Update – February 15, 2017 – Generators Challenge Illinois Nuclear Program in Federal Court

Yesterday, the Electric Power Supply Association (EPSA) and four merchant generation companies filed a complaint in federal district court in Illinois arguing that the Zero Emission Credit (ZEC) program that will benefit two in-state nuclear plants is preempted and violates the dormant Commerce Clause. The complaint is nearly identical to the complaint pending before a federal district court in New York about that state’s ZEC program.

Both states will award qualified nuclear generators one ZEC for each MWh generated and will require utilities to purchase a specified number of ZECs. ZEC prices are set administratively based mostly on the social cost of carbon with adjustments based on, in New York market price forecasts and RGGI prices and in Illinois, actual and forecasted market prices.

The plaintiffs assert that the states’ programs are field preempted because the required payments for ZECs “directly alter” and “effectively replace” the price generated by FERC-regulated auctions. Moreover, they argue that ZEC revenue will “artificially suppress” and “disrupt” FERC-jurisdictional market prices and is therefore also conflict preempted. Finally, the generators claim states’ decisions to benefit only in-state plants were motivated by “political reasons,” and are discriminatory under the dormant Commerce Clause.

These claims have already been well argued in New York where motions to dismiss are pending. If the New York court rules in favor of the state, the plaintiff generators will likely file an appeal in the Second Circuit. If the court denies the motions, a trial would take place sometime later this year. The New York court’s decision is likely to be influential on the Illinois court, but it is not binding. While the legal issues are nearly identical (although some commentators argue that the difference in ZEC price adjustments is legally meaningful), it is possible that the two district courts could decide the cases differently and that the Second and Seventh Circuits ultimately reach different results on appeal.

It is likely that the state defendants and Exelon will file motions to dismiss in the next few weeks. The Illinois complaint is available on the Illinois page.