Direct Energy Servs. v. Pub. Utils. Regulatory Auth.

• Docket Number: SC 20643
• Decision Date: 04 July 2023
• Parties: DIRECT ENERGY SERVICES, LLC, ET AL. v. PUBLIC UTILITIES REGULATORY AUTHORITY
• Court: Connecticut Supreme Court

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DIRECT ENERGY SERVICES, LLC, ET AL.
v.
PUBLIC UTILITIES REGULATORY AUTHORITY

No. SC 20643

Supreme Court of Connecticut

July 4, 2023

Argued December 15, 2022

Appeal from the decision of the defendant establishing a regulatory framework for a certain renewable energy product, brought to the Superior Court in the judicial district of New Britain, where the court, Klau, J., granted the motions to intervene filed by the Office of Consumer Counsel et al.; thereafter, the case was tried to the court, Klau, J.; judgment for the defendant, from which the plaintiffs appealed. Affirmed.

Linda L. Morkan, with whom were Joey Lee Miranda and, on the brief, Benjamin C. Jensen, for the appellants (plaintiffs).

Michael K. Skold, deputy solicitor general, with whom were Seth Hollander, assistant attorney general, and, on the brief, William Tong, attorney general, and Clare Kindail, former solicitor general, for the appellee (defendant).

William E. Dornbos, legal director, with whom, on the brief, were Andrew W. Minikowski, staff attorney, and Claire E. Coleman, consumer counsel, for the appellee (intervenor Office of Consumer Counsel).

Erick M. Sandler, Alexander Judd, Sophia Browning and Hannah Kalichman filed a brief for Vistra Corporation as amicus curiae.

Robinson, C. J., and McDonald, D'Auria, Mullins, Ecker and Alexander, Js.

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OPINION

McDONALD, J.

This case requires us to decide, among other things, whether certain regulations imposed by the defendant, Public Utilities Regulatory Authority (PURA), on energy suppliers within this state violate the dormant commerce clause of the United States constitution.^[1] In October, 2020, PURA imposed a series of restrictions on retail electric suppliers who offer customers of this state voluntary products consisting of renewable energy credits (RECs) bundled with electric supply. These products are known as voluntary renewable offers (VROs). The two restrictions relevant to this appeal are the geographic restriction and the marketing restriction. The geographic restriction prohibits VROs from containing RECs sourced outside of particular geographic regions. The marketing restriction requires that suppliers provide clear language informing consumers that a VRO backed by RECs is not "renewable energy" itself but, rather, an energy product backed by RECs.

The plaintiffs, which are all companies that desire to market and sell VROs to Connecticut electric customers,^[2] contend that the geographic restriction impermissibly discriminates against RECs created outside of the permitted geographic regions. The plaintiffs further contend that the marketing restriction impedes commerce in the national marketplace because it imposes a regulatory requirement inconsistent with those of other states. The plaintiffs also raise a number of other constitutional and procedural claims. For its part, PURA contends that the trial court correctly concluded that neither the geographic restriction nor the marketing restriction violates the dormant commerce clause because, among other things, the restrictions help advance this state's legitimate environmental policy goals and improve consumer transparency.^[3] As to the plaintiffs' remaining claims, PURA contends that the trial court correctly concluded that they are either unreviewable or without merit. We agree with PURA and, accordingly, affirm the judgment of the trial court.

Before we set forth the relevant facts and procedural history of this case, we begin with an overview of this state's policies and statutes governing the electric supply industry, which is crucial to our understanding of the plaintiffs' claims. "Until relatively recently, most state energy markets were vertically integrated monopolies-i.e., one entity, often a state utility, controlled electricity generation, transmission, and sale to retail consumers. . . . Over the past few decades, however, many states, including Connecticut, have deregulated their energy markets. ... In deregulated markets, [load-serving entities] purchase electricity at wholesale from independent power generators. . . . In order [t]o ensure reliable transmission of electricity from independent generators to [load-serving entities], [the Federal

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Energy Regulatory Commission (FERC)] has charged nonprofit entities, called Regional Transmission Organizations (RTOs) and Independent System Operators (ISOs), with managing certain segments of the electricity grid. ... The New England ISO (ISO-NE), [one of] the transmitter[s] involved in this case, manages the grid in most of New England, including all of Connecticut." (Citations omitted; internal quotation marks omitted.) Allco Finance Ltd. v. Klee, 861 F.3d 82, 88 (2d Cir. 2017) (Allco), cert, denied, U.S., 138 S.Ct. 926, 200 L.Ed.2d 203 (2018).

In deregulating this state's energy market, the legislature created new entities called electric suppliers, which provide electric energy "to end use customers in the state using the transmission or distribution facilities of an electric distribution company . . . ." General Statutes § 16-1 (a) (24); see also General Statutes (Rev. to 2019) § 16-245. Electric suppliers generally do not themselves generate the power that they sell to consumers. See, e.g., Richards v. Direct Energy Services, LLC, 246 F.Supp.3d 538, 543 (D. Conn. 2017), aff d, 915 F.3d (2d Cir. 2019). Rather, they function as a" 'middleman'" in the electricity market by purchasing energy from wholesalers and then selling it to consumers under contract. Id. Suppliers that receive the proper licensing may serve residential, commercial, and industrial customers throughout the state and are active participants in the retail competitive markets for electricity. The activities of electric suppliers are heavily regulated. PURA hears customer complaints regarding electric suppliers, monitors and takes action to prevent unfair and deceptive practices, and monitors the state of competition in the marketplace. See General Statutes §§ 16-245t, 16-245u and 16-245x.

Among the governing regulations, electric suppliers must satisfy this state's mandatory renewable portfolio standards (RPS). The RPS require electric suppliers to demonstrate that certain percentages of the electricity that they supply have been generated by specific types or classes of renewable energy sources (i.e., solar, wind, hydroelectric, etc.). See General Statutes §§ 16-243qand 16-245a;^[4] see also General Statutes § 16-1 (a) (20), (21) and (38). The policy embodied in the RPS obligations "creates a financial incentive for [the] development of renewable energy projects by ensuring a market and steady stream of revenue for renewable generators." Public Utilities Regulatory Authority, Connecticut Renewable Portfolio Standard (last modified November, 2022), available at https://portal.ct.gov/PURA/RPS/Renew-able-Portfolio-Standards-Overview (last visited June 26, 2023); see General Statutes §§ 16-243q and 16-245a. Electric suppliers can achieve compliance with these minimum standards by purchasing RECs. See General Statutes § 16-245a (b) (1) (A). "RECs are inventions of state property law whereby the renewable energy attributes are unbundled from the energy itself and

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sold separately." (Internal quotation marks omitted.) Wheelabrator Lisbon, Inc. v. Dept. of Public Utility Control, 531 F.3d 183, 186 (2d Cir. 2008). Each REC represents one megawatt-hour of renewable energy produced by a third-party generator. See, e.g., United States Environmental Protection Agency, Renewable Energy Certificate Monetization (last modified February 15,2023), available at https://www.epa.gov/greenpower/renewable-energy-certificate-monetization (last visited June 26, 2023). As the trial court in this case aptly explained, "RECs are necessary because of a fundamental reality about the generation and distribution of electricity: electrons cannot be traced from their generation source to the end user unless the source is behind the customer's electricity meter. In all other instances, energy produced at a renewable source, and all other sources, flows to the grid and its use is untraceable. . . . Thus, when customers enter into a contract to purchase renewable energy, they are actually agreeing to purchase [RECs] reflecting the [renewable] attributes for that energy." (Citation omitted; internal quotation marks omitted.) Because of the way the power grid is structured in this country, the only power that can physically reach Connecticut consumers is energy generated in either the control area covered by ISO-NE or in an immediately adjacent control area. However, because RECs can be purchased from renewable energy generated anywhere in the country, the energy that suppliers sell to end use consumers in this state is not necessarily the same energy on which the REC itself is based.

Electric suppliers must file an annual report with PURA to demonstrate compliance with the RPS obligations. See Regs., Conn. State Agencies § 16-245a-l (a) (2020). These annual reports are based on RECs issued exclusively by the New England Power Pool Generation Information System (NEPOOL GIS).^[5] See General Statutes § 16-245a (b); Regs., Conn. State Agencies § 16-245a-l (c) (2020). The geographic footprint of NEPOOL GIS corresponds to the geographic footprint of ISO-NE. Two other regional systems are relevant to this appeal: the New York Generation Attribute Tracking System (NYGATS), which corresponds to the geographic footprint of the New York Independent System Operator (NYISO), and the PJM Generation Attribute Tracking System (PJM-GATS), which corresponds to the geographic footprint of PJM Interconnection-the RTO of the mid-Atlantic.

Although the RPS are mandatory and set minimum renewable energy standards for most energy sold in this state, in 2005, PURA established the Clean Energy Options Program to enable consumers to support the development of renewable energy sources above and beyond the...