FERC And DOJ Side With Illinois On ZECs

Author:Mr Roland Backhaus, J. Daniel Skees and Kenneth M. Kulak
Profession:Morgan Lewis
 
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The US Department of Justice (DOJ) and the Federal Energy Regulatory Commission (FERC) filed a joint brief on May 29 in the US Court of Appeals for the Seventh Circuit, stating that Illinois' zero emission credit (ZEC) program for eligible nuclear plants in Illinois is not preempted by the Federal Power Act (FPA). Because the panel in a substantially similar case pending in the Second Circuit has indicated that it would review the government's filing in the Seventh Circuit case, the views of FERC and DOJ could be critical as this issue plays out in the federal court system.

The Illinois legislature passed a law in 2016 requiring utilities to purchase ZECs at administratively set prices from nuclear plants in the state. Generators that compete with the ZEC-receiving nuclear plants challenged the law, arguing that the ZEC program is preempted by the FPA. The district court upheld the program, and the generators appealed the decision to the Seventh Circuit. FERC did not take a position in the trial court but has now done so after the Seventh Circuit invited the US government to file a brief.

In parallel, a Second Circuit panel, hearing a substantially similar case regarding the preemption of New York's ZEC program, has indicated that it would review the US government's filing in the Seventh Circuit case.

In its brief, the government argues that ZECs are "commodities that represent the environmental attributes of a particular form of power generation; they are not payments for, or otherwise bundled with, sales of energy or capacity at wholesale, and thereby fall outside of FERC's exclusive jurisdiction over wholesale transactions." The government also emphasized that the Illinois law does not require participation in FERC-jurisdictional wholesale auctions as a precondition to receiving ZECs, a key factor in the decision of the US Supreme Court invalidating a state program in Hughes v. Talen Energy Marketing, L.L.C., 136 S. Ct. 1288, 1293 (2016). Notably, the government characterized Hughes as follows:

Hughes joins a line of prior Court decisions that, in the context of energy regulation, interpret the law on preemption with some measure of modesty. In those cases, the Court found that incidental effects of state regulation on matters of federal concern do not rise to the level of preempting those state laws—what matters, in terms of the constitutional preemption concern, is whether the challenged state laws target those areas reserved by Congress for federal regulation.1

With respect to the Illinois program, the government states that because participating nuclear plants will receive ZECs for each megawatt-hour of generated energy, regardless of how that energy is sold, Illinois "has sufficiently separated ZECs from wholesale transactions such that the [FPA] does not preempt the state program" and that the program "falls within Illinois's reserved authority over generation facilities[.]" To the extent such a program does actually impair FERC jurisdictional wholesale capacity markets, the government stated that "the solution lies with [FERC], not the courts."2

The government's brief is available here.

Footnotes

1 Brief for The United States and The Federal Energy Regulatory Commission as Amici Curiae in Support Of Defendants-Respondents And Affirmance at 18, Village Of Old Mill Creek, et al., v. Anthony M. Star, et al., Nos. 17-2433 and 17-2445 (consolidated) (7th Cir. May 29, 2018).

2 Id. at 20.

This article is provided as a general informational service and it should not be construed as imparting legal advice on any specific matter.

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