Commerce Clause
Parties also briefed the issue of whether a deliverer point of regulation is permissible under the "dormant" Commerce Clause. Under the dormant Commerce Clause, a state's laws or regulations may be unconstitutional if there is a differential treatment of in-state and out-of state economic interests that benefits the former and burdens the latter. We have considered the parties' filings and conclude that a deliverer point of regulation does not violate the Commerce Clause.
The regulations we are proposing are facially neutral and do not have a discriminatory purpose or effect. In other words, a deliverer point of regulation does not on its face, or in effect, discriminate against interstate commerce in favor of intrastate commerce, nor is there any purpose to favor intrastate commerce over interstate commerce. A deliverer point of regulation treats all electricity delivered to the California grid the same, whether that electricity is generated in California or elsewhere. In either case, the deliverer will have to surrender GHG allowances based on the amount of GHG emissions associated with that electricity.
When a state law or regulation is not facially discriminatory and does not have a discriminatory purpose or effect, the courts apply the Pike balancing test. Under Pike, a state enactment "will be upheld unless the burden imposed on [interstate] commerce is clearly excessive in relation to the putative local benefits." (Pike v. Bruce Church, Inc. (1970) 397 U.S. 137, 142.) Here, the burden on interstate commerce is purely incidental and the local benefits27 to California of reducing GHG emissions, and therefore the impact of global warming, are most significant. In AB 32, the Legislature made the following findings:
(a) Global warming poses a serious threat to the economic well-being, public health, natural resources, and the environment of California. The potential adverse impacts of global warming include the exacerbation of air quality problems, a reduction in the quality and supply of water to the state from the Sierra snowpack, a rise in sea levels resulting in the displacement of thousands of coastal businesses and residences, damage to marine ecosystems and the natural environment, and an increase in the incidences of infectious diseases, asthma, and other human health-related problems.
(b) Global warming will have detrimental effects on some of California's largest industries, including agriculture, wine, tourism, skiing, recreational and commercial fishing, and forestry. It will also increase the strain on electricity supplies necessary to meet the demand for summer air-conditioning in the hottest parts of the state. (Health & Safety Code § 38501(a), (b).)
The local benefits of reducing GHG emissions are further elaborated in the Final Climate Action Team Report to the Governor and the Legislature (presented to the Legislature in March 2006).28 As noted in D.07-01-039, there are other local benefits of a program to reduce GHG emissions from electricity used in California. The program we are recommending encourages a wide range of clean energy sources, which protects the reliability of the grid serving California. Furthermore, if California were to wait until the federal government begins regulating GHG emissions, California would have less time to adjust to a low-GHG emission regime for meeting electricity needs, which could be costly and inefficient. For example, by taking early action to meet the environmental challenge of GHG emissions, California will reduce the costs its ratepayers would have to pay if there were continued investment in high-GHG emitting sources in the interim.
Accordingly, we conclude that any burdens on interstate commerce that may result from the implementation of AB 32 under the regulations that we will be proposing to the ARB (including a deliverer point of regulation) are incidental in relationship to the local benefits to California.29
Finally, we conclude that using a deliverer point of regulation for the electricity sector does not regulate extraterritorially in violation of the Commerce Clause. A state statute or regulation may be struck down as impermissibly extraterritorial if it regulates commerce that occurs wholly outside the state. The deliverer point of regulation only regulates electricity that is generated in, or delivered for consumption in, California. Thus, it does not regulate any commerce that occurs totally outside of California, and therefore does not regulate extraterritorially in violation of the Commerce Clause.30
27 In the context of Pike analysis, the term "local benefits" refers to the benefits to the jurisdiction imposing the regulation at issue, in this case, California.
28 See also the impacts on California identified in the Environmental Council's opening comments on the Market Advisory Committee report, at p. 23.
29 In its comments on the proposed decision, LADWP questions the extent to which the regulations proposed in this decision will affect global GHG emissions. However, these regulations are only a part of California's overall efforts to reduce GHGs, and states are not required to resolve massive problems in one fell regulatory swoop, but may take reform one step at a time. For the reasons explained in this decision, the regulations we are proposing will help slow the pace of global emissions increases.
30 In its comments on the proposed decision, LADWP argues that there may be extraterritorial regulation under the reporting regulations relating to contract shuffling. Neither the purpose nor the effect of these anti-contract shuffling rules is to regulate how power is sold, or accounted for, in other states. Indeed, in our reporting decision, we emphasized that these rules would not prohibit parties from entering into contracts for the supply of electricity that they are otherwise permitted to enter into. (D.07-09-017, mimeo. at p. 19.) Rather, the purpose of these rules is to prevent entities from claiming to have reduced GHG emissions caused by the consumption of power in California when in fact there has been no real reduction in those emissions. In short, the effect of these rules is simply to provide an accurate accounting of the GHG emissions caused by the consumption of electricity in California.
