Update – January 4, 2018 – 7th Circuit Hears Argument on Nuclear ZECs, Requests Additional Briefs

Yesterday, Judges Easterbrook, Sykes and Reagan (Chief Judge, Southern District of Illinois) heard one hour of oral argument about Illinois’ zero emission credit (ZEC) program that compensates two in-state nuclear generators for producing carbon-free electricity. The hour was split roughly evenly among four parties, with attorneys for EPSA and various Illinois consumers opposing the state’s program and counsel for Exelon and Illinois each urging the court to affirm the lower court’s dismissal of the complaints.

About half of the argument was devoted to procedural issues, and half about whether the program is preempted by the Federal Power Act. The claim that the ZEC program violates the dormant Commerce Clause because it benefits only in-state plants was mentioned only in passing.

On preemption, the court sought legally meaningful distinctions between ZECs and other state programs. Judge Easterbrook challenged EPSA to explain why a state cap-and-trade program would not be preempted under its reading of the Federal Power Act. Both programs, according to Easterbrook, establish markets for a separate commodity (emission allowances or credits) that necessarily affect wholesale power rates. Counsel for EPSA replied that the Illinois program does not create a separate market. Rather, ZECs are simply an additional payment from the state for each unit of output sold in the wholesale market. Although the state is operating within its traditional sphere of authority over generation, it has chosen a means that intrudes on FERC’s exclusive authority over wholesale rates.

To the state and Exelon, Judge Easterbrook asserted that the state was acting to “defeat the [wholesale] market” and questioned why that goal is not impermissible under the Supreme Court’s decision in Hughes. The state’s attorney explained that Illinois aimed to achieve an environmental goal by subsidizing particular generators, while Maryland’s preempted program in Hughes aimed only to subvert the market by changing a plant’s compensation for FERC-jurisdictional capacity.

On procedure, the court requested supplementary briefs on three issues:

  1. Should the court defer to FERC with regard to the preemption claims under the doctrine of primary jurisdiction?
  2. Does the 1908 Supreme Court decision Ex parte Young provide a basis for equitable relief?
  3. Does the principle of Illinois Brick, a 1977 Supreme Court decision, prevent suits by parties that do not participate in the wholesale market?

The first two issues could decide the case in favor the state and Exelon without a ruling on the merits. The third issue could prevent the Illinois consumers from bringing their claims. If you want to learn more about these issues, the parties’ briefs will be posted on statepowerproject.org around January 18.

A recording of the oral argument and the filed briefs are available on the Illinois page.