A federal appeals court found last week that it's unconstitutional for Michigan to discriminate against out-of-state renewable electricity -- a decision being described as giving a major edge to clean power in the legal fight over the future of the U.S. grid.
The 7th U.S. Circuit Court of Appeals backed Friday the Federal Energy Regulatory Commission's approval of a plan in the Midwest to apportion costs for new power lines slated to boost reliability and ship millions of megawatts of wind power from remote areas to population hubs around the Great Lakes.
In doing so, the court also threw out challenges from utilities and regulators in Michigan and Illinois accusing FERC of overstepping its authority and unfairly spreading the cost of new, high-voltage power lines needed to move remote solar and wind power to market.
At issue is FERC's approval in 2011 of the Midwest Independent Transmission System Operator's (MISO) program for planning and paying for new power lines. MISO created a process for spreading the cost of new "multi value projects" among utilities pulling power from the Midwestern grid. MISO has said the power line proposals will boost reliability and prevent blackouts, and lower costs by shipping in cheap wind from the Great Plains.
But utilities and Michigan regulators argued that the grid operator's program forced them to pay for costly new power lines carrying out-of-state renewable energy not recognized under the state's renewable portfolio standard.
Michigan's Clean, Renewable and Efficient Energy Act forbids utilities from counting out-of-state renewables when fulfilling the goal of providing retailers with at least 10 percent of renewable energy by 2015, according to court documents. Michigan also obtains very little power from MISO's extensive footprint in the Midwest, and utilities should only have to pay for local generation and transmission lines, they said.
But Judge Richard Posner found that Michigan's law trips over "an insurmountable constitutional objection" and violates the commerce clause, which bars states from passing legislation that discriminates or burdens interstate commerce.
"Michigan cannot, without violating the commerce clause of Article I of the Constitution, discriminate against out-of-state renewable energy," Posner wrote.
One legal expert said the court's decision was highly anticipated and could have far-reaching implications for how states implement their renewable energy programs. "Virtually every state's renewable portfolio standard favors in-state [generation]," they said. "If that's unconstitutional, all of a sudden it changes the entire renewables game."
What remains unclear is whether a party -- possibly a wind or solar developer being barred from lucrative markets -- will file a lawsuit based on the court's decision and push the issue forward, the source said. "There's now a legal marker out there for people to follow," they said.
John Jimison, the managing director of the Energy Future Coalition, said in a statement that the court's decision "will have serious echoes in Michigan's ongoing legislative consideration, in California, and elsewhere."
The court also handed FERC a victory in rejecting the Illinois Commerce Commission's assertion that the agency was interfering with states' ability to site new power lines and overstepping its authority. The commission said MISO's rules for what qualifies as a "multi value project" were too "loose" and that many members of MISO are being forced to pay for projects that benefit only a few parties. To qualify, high-voltage transmission lines must cost at least $20 million and either help boost reliability, meet renewable energy requirements or provide economic benefits.
Illinois failed to consider the "uncertainty of the future" and the fact that the benefits of new renewable power in a fossil-dominated region are extremely difficult to gauge, the judges said. Piping in cheap wind power to urban hubs, for example, could lower costs during price spikes, they added.
"It's not enough for Illinois to point out that MISO's and FERC's attempt to match the costs and the benefits of the MVP program is crude; if crude is all that is possible, it will have to suffice," they wrote.
The court noted that benefits of a rapidly developing wind industry will likely reach far beyond the realm of MISO, and that wind already accounts for 3.5 percent of the nation's power. The judges also said it is impossible to gauge how quickly the industry will grow.
"The best guess is that it will grow fast and confer substantial benefits on the region served by MISO by replacing more expensive local wind power, and power plants that burn oil or coal, with western wind power," the judges wrote.
The judges also noted that FERC through approving cost allocation and planning proposals wasn't ordering the construction of new infrastructure, and utilities are free to leave a regional transmission operator and join another.
One industry source said the decision bodes well for FERC's landmark Order 1000, a rule the federal agency passed to revamp transmission planning and cost allocation that is now facing multiple challenges in federal court.
"It presages victory for FERC on Order 1000," the source said.
But Steven Transeth, an attorney and former member of the Michigan Public Service Commission, said in an email that the court wrongfully accepted the assumption that wind "is the future and western wind will be cheaper than local wind." Transeth, who directs a coalition of major industrial customers and Michigan Attorney General Bill Schuette, faulted the court for basing its decision on MISO reports that he said fail to show how certain transmission projects economically benefit the Great Lakes region and that solar is lapping wind in some areas.
"I would hope those who represent us in Washington would be quite concerned with a court that is comfortable with setting public policy and saddling Michigan with billions of dollars in costs based on its 'best guess,'" he said.