Commerce Clause Challenge to RPS Provisions about In-State Fuel Cell Facility
John A. Nichols and FuelCell Energy, Inc., v. Jack Markell, et al, Case No. 1:12-cv-00777
Most Recent Development: On April 17, 2014, the Federal District Court Judge issued an order dismissing the claim under the Equal Protection Clause and allowing the Commerce Clause challenge to proceed. On October 19, 2015, the parties settled. Delaware regulators agreed to waive the statute’s requirements that a qualified fuel cell be located in Delaware and designated by Delaware officials as an economic development opportunity.
Case Documents

Case Summary
In 2011, the Delaware Legislature amended the State’s RPS to provide benefits to a fuel cell manufacturer that intended to build a manufacturing facility and a fuel cell-powered generator in Delaware. The amendments allow a generator located in Delaware and using fuel cells manufactured in Delaware to generate RECs, even if the fuel cells do not use renewable fuel, and permitted those RECs to be converted into valuable Solar RECs (SRECs), privileges not extended to other types of non-solar sources. The 2011 amendments also required the Public Service Commission (PSC) to adopt tariff provisions that provide for cost recovery to the state’s only investor-owned utility for a 30 MW facility located in Delaware and powered by these fuel cells.

In Federal District Court, FuelCell Inc., a fuel cell manufacturer based in Connecticut, and a private Delaware citizen challenge the 2011 amendments as unconstitutional. They argue that this in-state preference is motivated by economic protectionism and therefore impermissible under the dormant Commerce Clause. Furthermore, burdening only the utility’s ratepayers with the costs, while customers of municipal and cooperative utilities pay nothing, violates the Constitution’s Equal Protection Clause.

The State’s primary response is that plaintiffs lack standing to challenge the law. According to the State, the fuel cell manufacturer’s purported plan to sell fuel cells in Delaware is an insufficient basis for establishing an injury that confers judicial standing. Even if Plaintiffs had standing, Delaware argues that Plaintiffs’ Commerce Clause challenge fails because the 2011 amendments actually enhance interstate commerce. The State argues that there was no market for fuel cells in Delaware until the 2011 Amendments created one.

With regard to the Equal Protection challenge, the State responds that there is no fundamental right or suspect class at issue. The 2011 amendments are therefore reviewed by a court under the liberal rational basis standard. According to the State, the tariff rationally applies only to the state’s regulated utility and its customers because it is the only for-profit utility that is subject to the Commission’s jurisdiction.

In April 2014, the Judge dismissed the Equal Protection claim agreeing with the State that the tariff rationally applies only to the State’s regulated utility. One rational reason, according to the Judge, is that there may be practical difficulties in getting all energy sellers in the State to agree to pay for the new facility.

On the issue of standing, the Judge determined that FuelCell Inc’s allegations of future competitive injury are sufficient to support standing to challenge the 2011 amendments on dormant Commerce Clause grounds. The private citizen, however, does not have standing. His injury is that he will have to pay higher prices for electricity. But the Judge determined that this interest is too attenuated from the alleged barrier to interstate commerce and is insufficient to confer prudential standing.

In October 2015, the parties announced a settlement that drops the law’s geographic requirements. The state defendants agreed to consider any manufacturer of fuel cells a “qualified fuel cell provider” without regard to its location or whether state officials designated the manufacturer an economic development opportunity. Similarly, when reviewing a utility tariff associated with a fuel cell project, the defendants agreed not to consider the location of the fuel cell manufacturer.

Judicial Decisions
Memorandum Opinion, Dismissing Equal Protection Claim and Determining that Plaintiff Has Standing (Apr. 17, 2014)

Settlement Agreement
Order Approving Settlement (Oct. 19, 2015)
Settlement Agreement (Oct. 19, 2015)

Filed Briefs
Complaint (Jun. 20, 2012)
Defendants’ Brief in Support of Motion to Dismiss (Aug. 29, 2012)
Plaintiffs’ Answer in Opposition to Defendants’ Motion to Dismiss (Sep. 17, 2012)
Defendants’ Reply Brief in Support of Motion to Dismiss (Sep. 28, 2012)

Transcripts
Oral Argument on Motion to Dismiss (Nov. 14, 2012)