Coalition for Competitive Electricity v. Zibelman

The federal district court for the Southern District of New York upheld a “zero emission credit” (ZEC) program intended to subsidize old nuclear power plants in upstate New York. The ZEC program is one component of the Clean Energy Standard adopted by the New York Public Service Commission. Plaintiffs challenging the New York program were electric generators and trade groups of electric generators. They unsuccessfully argued that the ZEC program was unconstitutional because it was preempted and violated the dormant Commerce Clause. The court held that it did not have equity jurisdiction over the plaintiffs’ claims that the Federal Power Act (FPA)—which grants FERC exclusive jurisdiction over the interstate wholesale electricity market—preempted the ZEC program. The court concluded that Congress intended to foreclose a private right of action, citing both FPA’s provisions for a detailed remedial scheme before FERC and—more definitively, in the court's view—the Public Utility Regulatory Policies Act’s addition to the FPA of a private cause of action for a narrow scope of challenges to state action. The court did not find that the relief sought by the plaintiffs would require the court to apply “judicially unadministratable” standards, but the court indicated that such a finding was not necessary to bar jurisdiction. The court also held that the FPA preemption claim would, in any event, fail on the merits. The court—looking to the Supreme Court’s 2016 opinion in Hughes v. Talen Energy Marketing, LLC—said the ZEC program did not impermissibly “tether” ZEC payments to participation in the wholesale capacity auctions and did not directly affect wholesale rates. The ZEC programs therefore avoided field preemption. The court also found that the plaintiffs did not state a plausible claim for conflict preemption because the ZEC program did not run afoul of FERC’s goal of efficient energy markets. The court ruled that the plaintiffs did not have a cause of action to bring their dormant Commerce Clause claim because their alleged injuries did not fall within the zone of interests protected by the dormant Commerce Clause—i.e., the economic interests of out-of-state entities. The court also held that the plaintiffs failed to state a dormant Commerce Clause claim because New York State acted as a market participant when it created ZECs.

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The U.S. Supreme Court denied petitions for writ of certiorari seeking review of Second and Seventh Circuit Court of Appeals decisions that upheld state subsidies in New York and Illinois for nuclear power plants. The petitioners had argued that the Court should review the question of whether the Federal Power Act preempted the states’ zero-emission credit programs.

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The Second Circuit Court of Appeals affirmed the dismissal of a lawsuit challenging New York State’s Zero Emissions Credit (ZEC) program, which subsidizes qualifying nuclear power facilities. The price of ZECs is based on the social cost of carbon. The Second Circuit concluded that the Federal Power Act did not preempt the ZEC program because the plaintiffs failed to allege “an impermissible ‘tether’” between the ZEC program and wholesale market participation. The Second Circuit found that the ZEC program did not set wholesale prices, but instead “regulates the environmental attributes of energy generation and in the process considers forecasts of wholesale pricing.” The Second Circuit also concluded that ZECs did not compel generators to make wholesale sales. In addition, the court rejected the argument that the “practical effect” of the ZEC program was to regulate wholesale prices, stating: “even though the ZEC program exerts downward pressure on wholesale electricity rates, that incidental effect is insufficient to state a claim for field preemption under the [Federal Power Act].” The court also rejected the plaintiffs’ attempts to distinguish ZECs from renewable energy credits, which the Federal Energy Regulatory Commission (FERC) previously confirmed were within states’ jurisdiction. The Second Circuit also found that the plaintiffs failed to identify “clear damage to federal goals,” foreclosing their claim of conflict preemption. While the plaintiffs argued that the ZEC program was at odds with FERC’s goal of promoting competition in the wholesale market from more efficient generators, the court said FERC acted “with the background assumption that the [Federal Power Act] establishes a dual regulatory system between the states and federal government and that the states engage in public policies that affect the wholesale markets.” Finally, the Second Circuit held that the plaintiffs lacked Article III standing for a dormant Commerce Clause claim. The court said the plaintiffs’ alleged injuries arose not from alleged discrimination against out-of-state entities, but from the plaintiffs’ use of fuels disfavored by New York.

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In the Second Circuit, New York responded that in fact FERC’s June 2018 order supported New York’s position that zero-emission credits (ZECs) were valid exercises of state authority. The function of FERC’s order, New York said, was to determine “how ZECS will affect auction prices by deciding how subsidized resources participate in PJM auctions.”