The state of West Virginia filed a lawsuit against the Pennsylvania Public Utility Commission (PUC) earlier this month alleging that amendments to the alternative energy portfolio standard (AEPS) violate the Commerce Clause of the U.S. Constitution.

In the complaint filed with the U.S. District Court for the Middle District of Pennsylvania, West Virginia Attorney General John McCuskey’s office claims that the PUC implemented changes to the AEPS to ensure that the mandated trade in alternative energy credits (AECs) remains in-state. The original 2004 legislation noted that any generator in the PJM Interconnection — a regional transmission organization that oversees the distribution of wholesale electricity in Pennsylvania and West Virginia, as well as 11 other states and the District of Columbia — could sell AECs to energy providers serving Pennsylvania.

McCuskey’s office asserts that amendments passed by the Pennsylvania legislature in 2017 and 2020 added geographical restrictions to the AEPS, which ensured that non-state businesses could no longer provide AECs to Pennsylvania energy producers. The complaint claims that the revised standards violate the Commerce Clause of the U.S. Constitution, which prohibits protectionist state policies that seek to create an unequal playing field for out-of-state citizens and businesses.

According to West Virginia’s complaint, the restrictions cost West Virginia’s generators, ratepayers, and the state treasury up to $25 million in 2025 and could cost as much as $895 million over the next decade. In addition, the geographic limitations have also harmed Pennsylvania consumers, as compliance costs rose from $122.5 million to over $700 million in the last five years.

The Rise of Renewable Portfolio Standards

Renewable portfolio standards (RPS) are widespread. According to the U.S. Energy Information Administration, 28 states and the District of Columbia have RPS, while seven additional states have renewable portfolio goals. State legislatures pass laws requiring a percentage of electricity sold by utilities in the state to come from renewable or clean resources, such as wind or solar. Electricity suppliers rely on the alternative energy credit market to meet their quota.

Each AEC represents one megawatt-hour of qualifying generation, determined by each state, and can be traded separately from the electricity generated. In the case of Pennsylvania, up until the AEPS closed the border for sourcing AECs, electricity providers could source the needed credits from any generator on PJM.

Renewable portfolio standards place the costs of public policy on private businesses and consumers. The potential for a greater public good is clear, but many analysts argue that they are driving energy costs and contributing to the current affordability problem. When states disrupt supply by excluding interstate trade in AECs, compliance costs inevitably increase.

Pennsylvania’s Amendments “Close the Border”

Pennsylvania law requires energy providers to source 18 percent of their retail electricity supply from alternative energy sources or purchase AECs from a qualifying source. The AEPS divides alternative energy sources into two groups. “Tier I” covers solar, wind, and low-impact hydropower. “Tier II” includes electricity generated from waste coal and large-scale hydropower.

The legislature passed Act 40 in 2017, directing that qualifying solar credits had to be generated within the state or directly connected to an electric transmission system within the state. The complaint highlights that the co-sponsorship memorandum for the legislation “made the protectionist purpose explicit,” as it stated the objective was to “close the borders” and “protect Pennsylvania-based solar.”

Tier II qualifications were similarly amended by Act 114 (2020), which stated that a resource qualifies only if the source delivers power directly to a customer or distribution system in Pennsylvania, connects directly to a municipal system in the state, or holds a permit issued by the state’s Department of Environmental Protection.

Generators in West Virginia, or any other state within the PJM zone, were essentially prohibited from selling AECs to Pennsylvania energy providers.

The restrictions have coincided with a substantial increase in AEC prices and compliance costs. In a recent piece for Forbes, Dan Eberart contends that by limiting eligible suppliers, state legislators have reduced competition and increased costs for Pennsylvania ratepayers: “Government-mandated demand doesn’t disappear when regulators disqualify suppliers. Buyers lose options while the remaining sellers in the market gain pricing power. Ratepayers have no choice but to finance the difference.”

The most recent Compliance Report from the PUC quantifies the real costs. The report notes that Tier I compliance costs have risen significantly since 2020, but it’s the “meteoric rise in Tier II AEC pricing” that is unsustainable. The average price for Tier II credits rose from $1.92 in 2020 to $26.92 in 2025. The compliance costs for energy providers in Pennsylvania rose from $3.6 million to $365 million in five years.

Supporters of the PUC policies claim that higher credit prices are needed to encourage in-state generation of alternative energy. However, the PUC report shows that the share of renewable generation remained flat in the state at around 4 percent from 2013 to 2024, while the AEPS increased the quota for alternative energy sources to 18 percent.

In its report, the PUC recognizes that “a reassessment of Act 114 is appropriate,” in light of the continually increasing demand for Tier II credits. The PUC report concludes by recommending that lawmakers reconsider the geographic qualifications applicable to Tier II resources.

West Virginia Raises a Commerce Clause Challenge

West Virginia’s complaint argues that the inflated compliance costs Pennsylvania businesses are forced to pay to comply with the state’s AEPS are the result of an illegal protectionist policy: “As courts have long recognized, the [Commerce] Clause prevents states from erecting barriers at their borders to shield in-state producers from the rigors of interstate competition, no matter how politically popular the protectionism may be at home.”

Wholesale energy in PJM, which includes both Pennsylvania and West Virginia, connects grids across numerous state lines. The core mission of the non-profit regional transmission organization is to ensure non-discriminatory access to the energy grid. It was on this basis that West Virginia energy producers were able to sell AECs to electricity suppliers in Pennsylvania up until 2017.

The Commerce Clause of the U.S. Constitution prohibits states from passing legislation that excessively burdens interstate commerce by creating trade barriers. West Virginia alleges that Pennsylvania’s eligibility restrictions excluded its generators from an AEC market they served for 15 years. The complaint claims that at least ten West Virginia generators continue to be harmed by being locked out. In addition, $120 million in credit revenue that would offset household electric bills over the next decade will also be lost.

Looking Beyond Pennsylvania and West Virginia

States have plenty of legal ways to advance energy policies and encourage businesses to invest in their borders. Subsidies, tax credits, and grants are common strategies to achieve policy goals, and the state pays the bill. West Virginia’s complaint argues that building trade barriers and placing the cost burden on the ratepayer is not a legal strategy to deliver on political promises.

The affordability crisis is leading to a reassessment of closed-border policies. Pennsylvania’s PUC has asked legislators to walk back the protectionist policies, at least in terms of Tier II AECs. In Washington, D.C., where RPS compliance costs account for 15% of electricity bills, Mayor Muriel Bowser has noted that energy suppliers are legally mandated to purchase a significant percentage of renewable energy from District-based solar sources, making the cost of solar renewable credits “the highest in the country.” As the annual RPS cost for consumers has risen from $35 in 2015 to $248 in 2025, Mayor Bowser’s administration has stated that there is a need to “reset the RPS.”

Other states, including Maryland, Massachusetts, and New Jersey, also impose geographic or deliverability requirements on certain renewable-energy credits, although the programs differ significantly. If West Virginia succeeds in its Commerce Clause challenge, the decision could raise questions about similar eligibility restrictions elsewhere. For that reason, the Pennsylvania litigation could have implications extending well beyond the two states.