Retail Energy Advancement League, Green Mountain Energy File Federal Lawsuit Seeking To Stop Implementation Of Maryland SB1 (Rate Caps, End of POR, Green Rules)

REAL Alleges "Speech Code" Under SB1 Violates First Amendment, & That Law Cannot Be Severed To Save Other Provisions

October 1, 2024

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Copyright 2024 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

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Maryland's recently enacted SB 1 imposes an impermissible "speech code" on retail energy suppliers in violation of the U.S. Constitution, and the state must be enjoined from enforcing all provisions of the law, the Retail Energy Advancement League and Green Mountain Energy Company (plaintiffs) alleged in a federal lawsuit filed this morning

REAL and Green Mountain alleged, among other things, that the green marketing requirements under SB1, including mandatory language for green products, infringe upon the rights of REAL members to "truthfully" and "accurately" describe their green energy offerings

Most notably, REAL and Green Mountain allege that SB1's passage was inextricably linked to the addition of the green power marketing rules to the bill -- rules which the plaintiffs allege are unconstitutional

Because of the inextricable link between the allegedly infirm green power rules, and the rest of SB 1, REAL and Green Mountain allege that the green power rules are "inseverable" from the rest of SB1, and sought an order from a federal court enjoining enforcement of the entire law

In addition to Green Mountain, the petition cites REAL member CleanChoice Energy, Inc. as an entity which would suffer harm from the alleged unconstitutional provisions of SB1

Defendants named in the suit are the Attorney General of Maryland, and the Chair and Commissioners of the Maryland PSC

The suit notes that, "Constellation Energy Generation, LLC and Constellation NewEnergy, Inc., (collectively Constellation), a REAL member headquartered in Baltimore, publicly opposed passage of the Act [SB1] but did not authorize or participate in this lawsuit."

In addition to the allegedly unconstitutional green power rules (which will be discussed further below), SB 1 also includes the following provisions, for which new statutory authority would be removed under REAL and Green Mountain's sought relief of enjoining the entire law:

• a price cap, based on historic SOS average rates, applicable to retail suppliers' residential products (except for the separate green power price rules)

• a ban on residential retail energy products which have term lengths longer than 12 months

• the end of POR for residential customers

• a ban on commissions or similar compensation provided by retail suppliers to "energy salespersons"

• a requirement for "energy salespersons" and "energy vendors" to apply for a license from the PSC, including financial assurance requirements for such licensees

While SB1 provides explicit authority to the PSC to enforce or implement such provisions, certain of the provisions may still be accomplished via the PSC's existing authority to the extent that SB1 is invalidated

Most notably, the PSC was actively reviewing the continued offering of POR prior to SB1 being proposed, with PSC Staff in 2023 suggesting that UCB be phased out, with restrictions on POR (story here). POR in Maryland is a creation of Commission order, and thus can be modified or revoked by Commission order

REAL and Green Mountain's suit seeking to enjoin the entirety of SB1's implementation hinges on the law's rules for green power marketing

Under SB1, "green power" is defined as, "energy sources or renewable energy credits that are marketed as clean, green, eco–friendly, environmentally friendly or responsible, carbon–free, renewable, 100% renewable, 100% wind, 100% hydro, 100% solar, 100% emission–free, or similar claims." [Public Utilities Article § 7-707(a)]

SB1 requires that residential green power products must include the following disclosure from retail energy suppliers (or similar disclosure adopted by the PSC):

"We deliver energy through the purchase of Renewable Energy Credits (RECs). A REC represents the social good that accompanies 1 megawatt-hour of renewable electricity generation. RECs may be sold separately from renewable electricity itself. Renewable electricity and RECs may be sold to different entities. The purchase of a REC does not indicate that renewable electricity itself has been purchased by the entity that purchased the REC."

REAL and Green Mountain alleged that this disclosure, which they would be forced to use in order to offer residential "green power", includes "controversial" and "inaccurate" disclosures

REAL and Green Mountain cited SB1's required statement that, "RECs may be sold separately from renewable electricity itself."

"[W]hile RECs may be sold separately from the underlying electricity that was generated in connection with the REC, when that occurs the underlying electricity is no longer 'renewable,' contrary to this mandatory disclosure," REAL and Green Mountain alleged

REAL and Green Mountain alleged that the "Green Guides" issued by the Federal Trade Commission provide that, as described by REAL and Green Mountain, a statement indicating that renewable energy may be sold as "renewable" after its REC is separated (such as is stated in the SB1 disclosure) is "misleading"

REAL and Green Mountain further alleged that, "[w]hile RECs are part of the process by which renewable energy serves the social good, it is controversial whether RECs themselves 'represent' a 'social good,'" as stated in the mandated disclosure

"These compelled disclosures would require REAL members and their subsidiaries to alter their current speech about their products and speak in ways with which they disagree," REAL and Green Mountain alleged

This "speech code" required under SB 1, REAL and Green Mountain alleged, violates their constitutional right to describe their renewable offerings in a manner that is accurate, truthful, and consistent with federal standards and other states' laws

REAL and Green Mountain alleged that retail suppliers under SB 1 face civil penalties unless suppliers, "agree with the government’s views on green energy."

As to the allegations that the green power section of SB1 are inseverable, thus requiring the entire act to be invalidated, REAL and Green Mountain cited the testimony of SB 1's Senate sponsor, Senator Malcolm Augustine, who had said in legislative testimony that the bill "created two different markets" for retail energy -- the standard market, which is subject to a price cap based on historic average SOS rates, and a separate green power market, whose rate is set by the PSC in recognition of the higher costs of green power

REAL and Green Mountain alleged that these two distinct markets are "central" to the market design created by SB1. Citing the bill's history and remarks from Sen. Augustine, REAL and Green Mountain alleged that the legislature's intent under SB 1 was to allow green power offers to continue, by recognizing that green power offers would not be viable under the SOS-based price applicable in the standard market

As noted above, REAL and Green Mountain alleged that the green power disclosure language and related provisions are unconstitutional, and thus cannot be implemented

But removing just the green power provisions from SB1 would run contrary to the legislature's intent to allow green power offers to remain viable, as indicated by the development of the two separate markets noted above, REAL and Green Mountain argued. Invalidating just the green power provisions in the law would result in any green power offerings being subject to the price cap based on system-power SOS. Such a limit on pricing would make green power offers unviable, contrary to the legislature's intent that a market for green power be preserved, the plaintiffs alleged

As such, REAL and Green Mountain alleged that the green power rules cannot be severed from SB1 as a whole, and that the state must be enjoined from enforcing the entirety of SB 1

REAL and Green Mountain pointed to case law which particularly supports an inseverability finding in cases in which the unconstitutional provision was added as an amendment to the original bill (as was the case with the green power provisions) and cases in which the unconstitutional provision contains an exception to an otherwise applicable prohibition (as was the case with the green power provisions)

REAL and Green Mountain further note that the residential green power disclosure required from retail suppliers under SB 1 are not required for green power marketed by an opt-out municipal aggregation, or by the state's Department of General Services. The continued marketing of green power to residential customers by such entities, without being subject to the speech restrictions mandated by SB1, undercut any argument that SB1 is needed to reduce customer confusion, REAL and Green Mountain alleged, who further alleged that the applicability of SB1's green power restrictions are "not sufficiently tailored" to advance any alleged state interests in restricting speech

In addition to allegedly violating the First Amendment of the U.S. Constitution, plaintiffs alleged that SB1 violates Article 40 of the Maryland Declaration of Rights (which also addresses free speech)

REAL and Green Mountain also alleged that SB1 is unconstitutional because the law's geographic requirements for green power and RECs violate the interstate commerce clause of the U.S. Constitution

SB 1 mandates that, for residential customers, a retail supplier may not market a product as "green power" unless, among other things, the product includes green energy or RECs, both of which must meet the standards to qualify for use in Maryland's RPS, in an amount that equals or exceeds the higher of the following: (1) 51% of the product's supply, or (2) is at least 1% higher than the RPS which is applicable in such year

Mandating that a certain level of retail suppliers' green power, for use in voluntary, non-RPS products, must meet the standards to qualify for use in Maryland's RPS restricts the voluntary green power or RECs to being from: PJM, states adjacent to PJM, and certain areas offshore in the Atlantic ocean

"[T]his requirement discriminates against and burdens renewable energy generation sources outside of the Maryland region by prohibiting their RECs from qualifying towards the Act’s 51% requirement," REAL and Green Mountain alleged

"If this law is allowed to take effect, it will drive renewable energy providers out of the Maryland market, leaving hundreds of thousands of consumers without access to clean energy and forcing them back into outdated, fossil fuel-dominated supply," said Chris Ercoli, President and CEO of REAL in a news release.

"Our organization remains committed to protecting consumer choice and defending Maryland’s clean energy market. We must preserve the principles of competition and innovation in Maryland’s energy sector and urge lawmakers to revisit this harmful legislation," said Ercoli.

"REAL's lawsuit explains that the marketing restrictions on renewable energy plans in SB1 are unconstitutional, as REAL's members use the terms prohibited by statute consistently with the guidance set forth by the EPA and Federal Trade Commission to highlight to consumers the environmental benefits provided by voluntary RECs. SB1 prohibits retail energy suppliers from using words such as "renewable," "green," and "clean" to market and communicate truthful information to customers about how plans with voluntary RECs can help reduce carbon emissions and combat climate change, among other benefits," REAL said in a news release

REAL's news release concerning the petition can be seen here

REAL and Green Mountain sought from the court: (1) a declaratory judgment against the defendants that SB1 is unconstitutional and inseverable, and (2) preliminary and permanent injunctive relief preventing the implementation and enforcement of SB 1

The petition was filed in the United States District Court for the District of Maryland, Northern Division

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