Delaware’s plan to create jobs and increase production of clean energy on the site of Newark’s old Chrysler plant has been hit by a lawsuit claiming the plan is unconstitutional.
The suit, by Connecticut-based FuelCell Energy and local activist John A. Nichols, says an amendment to a state law on renewable energy violates the U.S. Constitution by seeking to protect a local business from out-of-state competition.
The business is Bloom Energy, which in April broke ground on its Newark factory where it plans to build fuel cells that generate electricity without the combustion that produces greenhouse gases. The operation aims to create 900 full-time jobs.
The suit, filed on June 20 against Governor Jack Markell and the Public Service Commission, says Delaware is discriminating against FuelCell Energy and other out-of-state companies by giving Bloom a grant of up to $16.5 million and by securing a commitment from Delmarva Power that it will buy 30 megawatts of power for 20 years.
It accuses the state government of favoring Bloom as a “crony company,” and says Delaware consumers will have to pay higher electricity prices as a result of a tariff charged by the utility.
The suit, filed in federal court in Wilmington, takes aim at the state’s Renewable Energy Portfolio Standards Act (REPSA), which it says was amended in 2011 to favor Bloom in return for the California-based company agreeing to build a factory in Newark.
“In consideration for Bloom’s promise to build a fuel-cell factory in Delaware employing 900 full-time employees, the REPSA shields a particular company, Bloom, from out-of-state competition,” the suit says.
But it is unlikely to succeed in its aim of persuading a federal judge to declare the amendment unconstitutional, according to one legal expert.
David Hodas, a distinguished professor of law at Widener University, said the suit has little chance of success because Delaware has a legitimate role to play in attracting new businesses to Delaware, diversifying the state’s sources of energy, and reducing transmission costs, and those principles underlie its agreement with Bloom.
Hodas predicted a court will reject the allegation that the agreement violates the Equal Protection Clause of the U.S. Constitution on the grounds that the state will be able to show that the law in question — REPSA — is rationally related to a legitimate government purpose.
On the suit’s other claim — that the law violates the so-called “Dormant Commerce Clause” of the Constitution by requiring a Delaware-based company to produce the fuel-cell electricity purchased by Delmarva Power — the state can argue that even though the law as written favors fuels cells built in Delaware, the state had no intention of discriminating against an out-of-state company or of protecting existing in-state businesses, Hodas said.
Rather, the state would argue that in passing the law, it was exercising its right to expand its economic base and promote energy security, cleaner sources of electricity and lower transmission costs, he said.
The suit also claims that REPSA discriminates against consumers by requiring Delmarva to charge a tariff that would subsidize Bloom, forcing households to pay more for renewable energy than they would if they purchased it on a competitive interstate market. The tariff would add an average of $1.34 a month to customer electric bills.
That argument is vulnerable on the grounds that customers might have to pay higher rates if the law was not in force because the state would not have access to the additional power supply, Hodas said.
“The irony is that they don’t like having the rate increase but if they were to win, they would drive costs higher over time because it would be preventing a more diversified and stable system,” he said.
“I think it [the suit] has at best a modest chance of success,” Hodas told DFM News.
Still, the law’s specification that a Delaware company must supply the fuel-cell power is open to challenge on the grounds of discrimination against businesses from other states, Hodas said.
“It does at least create an argument that the statute on its face is protecting in-state businesses from out-of-state businesses,” he said. “It was not artfully done, and if they could have done it without putting the word ‘Delaware’ in there, it would have been much stronger.”
Whatever the outcome, the case is unlikely to create a precedent because similar suits have been filed in Colorado, North Dakota, and Massachusetts, where a Canadian company is trying to block a law requiring the state’s utilities to buy renewable power from in-state companies, Hodas said. None of the cases has been decided.
FuelCell Energy, a leading U.S. maker of stationary fuel cells, said it joined the suit because consumers will benefit from renewable electricity that’s produced in a competitive interstate market.
“We are participating in this action out of the belief that healthy competition supports the best interest of the ratepayer, the larger renewable energy industry and the future of clean energy,” the company said in a statement. “We wish to ensure there is no precedent set for transactions of this nature in other U.S. states.”
The company said it can produce power from its stationary fuel cell plants for “substantially less” than the 22 cents a kilowatt hour before renewable energy credits that would be charged to customers under the Bloom agreement.
It noted that it is not suing Bloom and is not seeking monetary damages but wants the federal court to declare that the REPSA amendment is unconstitutional and unenforceable. It’s also seeking an injunction that would prevent enforcement of those sections of the law.
Co-plaintiff John Nichols, an activist who unsuccessfully challenged Bloom’s planned fuel-cell plant on environmental grounds, is backed by the Caesar Rodney Institute, a Delaware a conservative leaning Dover-based non-profit organization.
The institute opposed Bloom’s contract with Delmarva at the Delaware Public Service Commission hearings last October, arguing that the increased electricity prices would result in a negative economic impact on the state. The group said in a statement on its website that it has been concerned about the constitutionality of the Bloom contract from the beginning.
Governor Markell’s office issued a statement defending the law and attacking the Caesar Rodney Institute.
“It is disappointing that Delaware’s right-wing Caesar Rodney Institute teamed up with an out-of-state special interest group in a last-minute effort to try and short-circuit the creation of good middle-class manufacturing jobs here Delaware,” the statement said. “We intend to fight these efforts vigorously to protect these important jobs.”
Senator Anthony DeLuca, President Pro Tem of the Delaware State Senate, and a sponsor of the REPSA amendment, declined to comment on the pending litigation. The Public Service Commission also declined to comment while Bloom Energy did not respond to a request for a statement.