Seventh Circuit Ruling Supports Transmission Of Renewable Energy And Questions State Renewable Portfolio Standards That Discriminate Against Out-Of-State Renewables

by Perkins Coie

Two important factors affecting the growth of renewable energy infrastructure in the United States are impacted by a recent federal court decision.  First, transmission line congestion has been a big obstacle to moving renewable energy from rural resource areas to urban demand centers.  Second, state renewable portfolio standards (RPS) affecting utility investment in renewable energy have often favored renewable power generated in state, limiting incentives for interstate transactions.

The U.S. Court of Appeals for the Seventh Circuit delivered a victory for the Federal Energy Regulatory Commission (FERC) in its recent decision in Illinois Commerce Commission v. FERC, No. 11-3421 et al., 2013 WL 2451766 (7th Cir. June 7, 2013), which validates innovative transmission cost-sharing methods and calls into question state RPS provisions that discriminate against out-of-state renewable resources.

At its core, this case asked whether utilities participating in regional transmission organizations (RTOs) that share transmission lines can be forced to pay for new high-voltage lines to transmit renewable power throughout the region.  As noted in the Seventh Circuit's decision, RTOs like Midcontinent Independent Transmission System Operator, Inc. (MISO) and PJM Interconnection, L.L.C. are not-for-profit, voluntary regional associations that control more than half of the nation's electric grid.  At issue here were the fees charged by MISO for transmission system upgrades to move electricity from remote wind farms to urban consumption areas.

State utilities and regulators challenged FERC's 2011 order approving rates charged by MISO, disputing the cost allocation on six separate grounds.  In general, these challengers claimed that the financing mechanism should be allocated based on proximity to new lines rather than the utility's share of the region's total wholesale consumption of electricity.  The effect of MISO's cost allocation is that urban areas likely to consume new wind power would pay more than rural areas where the wind resources are located.

FERC has power under section 205 of the Federal Power Act (Act) to determine if fees charged by RTOs are "just and reasonable."  In a decision authored by Judge Richard Posner, the Seventh Circuit found the cost allocation did not violate the Act by unjustly requiring utilities to bear costs disproportionate to benefits received.  The court also ruled that overall costs of the projects did not exceed benefits in violation of the Act.  Judge Posner called the challengers' Tenth Amendment argument "frivolous," finding that states were not coerced into participating because "there is nothing to prevent a member of MISO from withdrawing from the association and joining another [RTO]."

State RPS mandates served as an impetus for the proposed transmission line improvements within MISO.  While RPS vary from state to state, most of the states within MISO expect or require utilities to obtain between 10 percent and 25 percent of their electricity needs from renewable resources by 2025.

The State of Michigan asserted that the in-state element of its RPS system would cause Michigan utilities to pay a share of the tariff rates greatly disproportionate to the benefits derived from the projects.  The Michigan statute forbids Michigan utilities from counting renewable energy generated outside the state toward that state's RPS that requires utilities to obtain at least 10 percent of their electricity needs from renewable sources by 2015.  Michigan argued that its utilities would unfairly be paying MISO for out-of-state resource development that would not help the state’s utilities meet their targets under the Michigan RPS.  The Seventh Circuit found Michigan's argument "trips over an insurmountable constitutional objection.  Michigan cannot, without violating the commerce clause of Article I of the Constitution, discriminate against out-of-state renewable energy."

Although the issue of Michigan's RPS was not the focus of this case, this language will nevertheless be likely to resurface in the next case challenging the constitutionality of a state RPS that favors in-state renewable energy.  Michigan's program is not unique.  Many other states, including Arizona, California, Colorado, Delaware, Maine, Massachusetts, Missouri, Nevada, North Carolina, Ohio and Washington, have adopted RPSs that may be susceptible to a constitutional challenge.  Attorney Generals of four states—Alabama, Texas, Nebraska and North Dakota—have threatened to challenge California's RPS on Commerce Clause grounds because the state's laws provide favorable treatment to renewable energy projects that are directly connected to the state's grid or that meet complex procedures for moving electricity onto the state's grid.  Other challenges have included a challenge of Massachusetts's Green Communities Act and state RPS, which initially required that utilities solicit long-term renewable power sales contracts from only in-state resources.  TransCanada Power Mktg. Ltd. v. Bowles, No. 4:10-cv-40070-FDS (D. Mass. Apr. 16, 2010) (no decision on the merits was reached because Massachusetts issued emergency rules dropping its in-state requirement for long-term renewable energy contracts).  In Colorado, a lawsuit was filed challenging the state's RPS because the state mandate provided certain economic benefits to in-state renewable generators that are not available to out-of-state generators and also imposed burdens on interstate electricity generators.  Am. Tradition Inst. v. Colorado, No. 1:11-cv-00859 (D. Colo. filed Apr. 22, 2011).  To comply with the Commerce Clause, the RPS statutes in certain states may need to be amended to remove protectionist regulations that favor in-state businesses.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Perkins Coie | Attorney Advertising

Written by:

Perkins Coie

Perkins Coie on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.