUC's argument that the July 15 Order was arbitrary and capricious and dismissed the petition for rehearing as
moot.
In response to FERC's generous interpretation of California's
jurisdiction to set avoided cost rates under PURPA, the Joint Utilities
filed a "request for rehearing, or, in the alternative, reconsideration,
partial vacatur, or clarification" of FERC's October Clarification Order. 185 FERC denied the rehearing on procedural grounds but reasserted its belief that186multi-tiered avoided cost schedules are consistent with PURPA.
182. Id. at *8.
183. Telebriefing: Law Seminars International, New FERC Order on State Feed-In
Tarif
(Mar. 31, 2011) (audio CD available for order on sponsor website,
http://www.lawseminars.com/detail.php?SeminarCode 1IFEEDTB).
Cal. Pub. UtiL. Conn'n, 133 FERC 61,059 at *6.
185. S. Cal. Edison Co., et al., 134 FERC 61044 (2011), at *1 (Jan. 20, 2011) (order
denying rehearing).
184.
186.
Cal. Pub. UtiL. Comm'n, 133 FERC ] 61,059 (Oct. 21, 2010).
2012]
C. The Impact of California Public Utilities Commission on the
Futureof Feed-In Tariffs in the United States and Potential
Measures to Increase States' Abilities to Implement Feed-In
TariffLegislation
In light of FERC's decision in California Public Utilities
Commission, a state's ability to implement a state-level feed-in tariff
in the image of the German RESA is constrained. 187 This decision
limits a state's ability to implement such a scheme to the cost and QF
limits outlined in PURPA.188 Although FERC's October clarification
of the July Order granted states slightly more discretion under
PURPA for determining the price that utilities must pay QFs under
the avoided cost provision in PURPA, the decision significantly limits a state's ability to mimic the methods and results achieved under a
scheme such as that implemented in Germany under RESA. In particular, states are not free to set tariff rates based on the cost of generation of the renewable if that cost does not fall within the expanded
avoided cost principle articulated in the October clarification. As we
know from the experiences of Germany and Spain, accuracy in pricing is essential to a successful feed-in tariff scheme. Although some
view the statutory and constitutional issues as irresolvable or efforts
to do so as legally imprudent,189 some scholars have begun brainstorming administrative, judicial and legislative measures that could
allow states greater latitude in implementing feed-in tariff schemes.
1. Judicial Measures
One potential remedy to this barrier to implementation of
state-level feed-in tariffs would be for a court to overturn FERC's
decision in CaliforniaPublic Utilities Commission on appeal. Scholars have identified several potential criticisms of FERC's decision.190
Hempling argues that FERC was incorrect in characterizing "[a] state
mandate to the utility, to offer to buy at a state-set wholesale price
'
[as] synonymous with setting a wholesale price."191
This theory is
supported by the fact that any price set by AB 1613 after a utility offered the state-mandated price and the generator accepted the price
187.
Larson, supranote 68, at 7.
188.
Id.
189.
See Ferrey et al., Fire and ice, supranote 3; Ferrey et al., supra note 22.
190.
See Hempling, Califbrnia Decision, supranote 26.
191.
Id. at 3; see also Larson, supra note 68, at 7.
[50:726
would be subject to FERC's ultimate approval.192 Under this view,
the state is not interfering with FERC's jurisdiction to set wholesale
prices; rather it is "start[ing] a process that results in a wholesale
'
price only when FERC approves that price."193
The process would be
long and unwieldy if FERC rejected the price, but FERC would retain ultimate authority to set the wholesale rate.
There is also room to debate the strength of precedent that
FERC cites in support of its statement that any state mandated obligation to purchase electricity is subject to PURPA. Hempling believes FERC was wrong in Connecticut Light and Power and Midwest Power Systems in stating that an obligation to purchase from
renewables can violate PURPA even when it is not PURPA creating
the obligation. 194
When the source of the utility's obligation to purchase
is state law, not PURPA, there is no triggering of
PURPA. If the source of the mandate is state law,
then any utility payment above avoided cost is not attributable to PURPA. If the payment is not attributable to PURPA, it cannot violate PURPA.195
In other words, Hempling believes states can create their own legislation obligating utilities to purchase from renewable generators without including a PURPA-like avoided cost ceiling. If the transaction
occurred as a result of state law and not PURPA mandates, these contracts would only be subject to FERC's ultimate approval under the
FPA and not PURPA's limits. This perspective recognizes FERC's
exclusive jurisdiction to approve wholesale rates, but eliminates the
PURPA avoided cost ceiling that FERC has interpreted to apply to
any state-mandated purchase by a utility from a renewable generator,
whether or not the obligation stems from PURPA.
FERC's decision in California Public Utilities Commission
has also been criticized on the grounds that it rejected the novel argument raised by CPUC that AB 1613's "feed-in tariff is intended to
promote environmentally friendly forms of generation as a key part
of California's attempts to combat climate change and reduce green'
house gas emissions."196
FERC rejected California's argument that
"[b]ecause of these environmental objectives . . .a presumption
192.
Hempling, Cal/lbrnia Decision, supra note 26, at 3.
193.
Id.
194.
Id.
195.
Id.
196.
Larson, supra note 68, at 7.
2012]
against federal preemption should attach and provide FERC a way to
accommodate California's policy objectives."19' 7 FERC did not find
this argument about differing legislative intents persuasive. Instead,
FERC focused on its economic obligations under the relevant statutory law and demonstrated that it is "protective of its authority over
wholesale power rates.""19 While FERC rejected this argument, an
appeal on this ground, given the trend towards increasingly friendly
attitudes on the topic of reducing GHG emissions, could be persuasive in another venue.
2. Administrative Measures
FERC itself could take measures to allow feed-in tariffs to be
implemented while still retaining control over wholesale pricing in
the electricity industry. FERC could create "safe harbors, rebuttable
'
presumptions, or other guidance concerning state-set offer prices."199
Hempling suggests that FERC could authorize states to set offer prices, the way AB 1613 envisioned, but "identify criteria or standards
concerning pricing for various technologies, project sizes, and geographic markets." 00 States could follow these guidelines to determine an offer price that FERC would likely authorize; once utilities
and renewable generators entered into an agreement at this price,
FERC would retain ultimate authority to approve the transaction.
This would provide a pathway for implementing a state-level feed-in
tariff without defying FERC's exclusive jurisdiction to set wholesale
rates. The guidelines would provide some guidance to the states in
setting the offer price to increase the likelihood and speed of the process of FERC approval.
In order to accomplish this sort of change, FERC would need
to engage in rulemaking, with administrative inquiry and factfinding. 21' FERC could initiate this sort of process on its own, or a
state or other interested party could seek action by FERC by filing
petitions for rulemaking or declaratory orders.2 °2 FERC would also
have to address the avoided cost ceiling under PURPA that it imputed to all state-legislation-based mandates in CaliforniaPublic Utili-
197.
Id.
198. Id.
199. Hemp]ing, supra note 23, at vii.
200. Id. at viii.
201.
Id.
202.
Id.
[50:726
ties Commission in this rulemaking. FERC could either incorporate
the avoided cost principle into its guidelines or reconsider its imputation of the avoided cost ceiling to state-based mandates. Another
primary consideration in developing this kind of rule would be the
"undue discrimination" standard under the FPA.2 °3
If FERC declined to establish guidelines for implementation,
a state could alternatively "seek a FERC ruling declaring that [its]
proposed tariff prices [are] just and reasonable, thereby relieving
sellers of an obligation to seek FERC approval of contracts entered
into under those tariffs., 20 4 This process would be more onerous on
the states but could achieve a similar result.
FERC seems to have invited states to seek its guidance on
ways to implement feed-in tariffs in its decision in CaliforniaPublic
Utilities Commission.2° Footnote 93 reads: "[i]f the CPUC believes
that it needs additional guidance on how CHP generators may establish rates that are just, reasonable and not unduly discriminatory or
preferential, it may file a petition for [a] declaratory order seeking
guidance. 2 °6 This further indicates FERC's sympathy to CPUC's
goals.
3. Legislative Measures
Lastly, Congress could act to make feed-in tariffs legal under
federal statutory law, thereby eliminating the conflict with the FPA,
PURPA and the United States Constitution. The American Clean
Energy and Security Act of 2009 contained language that was apparently intended to facilitate feed-in tariffs under U.S. law, but the bill
did not pass the Senate.2 ° Section 102, entitled "Clarifying State Authority to Adopt Renewable Energy Incentives" provides:
Notwithstanding any other provision of [PURPA] or
the Federal Power Act, a State legislature or regulatory authority may set the rates for a sale of electric en-
203. Undue discrimination means that similarly situated parties would encounter
different pricing. Id. at vii.
204. Id. at 37.
205. Id. at 4.
206. Cal. Pub. Util. Comm'n, 132 FERC
Califbrnia Decision, supra note 26, at 4.
1 61,047, at *19 n.93 (2010); Hempling,
207. Votes on H.R. 2454-American Clean Energy and Security Act of 2009,
OPENCONGRESS.ORG,
http://www.opencongress.org/bill/ 111 -h2454/actions votes
(last
visited Feb. 26, 2011).
2012]
ergy by a facility generating electric energy from renewable energy sources pursuant to a State-approved
production incentive program under which the facility
voluntarily sells electric energy. For purposes of this
subsection, "State-approved production incentive program" means a requirement imposed pursuant to State
law, or by a State regulatory authority acting within its
authority under State law, that an electric utility purchase renewable energy (as defined in section 609 of
this Act) at a specified rate.2 °8
This language appears to signify the intention of the thenmajority in the House of Representatives to eliminate the preemptive
effects of PURPA and the FPA for states attempting to implement a
state-level feed-in tariff. While this could eliminate some of the constitutional barriers to implementation of state-level feed-in tariffs,
there is some question as to the eventual impact of this (would-be)
provision. 2°9 First, the proposed provision does not address FERC's
power under the FPA to regulate wholesale rates or PURPA's avoided cost principle. The legislation appears to make a seller "free ...
to enter into any arrangement at any price. A state then [could] design a feed-in tariff like a European tariff, where the tariff itself,
without any further regulatory action, creates simultaneously a utility
duty to buy and a seller right to sell."21 Future legislation of this
kind would have to clarify its effect on FERC's authority under this
legislation, if any, to approve these state-mandated rates.
Second, the provision as drafted does not contemplate an
avoided cost ceiling and could allow states to set prices above avoided cost. However, it is unclear whether the legal authority to do so
would be PURPA or state law. If Congress is attempting to allow a
state to "establish a state law purchase mandate and set prices above
avoided cost," 21 ' this result would overrule FERC precedent such as
Midwest Power Systems.2"2 The proposed provision's effect on
FERC precedent is particularly interesting considering that FERC's
decision in CaliforniaPublic Utilities Commission and its subsequent
clarification reflects an unwillingness to depart from its previous
208. American Clean Energy and Security Act of 2009, H.R. 2454, 11 1th Cong. § 102
(2009).
209. HEMPLING ET AL., supra note 23, at 42.
210.
Id.
211.
Id.
212. Midwest Power Sys., Inc., 78 FERC 1161067 (Jan. 29, 1997). FERC relied on
Midwest Power Systems in its July decision in CalilbrniaPublic Utilities Commission.
[50:726
precedent attributing PURPA's avoided cost ceiling to non-PURPA
mandates. Future legislation could add language specifying that the
state-approved production incentive program was going to fall under
and comply with PURPA. That clarification could allow this legislation to provide the basis for establishing a "back-door" PURPA approach as outlined in the CPUC case for all states. If, however, the
legislation intends to authorize state-law-based rate schedules that do
not require FERC authorization or do not comply with the imputed
PURPA avoided cost ceiling, the states will continue to encounter
preemption problems.
A number of other legislative methods for resolving this issue
are possible, including ones that would require potentially less upheaval of FERC precedent or jurisdictional control. Congress could
change the PURPA avoided cost limit for the price that utilities must
pay to QFs in order to accommodate certain renewable generators.213
Further, Congress could maintain requirements under the FPA that
sellers obtain FERC contract approval, but declare "rates established
by states pursuant to state-level feed-in tariffs (or production incentives) ... to satisfy the just and reasonable requirement under the
FPA. '2 14 Finally, Congress could write non-QFs out of the definition
of sellers that need to obtain FERC 15approval if they sell according to
state-level feed-in tariff legislation.
VI. ANALYSIS: ARE FEED-IN TARIFFS WORTH THE BATTLE IN THE
UNITED STATES?
As is apparent from the preceding discussion, there are significant legal barriers to the implementation of state-level feed-in tariffs
in the United States. FERC seems unwilling to give up any power
under PURPA or the FPA to the states to set prices in order to implement a feed-in tariff. Nonetheless, the results that Germany has
achieved under RESA are undeniably significant. The international
community is becoming increasingly aware of and willing to recognize the potentially catastrophic results of unchecked global warming. In light of these realizations, is it time to examine carefully the
operating premises that the United States has been relying on for
nearly eighty years to determine if those premises are still appropriate
for achieving our new and changing goals?
213.
HEMPLING ET AL., supra note
214. Id.
215. Id.
23, at 46-47.
2012]
This section makes the case that it is necessary to take steps to
facilitate the implementation of feed-in tariffs in the United States.
First, it examines the potential and likely results under a feed-in tariffs most popular alternative in the United States, the RPS system,
and shows that this alternative is not aggressive enough when you
compare its results to the reductions in GHG emissions achieved under a feed-in tariff in Germany. Next, it discusses the advantages of
and dangers posed by modification of the current statutory regime in
the United States under the FPA and PURPA. Lastly, it argues that a
FERC rulemaking, initiated by interested parties or the agency itself,
may be the most prudent measure for facilitating the implementation
of feed-in tariffs in the United States and reducing GHG emissions
by the electricity industry, while simultaneously providing for FERC
oversight and the maintenance of federal control over an industry that
must be carefully regulated.
A. The RPS System in the United States
The Renewable Portfolio System is currently the most popular measure for states seeking to deploy renewables in the United
States.216 Although RPS systems seem to pose fewer constitutional
and statutory problems for implementation and theoretically have the
capacity adequately to incentivize increased reliance on renewables,
there are some problems with RPS systems that render these
measures comparatively less effective.
Due to the competitive proposal system and the utilities'
abilities to purchase RECs from other utilities, the RPS system does
not incentivize as many or as diverse of a range of renewable energy
projects as the feed-in tariff in Germany. Furthermore, there is some
regulatory uncertainty regarding eligible projects under RPS programs, and this can cause volatility in the pricing of Renewable Energy Credits.21 Although Congress has tried a number of times to
enact a federal RPS system to eliminate some of these problems, it
has failed to do so. 2 1 1 In his January 2011 State of the Union Address, President Obama reiterated that reducing America's dependence on foreign oil and GHG emissions is a national goal and called
for eighty percent of the nation's electricity to come from "clean energy" sources by 2035. This indicates that the federal government
may have renewed ambition for contributing to the climate change
216.
Ferrey et al., supra note 22, at 66.
217.
Ferrey et al., Fire and ce, supra note 3, at 156 57.
218.
[50:726
solution at the federal level.2 19 One study shows that if Congress
were able to enact a federal RPS system, it is possible that the United
States could achieve twenty-eight percent reliance on renewables by
2030.220 This is well behind the levels that Germany estimates 221 and
would be achievable only if Congress could pass a federal RPS. Under the current state-driven regime, the results are even less encouraging.
Additionally, an RPS does not significantly lower the risk for
investors in the renewable sector.222 Venture capital and investment
have been identified as key elements to rapidly deploying renewables, as renewable generators do not enjoy economies of scale.223
Although an RPS creates some demand for renewables, obtaining a
contract with a utility under an RPS system is difficult and costly.
This adds to the expense and risk to the investor. 24 Some proponents
of feed-in tariffs characterize the costs associated with obtaining a
bid in this system as "parasitic transaction costs. ' 225 They estimate
that "costs associated with performing interconnection studies and
other project needs [are] in the range of $100,000 to $500,000,"
which are dollars lost merely trying to get a project approved.226 In
California, ninety percent of such bids are rejected. Therefore, more
expensive renewables and smaller generators will be unlikely to obtain contracts through this bidding process. This fact makes those renewable suppliers particularly unappealing for investors. 227 This
shortcoming of the RPS system may be due to the fact that, initially,
RPS systems were "not a response to the threat of climate change. 228
However, states are currently using them in this capacity, trying to
219. Evan Lehmann, Obama, Announcing Clean Energy Standard, Looks br
Compromise, N.Y. TIMES (Jan. 26, 2011), http://www.nytimes.com/cwire/2011/01/26/
26climatewire-obarna-announcing-clean-energy-standard-looks-27848.htm;
Alliance
to
Save Energy, State of the Union 2011:
Clean Energy Fact-Sheet (Jan. 2011),
http://ase.org/resources/state-union-2011-factsheet-clean-energy-standard-ces.
220.
221.
See supra note 85 and accompanying text.
222.
223.
224.
Cory et al., supranote 141, at 8-9.
225.
FERC's
Wellinghoff
ENERGYWASHINGTON.COM
Could
Clash
with
Feed-in
Tariff
Advocates,
2 (Oct. 5, 2010), available at http://www.clean-coalition.org/
storage/EnergyWashWeek 10.05.10.pdf
226.
Id.
227.
See id.
228.
2012]
adapt a system designed to diversify the energy sector into a primary
strategy for dramatically reducing GHG emissions and addressing
climate change.229 Should we be using a "second-best" solution
when there is a better one readily available?23 °
The United States needs increased investment in clean technology to reduce GHG emissions and contribute to controlling climate change.231 However, the current level of investment is less than
optimal.232 Despite an obvious need for investment in renewable energy technology, these projects remain unattractive for investors who
know that they offer a poor return on investment due to the current
regulatory scheme in the United States.233 Over the past twenty
years, the United States has relied on coal for approximately fifty
percent of its electricity production.23 4 The RPS system has helped
make significant advances in reducing the United States' reliance on
fossil fuels for electricity production, but the RPS system is not rapidly deploying a diverse array of renewables or adequately incentivizing investment in renewables for the future. With growing awareness of the problem of climate change and GHG emissions, it is
important that the United States not be satisfied with a method that
produces disappointing results.
B. The Potentialfor Statutory Amendments
German officials say its feed-in tariff model is "by far the
most effective, better than Renewable Portfolio Standards and tax
credit incentives" for deploying renewables. 235 The Commission of
the European Communities, after some study, agreed that a "welladapted feed-in tariff' is the best method for "promoting renewable
'
energy."236
However, there are significant legal barriers to implementing feed-in tariffs under U.S. law as it currently stands. Proposed legislation amending the Federal Power Act seems to authorize
states to establish a rate schedule based in state law; however, such a
229.
Id.
230.
Seeid. at216-17.
231.
See Kopetsky, supra note 5, at 949.
232.
See id.
233.
See id. at 943-45.
234.
Sherman, supra note 112, at 233.
235.
Blakeway, supra note 15, at 224.
236. Commission of the European Communities Staff Working Document, supra note
14, at 3 (emphasis omitted).
COLUMBIA JOURNAL OF TRANSNA TIONAL LA W
[50:726
grant of authority to states seems to directly contravene established
FERC precedent.
If the legislation intends to authorize stateadministered pricing under PURPA, the legislation might not contradict FERC precedent but it would do very little to change the status
quo after CaliforniaPublic Utilities Commission. States would have
to go through the same burdensome process as the CPUC with no
guarantee of ultimate approval by FERC. Furthermore, a welladapted feed-in tariff accurately prices renewables based on their cost
of generation; the avoided cost principle may constrain a state's ability to accurately price renewables.
C. Administrative Rulemaking as a Solution
Considering the inadequacy of the RPS alternative and the
uncertainty surrounding a statutory amendment and the current
"back-door" PURPA approach, the best way to facilitate the implementation of highly effective feed-in tariff schemes is for interested
parties or FERC itself to initiate a rulemaking process and create
guidelines or rebuttable presumptions for states to set an "offer price"
for purchasing electricity from renewable generators.2 37 This would
allow states discretion to set an offering price that satisfies the requirements of a "well-adapted feed-in tariff' and remove some of the
burdensome steps and uncertainty surrounding FERC's decision in
the CPUC case. 238 The resulting contract would still be subject to
FERC approval under the FPA, but it would have a greater likelihood
of approval because it would be created with FERC guidance. The
rule would also create a legal measure under which potentially aggrieved parties could challenge the offering price in a court of law.
This would provide more clarity for setting rates than the nebulous
case law interpreting avoided cost currently provides. This method
provides for the least disruption to statutory authority vested in FERC
while allowing states to implement these highly effective methods for
237. FERC rejected the characterization of a state feed-in tariff price as an offer price in
CalilbrniaPublic Utilities Commission. FERC's decision would have to be overturned on
appeal or modified through rulemaking. FERC's demonstrated sympathy to CPUC's cause
in CalilbrniaPublic Utilities Commission suggests it may be looking for a way to help wellintentioned state governments deploy renewable resources.
California Pub. Utilities
Comm'n, 132 FERC 1 61047 (July 15, 2010) ("We disagree with the characterization of the
CPUC's AB 1613 Decisions as merely establishing an 'offering price' by the purchaser of
power.").
238. The CPUC case allows states discretion to accurately price renewables, control
rates of return on investment and otherwise eliminate loopholes. See supra notes 63-65 and
accompanying text.
2012]
deploying renewable resources.
CONCLUSION
If the United States is to commit fully to doing its part in reducing GHG emissions and controlling climate change, it must learn
from the success of others and not be afraid to try innovative strategies that could reduce our stifling dependence on fossil fuels. The
United States cannot be quick to hide behind statutory roadblocks to
the implementation of highly effective measures for solving the grave
problems that the international community will face if climate change
continues unchecked and greenhouse gases continue pouring into our
skies. There are many ways to facilitate the implementation of the
German model for feed-in tariffs in the United States, most successfully in the form of a FERC rulemaking creating guidelines and rebuttable presumptions for states that want to establish an offer price
for utilities pursuant to state law. If FERC, Congress, the utilities
and renewable generators can collaborate, we can certainly find a solution to the current barriers to implementation of feed-in tariffs in
the United States and contribute significantly to solving one of the
greatest challenges facing the international community today.
Katherine D. Kelly*
*
Public Affairs Editor, Columbia Journal of Transnational Law; J.D., Columbia
Law School, 2012; B.A., University of Pennsylvania, 2006. The Author would like to thank
Professor Michael Gerrard for his insights and guidance during the writing of this Note.
Additionally, she is incredibly grateful to the editorial board and staff of the Columbia
Journal of TransnationalLaw for their friendship and exceptional editing skills. She also
thanks her family and friends for their incredible support, particularly John and Suedeen
Kelly for being both people and lawyers that she admires, her sister Victoria for her kind
encouragement and for putting up with all the "law talk" at family dinners, Chris Fell for his
love and patience and Hayley Gross for always being her number one cheerleader.

Notes Don`t Hide Behind Statutory Roadblocks: How

Transcription

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