Electric Power Supply Association v. Star

The federal district court for the Northern District of Illinois upheld a “zero emission credit” (ZEC) program allegedly intended to subsidize old nuclear power plants in Illinois. Illinois’s ZEC program was created by the Future Energy Jobs Act, which granted ZECs to qualifying facilities, which the Illinois court noted were “likely to be two nuclear power plants owned by Exelon in Illinois.” Plaintiffs challenging the program were electric generators and their trade groups in one case and utility customers in a second case. The plaintiffs unsuccessfully argued that the ZEC programs were unconstitutional because they were preempted and violated the dormant Commerce Clause, and the utility customers also made an equal protection claim. The court concluded that the plaintiffs largely lacked Article III standing for the preemption and dormant Commerce Clause claims but proceeded to address the merits. The court held that it did not have equity jurisdiction over the plaintiffs’ claims that the Federal Power Act (FPA)—which grants the Federal Energy Regulatory Commission (FERC) exclusive jurisdiction over the interstate wholesale electricity market—preempted the state programs. The court concluded that Congress intended to foreclose a private right of action, citing the FPA’s provisions for a detailed remedial scheme before FERC and 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 also found that the relief sought by the plaintiffs would require the court to apply “judicially unadministratable” standards. The court also held that the FPA preemption claims 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 states’ ZEC programs did not impermissibly “tether” ZEC payments to participation in the wholesale capacity auctions and did not directly affect wholesale rates. The ZEC program 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 competitive energy markets. The court held that the plaintiffs did not have Article III standing to make their dormant Commerce Clause claim, and also concluded that no dormant Commerce Clause claim was stated because Illinois’s statute did not preclude out-of-state generators from submitting bids for ZECs and was therefore not facially discriminatory, and there were no plausible allegations that the procurement process would be facially discriminatory. The Illinois court also concluded there was a substantial possibility that the implementation of the statute would be non-discriminatory in effect, rejected the argument that the statute had a discriminatory purpose, and said the state-created ZECs only indirectly burdened other generators’ ability to participate in the wholesale market. The Illinois court also dismissed the utility customer plaintiffs’ equal protection claim, finding that the ZEC program had rational basis grounded in the legislative goals of increasing reliance on zero-emission energy.

–

In response to the motions to dismiss, the plaintiffs argued that their complaint stated claims of field and conflict preemption and of a dormant Commerce Clause violation. The plaintiffs also contended that FERC did not have primary jurisdiction over the conflict preemption claim, and that the court had equitable jurisdiction to consider the preemption claims. The plaintiffs also disputed the foundation of the defendants’ arguments—that the ZEC program and the statute that created it were environmental programs aimed at reducing carbon emissions.

–

–

–

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.

–

–

The United States and FERC (together, the U.S.) submitted an amicus brief to the Seventh Circuit Court of Appeals in support of Illinois’s law requiring “zero emission credits” for certain nuclear power plants. The U.S. submitted the brief at the invitation of the Seventh Circuit, which sought the federal government’s views during the court’s review of a district court decision upholding the law. The U.S. asserted that the Federal Power Act did not preempt the Illinois law and that the Illinois program would not impede FERC’s regulation of wholesale markets. The U.S. also described guidance in FERC proceedings for how states may support renewable or clean power without interfering with FERC’s authority over wholesale energy transactions.

In the pending appeal challenging an Illinois law that established a Zero Emissions Credit (ZEC) program to support certain nuclear plants, the Seventh Circuit Court of Appeals issued an order inviting the United States “to file a brief as amicus curiae expressing the views of the government in these consolidated cases.” One issue raised by the Seventh Circuit is whether it should defer to the primary jurisdiction of the Federal Energy Regulatory Commission. The plaintiffs have argued that the ZEC program is preempted and that it violates the dormant Commerce Clause.

–

On October 9, 2018, the Seventh Circuit Court of Appeals denied a petition for rehearing of its decision upholding Illinois’s “zero emission credit” (ZEC) program for nuclear power plants. The court held in September that the Federal Power Act did not preempt the ZEC program and that the program did not violate the dormant Commerce Clause.

–

On September 13, 2018, the Seventh Circuit Court of Appeals upheld an Illinois law that established subsidies for some in-state nuclear generation facilities by providing them with “zero emission credits” (ZECs) that fossil fuel-fired power plants were required to purchase. The price of the credits was based on a social cost of carbon. The Seventh Circuit held that the Federal Power Act did not preempt the Illinois law because the ZEC program stayed within the scope of the state’s authority to regulate power-generating facilities and did not impinge on the Federal Energy Regulatory Commission’s (FERC’s) authority to regulate sales of electricity in interstate commerce (including in auctions conducted by regional organizations). The plaintiffs asserted that the ZEC system indirectly regulated such auctions because average auction prices were a component of the formula for determining the cost of a credit. The Seventh Circuit concluded, however, that because the ZEC system did not require that power be sold in an interstate auction, it was not preempted, even though the ZEC system would indirectly influence auction prices by increasing the quantity of power available for sale. In addition to the preemption question, the Seventh Circuit also briefly addressed the plaintiffs’ dormant Commerce Clause claims, writing that Congress’s provision that states may regulate local generation, combined with the “absence of overt discrimination” in the ZEC program, “defeats any constitutional challenge.”