Notwithstanding the technical merits of distributed generation, state incentives for and regulation of the power sector have come under significant legal attack during the past five years. In 23 constitutional challenges to state sustainable and distributed energy regulation, the states lost at some level in 17 of the 23 cases, or the cases were settled in favor of the challengers; five were dismissed on procedural grounds or are still pending. States that lost legal challenges can be ordered to pay plaintiffs’ legal fees into the millions of dollars. States are discovering that they have only a highly circumscribed and restricted ability to regulate the new wholesale energy markets that characterize 21st century America.