Midwest Court Ruling May Ease Energy Sales Into California

A ruling by a federal court in the Midwest may force California to buy renewable energy from out of state whether it wants to or not, potentially spurring energy development in the desert areas east of the California state line. The decision found that Michigan laws favoring in-state renewable energy generation are unconstitutional.

Handed down June 7 by the Seventh Circuit U.S. Court of Appeals in Chicago, the decision came as a result of a legal contest between several states and regional utilities and the Federal Energy Regulatory Commission (FERC) over who's on the hook for the costs of new regional transmission lines. In 2011, FERC approved a plan by the Midwest Independent Transmission System Operator (MISO) to build a new transmission network between the Great Lakes and the Great Plains states. That network would bring western wind energy to midwestern cities, and MISO expected those Midwestern utilities and their ratepayers to shoulder the costs of building the lines.

But some of those locals sued to block the plan, including the state of Michigan. According to Michigan's Clean, Renewable, and Efficient Energy Act -- the equivalent to California's Renewable Portfolio Standard (RPS) law -- Michigan utilities are forbidden to count renewable energy generated outside the state toward the mandated 10 percent renewable energy level those utilities much achieve by 2015. Given that Michiganders were generating their renewables in-state, argued the plaintiiffs, there was no reason to ask them to pay for transmission to bring them energy they wouldn't be using.

On June 7, Circuit Judge Richard Posner found that Michigan's law ran up against an "insurmountable constitutional objection":

California's RPS law doesn't forbid or exclude out-of-state energy purchases, though it is state policy to discourage outside utilities from viewing California as an "import market" for renewable energy. That has frustrated generators in neighboring states, who would love to build renewable generating capacity to sell power to Californians, but who would rather build that capacity in states with environmental protection laws not quite as effective as the California Environmental Quality Act can be.

The result could be a "renewable energy zone" in the strip of desert lands along the California line much like the maquiladora zone on the south side of the Mexican border, with factories as close to the markets as they could get without being subject to environmental and worker safety laws that actually worked.

Posner may well have opened the door to development of a "maquilasolar" zone running from Reno to Yuma. Circuit court decisions are technically binding only on the lower courts within their districts, and so Posner's ruling in the Seventh Circuit doesn't apply directly to potential court cases in California and its neighboring states, which are in the Ninth Circuit. But Circuit judges regularly take cues from rulings in other circuits, and Posner's unambiguous language will likely be taken very seriously should an Arizona developer choose to bring California's electric power brokers to court over alleged violations of the Commerce Clause. We on the West Coast haven't heard the last of this issue.