On September 3, West Virginia sued Pennsylvania over two laws that it alleges has illegally walled off Pennsylvania’s “alternative energy credit market from interstate competition” and caused electricity prices to unnecessarily increase by $45 per household.
West Virginia should have the economic case in the bag, as recent amendments to Pennsylvania’s Alternative Energy Portfolio Standard (AEPS) requiring that some of this alternative energy be produced in-state are needlessly making energy less affordable for families and businesses by $270 million per year, or roughly $45 per customer.
The AEPS requires 18 percent of retail electricity sales to be alternative energy by 2021. Compliance is accomplished by acquiring and retiring Alternative Energy Credits (AEC). Under the law, Pennsylvania must get 8 percent of its electricity from Tier I resources, including solar, wind, and other renewables, with a 0.5 percent solar carve-out. An additional 10 percent must come from Tier II resources, including waste coal, large-scale hydro, trash incineration, and demand-side management.
In 2020, Pennsylvania lawmakers enacted Act 114, which required that all Tier II credits come from resources located in the Commonwealth. This artificial restriction on which resources could be used has drawn West Virginia’s ire and caused the costs of the AEPS to skyrocket.
At first, the costs of the AEPS were real but relatively modest. In 2019, the mandates increased costs for consumers by $85 million. However, costs had surged eight-fold by May 2025, when the cost of the AEPS reached $743.3 million per year, or $125 per customer, counting excise taxes.
Almost half of this price tag is attributable to the geographically restricted market. In 2020, the average price for a megawatt-hour of electricity from a Tier II resource was $1.92 per credit, for a total cost of $3.6 million. In 2025, the costs to Pennsylvania ratepayers were over $367 million, or 100 times what they were in 2020.
The Pennsylvania PUC actually agrees in spirit with West Virginia’s complaints. In its most recent compliance report, it projects a shortfall of Tier II credits in 2028 and recommends “amending geographic qualifications” within the Tier II provisions of AEPS. Reopening Tier II would save ratepayers $270 million per year, or about $45 per customer, if its prices tracked growth of the open Tier I credit prices.
How the courts will rule on West Virginia’s challenge is anyone’s guess, but it could be the first of many lawsuits as protectionist renewable portfolio standards (RPS) raise costs for customers. Pennsylvania is not alone. Within the same PJM footprint, Maryland, New Jersey, and Washington, D.C. all impose similar in-state carveouts that force generators to pay a premium for local renewables and stick their own ratepayers with the tab. Each state rests on the same shaky constitutional footing as Pennsylvania’s Act 114, and each is vulnerable to the dormant Commerce Clause challenge West Virginia is now bringing. West Virginia alleges it was denied more than $25 million in credit revenue in 2025 alone, and that toll only mounts over the next decade as neighboring states double down on protectionism.
The laws, the complaint argues, “serve no legitimate environmental purpose, nor do they advance the welfare of Pennsylvania’s citizens.” The proportion of generation from renewable sources in Pennsylvania was four percent in 2024 — the same as it generated in 2013. The state’s 38-percent decline in electricity-generation emissions between 1990 and 2021 is because of coal-switching to natural gas-fired generation, not the AEPS.
All that this technology-specific carve-out has done is to increase the cost of electricity from the same generators, adding insult to injury to consumers’ wallets. The solutions are already on the table: open Pennsylvania’s geographically restricted credits to price competition across the region, if not nationwide, and give ratepayers in Harrisburg, Trenton, and beyond the relief they are owed.
Isaac Orr is vice president of research, and Sarah Montalbano energy policy analyst, at Always On Energy Research, a nonprofit modeling firm.