Supremacy Clause Challenge to Renewable Energy Contracts
Allco Finance Ltd. v. Klee (Second Circuit upheld federal district court’s dismissal in November 2015)
Supremacy Clause and Dormant Commerce Clause Challenge to Renewable Energy RFP
Allco Finance Ltd. v. Klee (filed in April 2015)
Supremacy Clause Challenge to Renewable Energy RFPs
Allco Finance Ltd. v. Klee (filed in March 2016)
Allco Finance v. Klee
Recent Developments: In December 2014, the district court dismissed the complaint for lack of standing and failure to state a claim. In November 2015, the Second Circuit affirmed the dismissal on alternative grounds.
In 2013, the Connecticut General Assembly passed a law that permitted the Department of Energy and Environmental Protection (DEEP) to solicit proposals for energy from renewable generators. If DEEP found that proposals met certain statutory requirements, DEEP could require the State’s electric distribution companies to enter into long-term contracts for up to four percent of their total energy requirements.
After conducting the RFP, DEEP announced that it had selected two of the 47 proposals it received and directed the State’s electric distribution companies to execute contracts with those developers. Plaintiff Allco Finance’s proposed projects were rejected, and the company sued to invalidate the winners’ contracts.
Plaintiffs alleged that the winning contracts were the product of unlawful state action. According to their complaint, the Federal Power Act grants FERC exclusive jurisdiction to regulate wholesale electricity prices. Plaintiffs alleged, however, that the State “fixed the wholesale price of energy” when DEEP directed Connecticut’s distribution companies to enter into contracts with terms, including price, that DEEP selected. Under the Supremacy Clause doctrine of field preemption, Plaintiffs argued that DEEP’s actions are invalid and must yield to FERC’s exclusive authority.
Plaintiffs also made the related claim that DEEP “compelled” the distribution companies to execute contracts at specific prices. According to the plaintiffs, this compulsion conflicted with the FERC’s regulatory framework, which requires that wholesale energy contracts be freely negotiated between buyers and sellers. This state scheme is therefore preempted under the Supremacy Clause doctrine of conflict preemption.
The district court rejected the plaintiff’s contention that the state fixed the contract prices, and instead concluded that the state “play[ed] no role in determining the price offered by bidders” in response to the RFP. Although utilities were “compelled to accept the prices in bidders’ offers,” which were selected by the state, the sellers’ offer prices were not constrained by state law. The court therefore held that the state’s scheme did not set prices, its order to utilities directing them to sign the contracts was within the state’s authority to regulate its utilities, and therefore the state’s order did not amount to wholesale ratemaking and is not field preempted. The court did not address the conflict preemption claim. It also held that the plaintiffs lacked standing.
The Second Circuit affirmed the dismissal on alternative grounds. The court held that PURPA forecloses remedies under section 1983; that the plaintiff had failed to exhaust its administrative remedies, a prerequisite for bringing an equitable action under PURPA; and that the plaintiff lacked standing to bring an action seeking to void contracts awarded to its competitors.
Second Circuit Decision (Nov. 6, 2015; amended on Dec. 1, 2015 to clarify that the panel did not accept the appellant’s preemption theory, see footnote 4)
Appellant’s Opening Brief (Mar. 6, 2015)
Connecticut’s Reply Brief (Apr. 2, 2015)
Brief of Intervenors Number Nine Wind Farm and Fusion Solar Center (Apr. 2, 2015)
Appellant’s Reply Brief (Apr. 16, 2015)
State’s Supplemental Brief on Applicability of 16 USC 824a-3(h)(2)(B) (Jul. 14, 2015)
2nd Circuit – Intervenors Supplemental Brief (Jul. 17, 2015)
Allco’s Supplemental Brief
Connecticut Attorney General’s Petition for Rehearing (Nov. 20, 2015)
Appellant Allco’s Petition for Rehearing (Dec. 8, 2015)
Order Granting Motion to Dismiss (Dec. 10, 2014)
Allco Finance v. Klee (filed April 2015)
Recent Developments: Allco filed its complaint in April 2015. The court dismissed the complaint in August 2016. An appeal is currently before the Second Circuit.
Allco, a renewable energy project developer, challenges a proposed RFP issued by Connecticut regulators in conjunction with regulators in Massachusetts and utilities in those two states and Rhode Island. The proposed RFP solicits offers for renewable energy and transmission to deliver renewable energy, including projects that “may enable parties in each state to achieve their respective state’s clean energy goals more cost effectively than if each state were to proceed unilaterally.” The proposed RFP seeks renewable energy and/or renewable energy credits (RECs) from sources that deliver energy into the regional New England grid.
Allco argues that the deliverability requirement violates the dormant Commerce Clause because it amounts to “regional protectionism.” The supposedly facially discriminatory requirement prevents Allco from submitting bids for RECs from its facilities in Georgia and New York.
Allco also asserts claims under the Supremacy Clause, reiterating its argument (rejected by a federal district court in December 2014 in the above proceeding) that state regulators cannot “force” Connecticut utilities to sign wholesale energy contracts, because such compulsion would be preempted by the Federal Power Act. Second, Allco claims that Qualifying Facilities (QF) under PURPA have “specific protected interests as  Congressionally-created participant[s] in the Nation’s energy markets.” The proposed RFP violates those interests by allowing non-QFs to submit offers, restricting the RFP to facilities larger than 20 megawatts, and charging all participants a fee. Allco states that such “burdensome state regulatory conditions” are preempted by PURPA, 16 U.S.C. 824a-3(e).
Order Dismissing Complaints (Aug. 18, 2016) (the court’s decision dismisses this complaint and the complaint discussed in the next case description)
Allco Complaint (Apr. 26, 2015)
Department of Energy and Environmental Protection Motion to Dismiss (June 19, 2015)
Public Utilities Regulatory Authority Motion to Dismiss (June 19, 2015)
Allco’s Opposition to the State’s Motion to Dismiss Jul 19 2015 (Jul. 19, 2015)
Public Utilities Regulatory Authority Reply to Opposition to Motion to Dismiss (Aug. 7, 2015)
Department of Energy and Environmental Protection Reply to Opposition to Motion to Dismiss (Aug. 7, 2015)
Allco’s Surreply in Opposition to Motions to Dismiss (Aug. 10, 2015)
Department of Energy and Environmental Protection Reply to Surreply (Sep. 8, 2015)
Public Utilities Regulatory Authority Reply to Surreply (Sep. 8, 2015)
Department of Energy and Environmental Protection’ Letter to the Court (Mar. 30, 2016)
Public Utilities Regulatory Authority Letter to the Court (Mar. 30, 2016)
Allco’s Memorandum in Support of Motion for Temporary Restraining Order and Preliminary Injunction (Mar. 30, 2016)
Public Utilities Regulatory Authority Opposition to Request for Preliminary Injunction (Apr. 14, 2016)
Department of Energy and Environmental Protection Opposition to Request for Preliminary Injunction (Apr. 14, 2016)
Allco Finance v. Klee (filed March 2016)
Recent Developments: Allco filed its complaint in March 2016. The court dismissed the complaint in August 2016. An appeal is currently before the Second Circuit.
This is the third case that Allco has filed in the Connecticut federal district court in three years. Much of this action rehashes Allco’s claims in the initial action that was dismissed by a federal court in 2014. In affirming dismissal of Allco’s first complaint, the Second Circuit held that Allco failed to exhaust administrative remedies under PURPA. Allco now pleads that it has satisfied PURPA’s exhaustion requirements. Allco also makes claims asserted in the second, pending case.
Allco’s central claim is that the Connecticut law requiring regulators to conduct an RFP for renewable energy and ordering electric distribution companies to sign contracts with the winning developers “compels specific wholesale transactions” and is therefore field preempted by the Federal Power Act. Allco further asserts that the compulsion is conflict preempted because it is contrary to FERC’s market-based approach for regulating electricity markets. The company asks the court to invalidate contracts that were awarded under a 2013 RFP and to prevent regulators from awarding any contracts under a 2015 RFP.
Allco contends that PURPA’s exception to the general rule that States may not regulate wholesale power rates is quite limited. To the extent that a State is allowed to conduct an RFP for renewable energy, it may only allow Qualifying Facilities (QF) under PURPA to participate. Furthermore, a State may not “undermine the special treatment that Congress intended to give to QF generators.” Allco claims that the 2015 RFP’s entry fee and its minimum size requirement of 20 MW are not authorized by PURPA, which does not require a minimum size. It asks the Court either to prevent Connecticut regulators from taking further action on the 2015 RFP or to require that the RFP be open only to QFs and free of any “burdensome” restrictions.
The State Defendants (officials of two regulatory agencies) respond that Allco lacks standing (LINK) because it failed to establish injury and redressability. On the merits, the defendants invoke several FERC orders, including one quoted by the Second Circuit in a 2013 decision, that contrary to Allco’s claim hold states may order utilities to procure new generation.
Moreover, they counter that three Supreme Court decisions published since Allco filed its first case have “unraveled plaintiff’s preemption theory.” According to the defendants, Oneok, EPSA, and Hughes, conclude that the “hermetic seal plaintiff imagines between state and federal jurisdiction simply does not exist.” Allco’s assertion that the State may not order utilities to enter into wholesale contracts would “impose a new bright line” between state and federal authority that has no basis in law.
Finally, defendants argue that PURPA does not “constrain a state’s procurement activities.” In general, states have broad authority to direct utility resource decisions. PURPA does add an affirmative requirement that utilities purchase from certain resources, but it does not define the limits of state authority as Allco contends.
Allco’s Initial Brief (Sep. 28, 2016)
Motion for an Injunction (Oct. 3, 2016)
State Defendants’ Opposition to Injunction (Oct. 6, 2016)
Allco’s Reply in Support of Injunction (Oct. 10, 2016)
Brief of State Defendant Robert Klee (Nov. 22, 2016)
Brief of State Defendants Katherine S. Dykes, John W. Betkoski III, and Michael Caron (Nov. 22, 2016)
Amicus Briefs in Support of State Defendants (Nov. 22, 2016):
• Connecticut Light and Power
• Environmental Advocacy Organizations
• Massachusetts, New York, Oregon, Vermont, Washington, and the California Air Resources Board (Nov. 29, 2016)
Allco’s Reply Brief (Nov. 29, 2016)
Listen to the Oral Argument
Order Dismissing Complaints (Aug. 18, 2016) (the court’s decision dismisses this complaint and the complaint discussed in the previous case description)
Complaint (Mar. 30, 2016)
Allco’s Letter to the Court about Hughes (Apr. 20, 2016)
Public Utilities Regulatory Authority’s Motion to Dismiss (May 26, 2016)
Department of Energy and Environmental Protection’s Motion to Dismiss (May 26, 2016)
Allco’s Memo in Opposition to Motions to Dismiss (June 15, 2016)
Department of Energy and Environmental Protection’s Reply (June 21, 2016)
Public Utilities Regulatory Authority’s Reply (June 28, 2016)
Allco’s Motion for Preliminary Injunction (Apr. 18, 2016)
Public Utilities Regulatory Authority’s Opposition to Motion for Injunction (June 3, 2016)
Department of Energy and Environmental Protection’s Opposition to Motion for Injunction (June 8, 2016)
Allco’s Reply Memo (June 17, 2016)