Update – January 8, 2019 – ZEC Opponents File at Supreme Court; Minnesota Defends Transmission Law

Yesterday, the Electric Power Supply Association and NRG filed petitions for a writ of certiorari, asking the Supreme Court to review the Second and Seventh Circuits’ September decisions that upheld state Zero Emission Credit (ZEC) programs. Calpine joined the Second Circuit petition. The petitioners assert that the appeals courts’ decisions “cannot be squared with the plain text of the Federal Power Act (FPA), a fair reading of [the Court’s 2016 decision in] Hughes, or this Court’s preemption jurisprudence.” The states and Exelon have 30 days to respond, but they may ask the Court for an extension.

Under the FPA, FERC must ensure that “all rates and charges…received by any public utility for or in connection with the…sale of electric energy” are just and reasonable. Petitioners argue that FERC’s authority is “is not limited to the specific rates wholesale sellers charge or wholesale buyers pay for direct wholesale purchases of electricity.” Instead, the statute “expressly extends [FERC’s jurisdiction] to all amounts wholesale sellers ‘receive’ from whatever source ‘in connection with’ such sales. ZECs are therefore preempted, according to the generators, because they are payments “received” for every megawatt-hour of energy sold at wholesale that effectively “supplant the FERC-authorized wholesale rate.”

In dismissing the generators’ challenges, both appeals courts distinguished ZECs from the Maryland program preempted by the Supreme Court in Hughes. Maryland required in-state utilities to sign contracts that paid generators the difference between the state’s price and the FERC-approved rate, thus “guaranteeing” the generators received a rate that was different from FERC’s just and reasonable rate. Both appeals courts read Hughes narrowly, focusing on the Court’s conclusion that the program’s “fatal defect” was that it conditioned the state-mandated payment on the plants clearing the FERC-regulated auction. Petitioners argue that the absence of an explicit bid-and-clear requirement does not save ZEC programs from preemption under Hughes because they are “functionally indistinguishable from Maryland’s program.” The petitions emphasize that both programs “guarantee that favored producers will receive an alternative, state-determined level of compensation in connection with their wholesale electricity sales.”

These arguments about the text of the FPA and the Court’s 2016 Hughes decision largely repeat the generators’ briefs filed at the Second and Seventh Circuits. In rejecting these arguments, the Second Circuit panel found it “telling that [the generators] cannot persuasively explain why FERC’s holding [disclaiming jurisdiction over renewable energy credits] does not apply equally to ZECs.” As amicus briefs filed at the appeals courts explain, a decision endorsing petitioners’ sweeping view of FERC’s authority over all payments received by generators would threaten existing renewable energy programs and deny FERC the opportunity to harmonize its market regulation with state programs.

Meanwhile, Minnesota recently filed its reply brief in the Eighth Circuit in a case about its right-of-first-refusal law that provides incumbent transmission owners with the opportunity to construct any new line that is approved by MISO and interconnects with an existing facility owned by the incumbent company. Complainant LSP Transmission argues that the law discriminates against out-of-state transmission developers. The state’s brief attempts to buttress the lower court’s reliance on a 1997 Supreme Court decision holding that a state may assess different taxes on natural gas sales by utilities and interstate marketers. In that case, the Court held that under the dormant Commerce Clause a state may treat utilities serving captive consumers differently from interstate marketers.

Applying that holding, Minnesota argues that a state may grant a utility monopoly privileges over electric generation, transmission, or distribution. It argues that state authority over “traditional regulated service” supersedes dormant Commerce Clause scrutiny. The Eighth Circuit may decide the case without weighing in on this theory.

Briefs filed at the Eighth Circuit are available on the Minnesota.