The wheels of justice (Whipple)

Delaware politicians often tout the need to revitalize the state’s economy, create jobs, etc., but don’t necessarily walk the talk. Thus, one of the obstacles to locating (or keeping) manufacturing operations in Delaware is higher than average electric power costs. And said costs have been inflated by Delaware’s (1) participation in a 9-state cap and trade scheme (Regional Greenhouse Gas Initiative, or RGGI) for carbon dioxide (CO2) emissions from electric power plants that burn fossil fuel; and (2) mandates that electric power distributors (e.g., Delmarva Power) procure an increasing share (25% by 2025) of their power from “renewable energy” (as defined by statute, this includes wind, solar, and Bloom Energy fuel cells) sources.

Frustrated by the difficulties of achieving changes to these policies through the legislative process, some free market enthusiasts have attempted to seek redress in the courts – so far with meager results.

Civic activist John Nichols played a leading role in two cases against Bloom Energy. One case challenged DNREC’s approval of a power generation facility using Bloom’s fuel cells in the Delaware Coastal Zone (he is an avid sportsman and knows this area well); the second involved a US constitutional challenge to the imposition of a fuel cell surcharge on Delmarva ratepayers (of which he is one). It was ruled that Nichols lacked standing in both of these cases, go figure.

Yours truly was the named plaintiff in a class action suit against Delmarva Power seeking damages because the Bloom Energy fuel cell operations are consuming more natural gas than the DNREC permit allows (with a corresponding increase in the qualified fuel cell provider surcharge). The complaint was dismissed on grounds that it should have been brought before the Public Service Commission, at which point the class action law firm lost interest.

David Stevenson (of Caesar Rodney Institute) and several others filed a fourth suit re the RGGI cap and trade program in January 2014. The plaintiffs did not challenge this program per se, but they claimed DNREC had exceeded its authority by issuing regulations to bring Delaware’s requirements into line with tightened regional limits on CO2 emissions by power producers.

Here’s the background: Delaware entered into a Memorandum of Understanding (MOU) with other participating states in December 2005, and the General Assembly subsequently enacted legislation providing for Delaware’s participation in the RGGI. Notably, power producers in Delaware are required to purchase CO2 emission allowances for the fossil fuel they burn.

CO2 emissions in Delaware and other states declined faster than expected, largely due to a shift from coal-fired to natural gas-fired power generation. The price of CO2 allowances in the auction market tanked as a result, to the dismay of (a) those who were counting on a flow of “free money” to support supposedly desirable energy conservation and renewable energy projects, and (b) investors who had purchased the allowances.

State administrators associated with the RGGI decided to “fix the problem.” The MOU was not amended per se, but a new RGGI Model Rule slashed the regional CO2 emission caps, e.g., from 165 million tons to 91 million tons in 2014, and also curtailed the ability of power producers to “bank” excess CO2 permits they had previously acquired. Instead of seeking legislative changes to bring Delaware requirements into line with the revised regional caps, DNREC chose to adopt regulations for this purpose (after holding a public hearing, at which, among other things, the agency’s authority to proceed on its own was expressly questioned).

In addition to claiming that DNREC lacked authority to tighten the CO2 emission restrictions for Delaware power producers, the plaintiffs maintain that this change was effectively a tax increase, which could not, under the Delaware Constitution, be made by the General Assembly without a supermajority vote (3/5 of both houses).

Judge Richard Stokes ruled that the plaintiffs had standing for their suit in September 2014, clearing the way for the case to proceed. The plaintiffs subsequently moved for summary judgment, claiming there were no material facts in dispute and they were entitled to a declaratory judgment as a matter of law. Oral arguments on the motion were scheduled for 9/30/15. Were conservatives finally going to win a round?

As though to suggest otherwise, the hearing was postponed several times before taking place on 2/16/16. And based on our observations, the case could go on for quite a while.

When the plaintiff’s attorney rose to speak, the judge noted that there was a big difference between the defendant’s motion to dismiss for lack of standing (facts presented were entitled to a presumption of correctness) and the plaintiff’s motion for summary judgment (any questions of fact must be resolved in the defendants’ favor).

In the ensuing dialog, which took over an hour (with the defendants’ attorney saying nothing), the plaintiff’s attorney received a thorough grilling. At times, he seemed to be defending the prior ruling on standing rather than arguing for summary judgment.

Was it necessarily true that the curtailment of CO2 allowances had increased the electric power costs of the plaintiffs? Did they have power bills showing that higher rates had been charged? What about offsetting benefits resulting from the distribution and expenditure of these funds?

Granted that the participating states never formally amended the MOU to cut the CO2 caps, wasn’t the MOU effectively amended by their conduct? And as DNREC Secretary Colin O’Mara could have served as Delaware’s “designated representative” to sign an amendment of the MOU (the original document was signed by Governor Ruth Ann Minner), why didn’t his approval of the DNREC regulations represent a valid substitute?

Re the constitutional claim, why did the CO2 allowances represent a tax? True, the proceeds were earmarked for public purposes, but they were disbursed through the Sustainable Energy Utility (a nongovernmental organization) and other entities without flowing through the Delaware treasury.

There was a 10-minute recess at the end of this segment, after which the defendants’ attorney was to take his turn. Our parking meter was near expiration and it seemed doubtful that things would look up after the break, so we opted to depart. The proceeding ran for nearly two more hours, according to a WBOC-TV story, and the judge deferred a decision so “he could ‘reflect’ on all the information.” As of this writing, his ruling is still pending.
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