Petition for Writ of Certiorari — Electric Power Supply Association, et al., Petitioners v. John B. Rhodes, et al.
Supreme Court briefJan 7, 2019
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i
QUESTION PRESENTED
The Federal Power Act (FPA), 16 U.S.C. §§ 791a et
seq., vests exclusive federal jurisdiction over “[a]ll
rates and charges … received by any public utility for
or in connection with the transmission or sale of
electric energy” at wholesale in the Federal Energy
Regulatory Commission (FERC).
Id. § 824d(a).
FERC is charged with ensuring that wholesale rates
are “just and reasonable,” id., and has determined, as
a matter of federal policy, that vibrant competition in
the nation’s wholesale electricity markets is the best
mechanism for ensuring just and reasonable rates.
To achieve this goal, FERC has authorized and
oversees competitive, regional market-based auctions
for the purchase of wholesale electricity, and has
deemed the free market prices set through those
auctions just and reasonable. This Court held in
Hughes v. Talen Energy Marketing, LLC, 136 S. Ct.
1288 (2016), that federal jurisdiction preempts state
subsidies that have the effect of “guarantee[ing]” that
a wholesale generator will receive “a certain rate”
other than the auction rate in connection with
wholesale electricity sales. Id. at 1298–99.
The question presented is whether the FPA
preempts only state subsidies that explicitly require a
wholesale generator to sell its output in FERCapproved auctions, or whether the FPA also preempts
state subsidies that lack such an express requirement
but that, by design, subsidize only generators that
sell their entire output via such auctions, thereby
achieving the same effect.
ii
PARTIES TO THE PROCEEDING BELOW
Petitioners here, Plaintiffs-Appellants below, are
Electric Power Supply Association and NRG Energy,
Inc.
Respondents here, Plaintiffs-Appellants below, are
Coalition for Competitive Electricity, Eastern
Generation, LLC, Roseton Generating, LLC, and
Selkirk Cogen Partners, L.P.
Respondents here, Defendants-Appellees below,
are John B. Rhodes, In His Official Capacity As Chair
Of The New York Public Service Commission
(previously Audrey Zibelman, In Her Official
Capacity); Gregg C. Sayre, In His Official Capacity
As Chair Of The New York Public Service
Commission; Diane X. Burman, In Her Official
Capacity As Commissioner Of The New York Public
Service Commission; and James S. Alesi, In His
Official Capacity As Commissioner Of The New York
Public Service Commission (previously Patricia L.
Acampora, In Her Official Capacity). John B. Rhodes
and James S. Alesi became parties to the case In
Their Official Capacities when they attained their
current offices.
Also
Respondents
here,
and
IntervenorDefendants-Appellees below, are Exelon Corp., R.E.
Ginna Nuclear Power Plant LLC, Constellation
Energy Nuclear Group, LLC, and Nine Mile Point
Nuclear Station LLC.
iii
TABLE OF CONTENTS
Page
PETITION FOR A WRIT OF CERTIORARI .............. 1
OPINIONS BELOW .................................................... 1
JURISDICTION........................................................... 1
CONSTITUTIONAL AND STATUTORY
PROVISIONS INVOLVED ............................... 1
STATEMENT OF THE CASE..................................... 2
A.
The Federal Regulatory Regime ............ 6
B.
The New York ZEC Program ................. 9
C.
The ZEC Program in Operation:
Targeted Subsidies to
Unprofitable Plants .............................. 11
D.
Proceedings Below ................................ 13
REASONS FOR GRANTING THE WRIT ................ 15
I.
The Court of Appeals’ Decision Cannot
be Reconciled with This Court’s Decision
in Hughes or with This Court’s Approach
to Preemption .................................................. 18
A.
This Court Held in Hughes That
the FPA Expressly Preempts
State Subsidy Programs That
Disregard FERC-Approved
Wholesale Auction Rates ..................... 18
B.
The Court of Appeals’ Approval of
the New York ZEC Program Rests
on a Misreading of Hughes .................. 20
iv
TABLE OF CONTENTS
(continued)
Page
C.
The Court of Appeals’ Analysis
Cannot be Reconciled with This
Court’s Approach to Preemption ......... 27
II.
This Court’s Review is Manifestly
Warranted ....................................................... 30
III.
This Case is a Superior Vehicle for
Addressing the Question Presented ............... 34
CONCLUSION .......................................................... 35
APPENDICES
APPENDIX A: Opinion of the U.S. Court of Appeals
for the Second Circuit ........................................... 1a
APPENDIX B: Judgment of the U.S. Court of
Appeals for the Second Circuit .......................... 32a
APPENDIX C: Order of the U.S. District Court for
the Southern District of New York Granting Rule
12(b)(6) Motions to Dismiss ............................... 34a
APPENDIX D: Complaint ..................................... 92a
v
TABLE OF AUTHORITIES
Page(s)
FEDERAL CASES
Allco Finance Ltd. v. Klee,
861 F.3d 82 (2d Cir. 2017) .................................... 24
Apache Corp. v. FERC,
627 F.3d 1220 (D.C. Cir. 2010) .............................. 7
Armstrong v. Exceptional Child Center,
Inc.,
135 S. Ct. 1378 (2015) .................................... 14, 15
Ashcroft v. Iqbal,
556 U.S. 662 (2009) .............................................. 23
Cuomo v. Clearing House Ass’n,
557 U.S. 519 (2009) .............................................. 29
Electric Power Supply Ass’n v. Star,
904 F.3d 518 (7th Cir. 2018) .........................passim
FERC v. Electric Power Supply Ass’n,
136 S. Ct. 760 (2016) .....................................passim
Hughes v. Talen Energy Mktg., LLC,
136 S. Ct. 1288 (2016) ...................................passim
Mississippi Power & Light Co. v.
Mississippi ex rel. Moore,
487 U.S. 354 (1988) .............................................. 20
Morgan Stanley Capital Grp. Inc. v. Pub.
Util. Dist. No. 1 of Snohomish Cty.,
554 U.S. 527 (2008) .................................... 7, 24, 34
vi
TABLE OF AUTHORITIES
(continued)
Page(s)
Nantahala Power & Light Co. v.
Thornburg,
476 U.S. 953 (1986) .............................................. 20
National Meat Ass’n v. Harris,
565 U.S. 452 (2012) ........................................ 27, 28
New York v. FERC,
535 U.S. 1 (2002) ............................................ 33, 34
Northern Natural Gas Co. v. State Corp.
Commission of Kansas,
372 U.S. 84 (1963) .......................................... 28, 29
Northwest Central Pipeline Corp. v.
State Corp. Commission of Kansas,
489 U.S. 493 (1989) .............................................. 28
Pac. Gas & Elec. Co. v. State Energy Res.
Conservation & Dev. Comm’n,
461 U.S. 190 (1983) .............................................. 33
United States v. Locke,
529 U.S. 89 (2000) ................................................ 29
Wos v. E.M.A.,
568 U.S. 627 (2013) .............................................. 27
REGULATORY CASES
Calpine Corp. v. PJM Interconnection,
LLC,
163 FERC ¶ 61,236 (June 29, 2018) .................... 32
vii
TABLE OF AUTHORITIES
(continued)
Page(s)
Central Hudson Gas & Electric Co. et
al.,
83 FERC ¶ 61,352 (1998),
86 FERC ¶ 61,062 (1999),
order on reh’g, 88 FERC ¶ 61,138
(1999) ...................................................................... 7
FEDERAL STATUTES
Federal Power Act,
16 U.S.C. §§ 791a et seq. ........................................ 2
16 U.S.C. § 824(a) ...................................................... 18
16 U.S.C. § 824(b)(1) ............................................ 1, 2, 6
16 U.S.C. § 824d(a) .............................................passim
16 U.S.C. § 824d(e) .................................................... 21
16 U.S.C. § 824e(a) ...................................................... 2
28 U.S.C. § 1254(1) ...................................................... 1
Federal Meat Inspection Act,
21 U.S.C. §§ 601 et seq. ........................................ 27
viii
TABLE OF AUTHORITIES
(continued)
Page(s)
FEDERAL REGULATIONS
Promoting Wholesale Competition
Through Open Access NonDiscriminatory Transmission Servs.
by Pub. Utils., FERC Order No. 888,
61 Fed. Reg. 21,540 (May 10, 1996) ....................... 7
CONSTITUTIONAL PROVISIONS
United States Constitution, Article VI,
clause 2 ................................................................... 1
STATE STATUTES
N.J. Stat. Ann. § 48:3-87.5 (2018) ............................. 31
Ohio H.B. 381 (proposed 2018).................................. 31
Ohio S.B. 128 (proposed 2018) .................................. 31
RULES
Federal Rule of Civil Procedure 12(b)(6) .................. 14
ix
TABLE OF AUTHORITIES
(continued)
Page(s)
OTHER AUTHORITIES
Comments of Alliance for a Green Econ.,
Council on Intelligent Energy &
Conservation Policy, Nuclear Info. &
Res. Serv., Sierra Club-Atl. Chapter,
N.Y. State Dep’t of Pub. Svc., Matter
Master: 15-01168/15-E-0302, filing
no. 328, DPS.NY.GOV .......................................... 12
Conn. Dep’t of Energy & Environmental
Protection and Conn. Public Util.
Regulatory Auth., Resource
Assessment of Millstone Pursuant to
Executive Order No. 59 and Public
Act 17-3: Draft Report (Dec. 14, 2017) ................. 31
Penn. Gen. Assembly Nuclear Energy
Caucus, Bicameral Nuclear Energy
Caucus Report: 2017-2018 Session
(Nov. 29, 2018) ...................................................... 31
1
PETITION FOR A WRIT OF CERTIORARI
Electric Power Supply Association and NRG Energy, Inc. (Petitioners) respectfully petition for a writ of
certiorari to review the judgment of the United States
Court of Appeals for the Second Circuit in this case.
OPINIONS BELOW
The opinion of the court of appeals (Pet. App. 1a–
31a) is reported at 906 F.3d 41. The order of the district court judge (Pet. App. 34a–91a) is reported at
272 F. Supp. 3d 554.
JURISDICTION
The judgment of the Court of Appeals was entered
on September 27, 2018. On December 18. 2018, Justice Ginsburg extended the time to file the petition
for certiorari to January 7, 2019. This Court’s jurisdiction is invoked under 28 U.S.C. § 1254(1).
CONSTITUTIONAL AND STATUTORY
PROVISIONS INVOLVED
The Supremacy Clause, Article VI, clause 2 of the
United States Constitution, provides: “This Constitution, and the Laws of the United States which shall
be made in Pursuance thereof … shall be the supreme Law of the Land; … any Thing in the Constitution or Laws of any State to the Contrary notwithstanding.”
Section 824(b)(1) of the FPA, 16 U.S.C. § 824(b)(1),
provides in pertinent part:
2
It is declared that the business of transmitting and
selling electric energy for ultimate distribution to
the public is affected with a public interest, and
that Federal regulation of matters relating to …
that part of such business which consists of the
transmission of electric energy in interstate
commerce and the sale of such energy at wholesale
in interstate commerce is necessary in the public
interest, such Federal regulation, however, to
extend only to those matters which are not subject
to regulation by the States.
Section 824d(a) of the FPA, 16 U.S.C. § 824d(a),
provides in pertinent part:
All rates and charges made, demanded, or received
by any public utility for or in connection with the
transmission or sale of electric energy subject to
the jurisdiction of the Commission, and all rules
and regulations affecting or pertaining to such
rates or charges shall be just and reasonable, and
any such rate or charge that is not just and
reasonable is hereby declared to be unlawful.
STATEMENT OF THE CASE
The Federal Power Act invests FERC with broad
authority over “the sale of electric energy at
wholesale in interstate commerce,” including
exclusive jurisdiction to determine that wholesale
rates and charges are “just and reasonable.” 16
U.S.C. §§ 824(b)(1), 824d(a), 824e(a). In Hughes v.
Talen Energy Marketing, LLC, 136 S. Ct. 1288 (2016),
this Court held that a State may not “second-guess”
wholesale rates that FERC has deemed reasonable,
and may not establish a subsidy scheme that
3
compensates favored generators for wholesale sales
at higher levels than FERC deems appropriate. Id.
at 1298–99.
That is precisely what New York has done here.
Concerned that certain inefficient nuclear plants
could not operate profitably at the wholesale rates
approved by FERC, New York established “zero
emissions credits” (ZECs)—a $7 billion subsidy
scheme designed to augment wholesale rates for
those unprofitable plants. In a triumph of form over
substance, the court of appeals nonetheless held that
New York’s program is not preempted because it does
not explicitly condition that subsidy on the favored
plants selling their output into the wholesale market.
In so doing, the court brushed aside the complaint’s
well-pled allegations that the subsidized plants have
sold, and necessarily must sell, all of their output at
wholesale, rendering unnecessary an explicit
statutory requirement to do so.
In Hughes, this Court invalidated a Maryland
subsidy scheme that “guarantee[d]” a particular
generator would receive compensation for its
wholesale sales at levels the State thought
appropriate, rather than at the market-based rate set
through FERC-approved wholesale auctions. 136 S.
Ct. at 1298–1299. Maryland had justified its scheme
as an exercise of its “traditional authority over … instate
generation”—namely,
promoting
the
development of additional generation. Id. at 1299.
And Maryland’s scheme did not directly prescribe a
wholesale rate. Id. at 1297 & n.9. But the Court held
that the State had impermissibly invaded FERC’s
exclusive sphere of authority because Maryland’s
scheme tethered the subsidy to the movement of
4
wholesale auction rates to ensure that the favored
generator would receive overall revenues that the
State deemed necessary for the plant to operate,
thereby “disregarding interstate wholesale rates
FERC has deemed just and reasonable.” Id. at 1299.
Like Maryland, New York devised a subsidy
program to ensure the profitable operation of three
nuclear plants. Indeed, the only plants eligible for
the subsidy are those that purportedly could not turn
a profit based on the wholesale rates set through
FERC-regulated market auctions. Like Maryland,
New York provides a per-megawatt-hour subsidy
payment that fluctuates in response to movements in
wholesale auction rates.
And, like Maryland’s
subsidy, the New York subsidy takes the form of a
side payment from utilities to subsidized generators,
rather than a direct prescription of the wholesale
rate.
Despite these close parallels to the preempted
Maryland scheme, the court of appeals held that New
York had “gone as near as can be without crossing”
the dividing line this Court drew in Hughes, Pet. App.
22a, and thus had “skirt[ed]” federal preemption, Pet.
App. 16a. That was so, the court believed, because
New York did not explicitly require the favored
plants to bid their electricity into, and clear, the
FERC-authorized wholesale auctions. Instead New
York provides a subsidy payment for each unit of
electricity generated. Pet. App. 17a–22a. But the
court of appeals ignored a critical fact: The favored
plants do (and, as a practical matter, must) sell all
the electricity they generate into the wholesale
markets, irrespective of any regulatory compulsion.
Had New York included an express “bid and clear”
5
requirement, it would not have changed the operation
of the subsidy scheme one iota. With or without that
requirement, New York provides a per-mega-watt
hour subsidy for the electricity these plants sell at
wholesale. In reality, the New York scheme therefore
operates in a manner indistinguishable from the
Maryland scheme preempted in Hughes. The court of
appeals concluded otherwise only because it
misunderstood this Court’s direction in Hughes as to
when States “cross the line” and invade FERC’s
jurisdiction.
By narrowly cabining the scope of exclusive federal
authority over wholesale rates, the court of appeals
(along with the Seventh Circuit in a case involving a
similar Illinois subsidy program, Electric Power
Supply Ass’n v. Star, 904 F.3d 518 (7th Cir. 2018)
(Star)), has given States a green light to enact all
manner of subsidies to boost the wholesale revenues
of favored in-state producers. Not surprisingly, other
States are already following in the footsteps of New
York and Illinois. See page 30–31 & fn. 10 infra.
Unless this Court intervenes to clarify the meaning of
its decision in Hughes, these subsidy programs will
reorder the allocation of regulatory authority between
the federal government and the States, and will do so
in a manner that threatens FERC’s efficient-market
approach both to energy pricing and to competitive
entry and exit by generating facilities. At the very
least, this sharp departure from settled law and
regulatory practice should not occur without further
consideration by this Court.
Plenary review is
manifestly warranted.
6
A.
The Federal Regulatory Regime
The FPA allocates regulatory authority over the
market for electricity between the federal
government and the States. FERC exercises broad
exclusive authority over “the sale of electric energy at
wholesale in interstate commerce,” including
exclusive jurisdiction to regulate “rates and charges
… received … for or in connection with” interstate
wholesale electricity sales, and specifically to
determine that particular wholesale rates are just
and reasonable. 16 U.S.C. §§ 824(b)(1), 824d(a),
824e(a). The FPA reserves to States the authority to
regulate “any other sale” of electricity (principally
retail sales) as well as in-state “facilities used for the
generation of electric energy.” 16 U.S.C. § 824(b)(1).
The respective roles of the federal government and
the States in regulating electric energy markets have
shifted over time, as the production and sale of
electricity has become an increasingly interstate
enterprise. See Hughes, 136 S. Ct. at 1292–93; FERC
v. Electric Power Supply Ass’n, 136 S. Ct. 760, 768
(2016) (EPSA).
Historically, most state energy
markets were geographically confined, vertically
integrated monopolies. In recent decades, however,
most States restructured their energy markets so
that power is now generated by networks of
independent generators that deliver electricity
through an “interconnected grid of near-nationwide
scope.” EPSA, 136 S. Ct. at 768 (internal quotation
marks and citation omitted).
As vibrant competition has arisen in the wholesale
electricity market, FERC has responded to, and
fostered, this evolution by replacing traditional
7
monopoly cost-of-service ratemaking with marketbased approaches to setting wholesale rates. Id.
FERC now seeks to ensure “just and reasonable”
rates “by enhancing competition” among multiple
wholesale providers of electricity. Id. FERC has
done so because it has concluded that competition is
the most effective way “to bring more efficient, lower
cost power to the Nation’s electricity consumers.” See
Promoting Wholesale Competition Through Open
Access Non-Discriminatory Transmission Servs. by
Pub. Utils., FERC Order No. 888, 61 Fed. Reg.
21,540, 21,541 (May 10, 1996); see also Apache Corp.
v. FERC, 627 F.3d 1220, 1221 (D.C. Cir. 2010)
(Kavanaugh, J.) (“[FERC’s] goals are to promote
competition and help American consumers gain
access to reliable and affordable energy.”). To achieve
that purpose, FERC has endeavored “to break down
regulatory and economic barriers that hinder a free
market in wholesale electricity,” Morgan Stanley
Capital Grp. Inc. v. Pub. Util. Dist. No. 1 of
Snohomish Cty., 554 U.S. 527, 536 (2008)
(Snohomish), and has chosen to rely on market forces
in competitive auctions to fulfill its statutory charge
of ensuring “just and reasonable” wholesale rates,
EPSA, 136 S. Ct. at 768.
Suppliers of retail electricity to consumers and
business users, called load-serving entities (LSEs),
purchase electricity at wholesale either through the
FERC-authorized
auctions
or
directly
from
generators through bilateral contracts. Hughes, 136
S. Ct. at 1292–93. Like auction sales, rates set by
contract are subject to FERC’s wholesale jurisdiction
and review. Snohomish, 554 U.S. at 531–32.
In New York, the interstate wholesale auctions are
operated by the New York Independent System
8
Operator (NYISO), under rules FERC has approved.
Pet. App. 6a; Central Hudson Gas & Electric Co. et
al., 83 FERC ¶ 61,352 (1998), 86 FERC ¶ 61,062
(1999), order on reh’g, 88 FERC ¶ 61,138 (1999).
NYISO operates two main types of wholesale
auctions: “energy” auctions, in which generators bid
the lowest price at which they will sell a specified
quantity of output on a spot or short-term basis, and
“capacity” auctions, in which generators bid, and
NYISO purchases, options to call upon the generator
to produce a specified amount of energy as needed in
the future. Pet. App. 6a–7a.
These auctions set wholesale prices by “stacking”
bids from lowest to highest until the requisite
quantity is covered.
The last and highest bid
establishes the “market-clearing price.” Generators
that bid at or below that price “clear” the auction and
receive the clearing price. This approach incentivizes
wholesale providers to be more efficient; it also
promotes systemic efficiency by creating price signals
that encourage new generators to enter the market if
they can beat the clearing price and that encourage
existing generators to exit the market if they cannot.
See Pet. App. 6a–7a; Hughes, 136 S. Ct. at 1293.
Nuclear generators typically bid into NYISO auctions as “price takers,” meaning that they sell their
entire output at whatever clearing price the market
determines. Unlike other types of generators that
can increase or decrease output depending on whether it is profitable to sell at the wholesale price, nuclear generators must run continuously at maximum
output. As a result, nuclear generators sell their entire output into the auctions regardless of the price—
9
even if the price is below their cost of production. See
Pet. App. 7a.
B.
The New York ZEC Program
The New York Public Service Commission (PSC)
created the ZEC program through an August 2016
order. Pet. App. 7a; Order Nos. 15-E-0302, 16-E-0270
(N.Y. PSC Aug. 1, 2016) (ZEC Order). The program
provides subsidies in the form of ZECs, which are
ostensibly “credit[s] for the zero-emissions attributes
of one megawatt-hour of electricity production” by a
participating nuclear power plant. Pet. App. 8a.
The PSC determines which nuclear generators
receive ZECs based on five criteria: (1) “verifiable
historic contribution . . . to the clean energy resource
mix” in New York; (2) the degree to which projected
wholesale revenues are “insufficient” to prevent
retirement of the facility; (3) the costs and benefits of
providing ZECs to the generator relative to cleanenergy alternatives; (4) the impact on ratepayers; and
(5) the public interest. Based on these criteria, the
PSC has selected three nuclear plants—known as
Fitzpatrick, Ginna, and Nine Mile Point—for
inclusion in the program, all of which are owned by
Respondent Exelon Corporation. Pet. App. 6a–8a.
The ZEC price is calculated on the basis of a “Base
Subsidy Amount,” which PSC refers to as the “social
cost of carbon,” adjusted for anticipated revenue from
New York’s participation in the Regional Greenhouse
Gas Initiative and multiplied by the tons of carbon
avoided per MWh of zero-emission energy. The Base
Subsidy amount is then adjusted using a formula tied
to wholesale market prices. For the first two years of
10
the program, the subsidy is fixed at $17.48/MWh.
Thereafter, the subsidy is adjusted every two years
based on forecasts for prices in the wholesale energy
and capacity markets in certain regions of the State.
Pet. App. 9a. If forecasted wholesale prices rise, the
ZEC subsidy falls (because a smaller subsidy will be
needed to cover the excess costs of the subsidized
plants); if prices thereafter decline, the subsidy rises
to cover the difference, up to the Base Subsidy
Amount. See ZEC Order App. E at 5–8. 1
The PSC requires LSEs to purchase ZECs in
amounts proportional to their share of the total state
electrical load. 2 The LSEs, in turn, pass on the cost
of the ZEC subsidy to retail electricity consumers as
part of their monthly electric bill. See Pet. App. 10a.
Over the ZEC program’s 12-year duration, it is
estimated that New York ratepayers will be forced to
pay approximately $7.6 billion in subsidies to the
The Base Subsidy Amount may also be affected by “additional
renewable energy penetration,” but that potential adjustment is
not available until 2023 (and then only if more than 50 million
MWh of renewable energy are being consumed in New York),
and does not affect the formula that tethers the ZEC price to
forecasted wholesale prices. ZEC Order App. E at 6.
2
New York LSEs must also acquire Renewable Energy Credits
(RECs) each year (or make an alternative compliance payment).
Qualified renewable generators (such as solar, wind, and biomass) earn RECs for each MWh of electricity they generate.
Pet. App. 8a. As relevant here, RECs differ from ZECs in two
fundamental respects: First, all qualified renewable generators
create RECs, regardless of economic need, whereas ZECs are
available only to three nuclear plants facing financial difficulties; second, RECs are publicly traded, so the price of RECs varies based on supply and demand, whereas ZEC prices are set by
the state and tethered to wholesale rates. Compare ZEC Order
at 14–17, with id. at 19–20.
1
11
favored nuclear plants on top of the FERC-approved
rates. Pet. App. 93a.
C.
The ZEC Program in Operation:
Targeted Subsidies to Unprofitable
Plants
The PSC first proposed a ZEC program in January
2016, after Exelon announced that it would close
some of its nuclear facilities because they could not
operate profitably at FERC-approved wholesale
auction rates. 3 The initial proposal provided that the
subsidy amount would be calculated “based upon the
difference between the anticipated operating costs of
the units and forecasted wholesale prices,” i.e., the
amount necessary to ensure that the plants could
break even at FERC-approved auction rates. See
ZEC Order at 119.
After this Court’s decision in Hughes, the PSC
modified the ZEC price formula to its present form.
See ZEC Order at 49, 121. But the revised program
seeks the same objective as the initial plan: to steer
subsidies to three favored plants to make up the
difference between FERC-approved wholesale auction
rates and the income they need to operate profitably.
Pet. App. 26a. Indeed, eligibility for the program is
expressly conditioned on “the degree to which
projected wholesale revenues are insufficient” to
allow the facility to operate profitably. See Pet. App.
3
At that time, FitzPatrick was owned by Entergy Corporation,
which had announced its intent to close the plant; Exelon was in
discussions to purchase FitzPatrick, but made clear that it
would not invest in the plant without assurances of further financial support from the State. See ZEC Order at 122, 125, 143.
12
118a. The ZEC program thus subsidizes only plants
that cannot operate profitably by selling power at
FERC-approved wholesale rates. See ZEC Order at
125–26.
Environmental advocacy organizations opposed the
ZEC program, even though New York touted it as a
“clean air” initiative. The Sierra Club and other
groups objected that the program was “blatant
corporate favoritism” and a “consumer rip-off” to force
New York’s consumers to buy “dirty and dangerous
nuclear power,” instead of “real clean energy options
[that] are available for lower cost.” 4 The objectors
disputed the PSC’s claim that the nuclear plants
must stay open to prevent “backsliding” that would
increase the use of carbon-based fuel until additional
renewable sources become available. 5
4
Comments of Alliance for a Green Econ., Council on Intelligent
Energy & Conservation Policy, Nuclear Info. & Res. Serv., Sierra
Club-Atl. Chapter, at 5–6, N.Y. State Dep’t of Pub. Svc., Matter
Master: 15-01168/15-E-0302, filing no. 328, DPS.NY.GOV,
http://documents.dps.ny.gov/public/MatterManagement/CaseMa
ster.aspx?MatterCaseNo=15-e-0302. Other groups filing objections to the ZEC program include Citizens’ Environmental Coalition (Filing No. 320), Ampersand Hydro (Filing No. 331), the
New York Association of Public Power (Filing No. 333), the City
of New York (Filing No. 338), the Public Utility Law Project (Filing No. 343), and Promoting Health and Sustainable Energy
(Filings Nos. 194 & 348).
5
See, e.g., id. (Filing No. 328) (explaining that because there is
“no stated policy defining backsliding” and no “targets …
against which to measure whether we are backsliding or not”,
there is “no way for parties to propose alternative ways to meet
the murky goals”); id. (Filing No. 348) (“voluminous literature
demonstrates that nuclear power is extremely ill-suited to combating to [sic] climate change”).
13
Other opponents—including the City of New
York—echoed the Sierra Club’s concerns, and
objected to the ZEC program as “the largest gift of
public funds to a single corporation in the State’s
history,” coming at the expense of consumers. See
ZEC Order at 55–56. Indeed, if only a fraction of the
ZEC program’s $7.6 billion cost were used to
subsidize new, clean renewable energy sources,
greater environmental benefits would be obtained.
In reality, the ZEC program undermines New
York’s stated environmental goals by enabling
unprofitable nuclear plants to continue operating and
dumping uneconomic capacity and output into the
FERC-regulated auctions, thereby depressing prices
and discouraging market entry by more efficient
generators.
D.
Proceedings Below
In October 2016, a group of plaintiffs that included
Petitioners filed this action alleging that the ZEC
program is preempted by the FPA. 6 Pet. App. 10a.
The complaint alleged, inter alia, that: (1) the price of
ZECs is “expressly tethered to wholesale prices”
because the subsidy varies inversely with FERCapproved auction rates; (2) plants receive ZEC
subsidies only if they “produc[e]” electricity; and
(3) all electricity produced by participating plants
must be sold in NYISO auctions because there are no
alternative markets. See Pet. App. 7a–10a, 16a.
Thus, the complaint alleged, the ZEC program
6
Petitioners also challenged the ZEC program as a violation of
the dormant Commerce Clause in the proceedings below, but are
not seeking this Court’s review of that claim.
14
guarantees a state-determined rate tethered to
wholesale market prices—over-and-above the FERCapproved auction rate—for the electricity that three
favored generators produce and sell at wholesale, just
like the Maryland subsidy program this Court
unanimously preempted in Hughes. See Pet. App.
16a.
The district court granted motions to dismiss
under Federal Rule of Civil Procedure 12(b)(6). 7 Pet.
App. 34a–91a. Addressing field preemption, the
court interpreted Hughes as narrowly holding that
“State measures to incentivize clean energy” are
permissible “[s]o long as a State does not condition
payment of funds on capacity clearing the auction.”
Pet. App. 55a. Although recognizing the complaint’s
well-pleaded allegations that “all electricity produced
by [participating] nuclear generators must be sold in
the NYISO energy auctions because they have no
alternative way to sell their output,” the district court
nonetheless concluded that the New York program
“does not condition or tether ZEC payments to
wholesale auction participation.” See Pet. App. 39a,
69a–70a.
The court then addressed conflict
preemption, and concluded that any damage to
federal goals from the ZEC program was “indirect
and incidental,” and that the complaint’s contrary
allegations were not “plausible” in light of FERC’s
approval of allegedly “similar” programs. Pet. App.
70a–78a.
Applying Armstrong v. Exceptional Child Center, Inc., 135 S.
Ct. 1378 (2015), the district court first held that plaintiffs lacked
a private cause of action for their preemption challenge because
the FPA implicitly forecloses equity jurisdiction over such a
claim. Pet. App. 41a–51a. The court nevertheless then ruled on
the merits.
7
15
The Second Circuit affirmed. 8 Pet. App. 1a–31a.
Like the district court, the court of appeals
distinguished Hughes on the ground that the ZEC
program does not explicitly condition subsidies on
wholesale market participation. Although the court
acknowledged Petitioners’ allegations that the
favored plants must participate in wholesale auctions
to receive ZECs, the court held that the absence of an
express regulatory participation requirement was
dispositive. See Pet. App. 15a–19a. The court
recognized that the New York ZEC program was
designed to “skirt[]” (or “avoid[]”) the line this Court
drew in Hughes between permissible State regulation
and preempted conduct, but relying heavily on a
supposed “strong presumption” against preemption,
concluded that New York had “gone as near as can be
without crossing it.” Pet. App. 11a–16a, 22a. As for
conflict preemption, the court of appeals held that
“[t]o the extent the ZEC program distorts an efficient
wholesale market,” that effect is “incidental” and
“result[s] from New York’s regulation of producers,”
which is traditionally within the States’ jurisdiction.
Pet. App. 25a–28a.
REASONS FOR GRANTING THE WRIT
This case presents a question of exceptional importance to the regulation and efficient functioning of
wholesale energy markets in the United States. Relying on an interpretation of this Court’s decision in
Hughes that confines the decision to its facts, the
The Second Circuit did not reach the question of whether
plaintiffs had a cause of action under Armstrong because it
found that the preemption claim failed on the merits. Pet. App.
12a.
8
16
court of appeals held that States may guarantee
wholesale energy sellers compensation above the just
and reasonable rates set by FERC-approved wholesale auctions, so long as they do not formally mandate a wholesaler’s participation in those auctions.
This result cannot be squared with the plain text of
the FPA, a fair reading of Hughes, or this Court’s
preemption jurisprudence.
The court of appeals based its decision principally
on the final substantive paragraph of Hughes, in
which this Court stated that it “need not and do[es]
not address the permissibility of” other state programs to boost energy production—such as “tax incentives, land grants, direct subsidies, construction of
state-owned generation facilities, or re-regulation of
the energy sector.” 136 S. Ct. at 1299. The court
read that language, and the Court’s characterization
of Maryland’s auction-participation requirement as a
“fatal defect,” id., as holding that only state programs
that formally require wholesale energy sellers to bid
into and clear FERC-authorized auctions are
preempted by Section 824d(a), freeing States to craft
any other subsidy that avoids this formal requirement. The court reached that erroneous result despite language elsewhere in the Hughes opinion stating unambiguously that Section 824d(a) bars States
from guaranteeing levels of wholesale compensation
in disregard of FERC-authorized wholesale auction
rates, 136 S. Ct. at 1298–99—which is precisely what
New York has done.
The court of appeals was, however, correct about
one thing: The proper allocation of authority between
the States and the federal government depends upon
identifying the correct dividing line between permis-
17
sible state efforts to promote energy production and
impermissible state encroachment on FERC’s exclusive authority over all wholesale rates and charges.
See Pet. App. 16a (“New York’s scheme avoids (or
skirts) the Hughes prohibition”); id. at 22a (“New
York has kept the line in sight, and has gone as near
as can be without crossing it”). But by drawing the
boundary of federal authority as narrowly as it did,
the court of appeals has opened the door to all manner of parochial state schemes to augment the wholesale revenues of favored local energy generators. If
left uncorrected by this Court, that ruling (and a similar one by the Seventh Circuit in Star) will ratify a
fundamental transfer of regulatory authority to the
States and away from the federal government and its
policy of relying on market forces to set just and reasonable wholesale rates and send economically efficient signals regarding market entry and exit.
There is a pressing need for this Court’s guidance
because the economic and policy stakes are enormous. The New York ZEC program is expected to direct more than $7 billion in subsidies to Exelon over
twelve years, thereby grossly distorting market outcomes. The Illinois ZEC program at issue in Star will
produce a further multibillion dollar subsidy for Exelon. Other States will follow suit. New Jersey has
already adopted a comparable subsidy scheme and
others are considering similar measures. See page
30–31 & fn. 10 infra. Unless this Court intervenes,
these subsidy schemes will impose huge costs and
threaten serious distortions of the FERC-authorized
mechanisms for setting wholesale rates at economically efficient levels and sending appropriate price
signals to wholesale market participants. While
FERC’s market-based price signal could have caused
18
the favored inefficient plants to retire and efficient
plants to enter the market in their place, New York’s
State-dictated price signal will, by design, keep inefficient plants in the market and almost necessarily
force efficient plants either to leave or not to enter.
This Court should speak definitively on the scope
of Section 824d(a) and the meaning of its opinion in
Hughes before such fundamental changes in the balance between federal and state regulatory authority,
and damage to efficient market-based wholesale ratesetting, become entrenched.
I.
The Court of Appeals’ Decision Cannot be
Reconciled with This Court’s Decision in
Hughes or with This Court’s Approach to
Preemption
A.
This Court Held in Hughes That the
FPA Expressly Preempts State
Subsidy Programs That Disregard
FERC-Approved Wholesale Auction
Rates
1. The FPA confers on the federal government
exclusive jurisdiction over “the sale of [electric]
energy at wholesale in interstate commerce.” 16
U.S.C. § 824(a). By its plain terms, Section 824d(a)
provides that FERC’s exclusive authority extends to
“all rates and charges … received by any public
utility for or in connection with the … sale of electric
energy” for resale. The statute is not limited to the
specific rates wholesale sellers charge or wholesale
buyers pay for direct wholesale purchases of
electricity; rather, the text expressly extends to all
amounts wholesale sellers “receive[]” from whatever
19
source “in connection with” with such sales. Id.
(emphasis added). As this Court explained in EPSA,
this broad language “leaves no room either for direct
state regulation of prices of interstate wholesales or
for regulation that would indirectly achieve the same
result.” 136 S. Ct. at 780 (quotation marks and
citation omitted). Section 824d(a) thus preempts all
state laws and regulations that intrude on the
exclusive field of federal wholesale rate regulation.
2. In Hughes, this Court applied the FPA’s broad
preemptive language to invalidate a Maryland
scheme that guaranteed a particular level of
wholesale compensation to a favored producer.
Concerned that the FERC-authorized capacity
auctions were not creating sufficient long-term
incentives for new power generation, Maryland
sought to ensure that a particular new plant could
count on wholesale revenues sufficient to justify
entering the market. To achieve that objective,
Maryland required LSEs to enter into “contract[s] for
differences” with the new plant. 136 S. Ct. at 1294.
If the plant cleared the capacity auction at a price
below the State’s target price, LSEs paid the shortfall
to the plant; if the wholesale clearing price in the
capacity auction rose above the target, the plant paid
the overage to the LSEs. Id. at 1295. As long as the
plant cleared the capacity auction, it was guaranteed
to receive the State’s target rate. See id. Maryland
required participation in the capacity auctions
because the State’s goal was to increase long-term
wholesale supply commitments above the levels that
the price signals of the FERC-authorized auctions
had produced. The subsidized plant’s participation in
the capacity auction was therefore necessary to
achieve Maryland’s objective.
20
This Court concluded that by “guarantee[ing] … a
certain rate for [wholesale] sales … regardless of the
clearing price,” Maryland’s program impermissibly
“set[] an interstate wholesale rate, contravening the
FPA’s division of authority between state and federal
regulators.” Id. at 1298–99. It did not matter that
Maryland’s goal was the permissible one of
encouraging construction of new generators: States
cannot “interfere with FERC’s authority by
disregarding interstate wholesale rates FERC has
deemed just and reasonable, even when States
exercise their traditional authority over … in-state
generation,” and “however legitimate” their ends. Id.
at 1298–99 (emphasis added).
Likening the
Maryland program to those invalidated by this Court
in Mississippi Power & Light Co. v. Mississippi ex rel.
Moore, 487 U.S. 354 (1988), and Nantahala Power &
Light Co. v. Thornburg, 476 U.S. 953 (1986), this
Court emphasized that, in each case, the State had
run afoul of the FPA by attempting to second-guess
the reasonableness of the FERC-approved wholesale
auction rates. Id. at 1298.
B.
The Court of Appeals’ Approval of
the New York ZEC Program Rests
on a Misreading of Hughes
The court of appeals upheld New York’s ZEC
scheme even though it is functionally identical to the
Maryland program held preempted in Hughes. In the
view of the court of appeals, the ZEC program is
saved from preemption because it does not formally
mandate clearing the wholesale auction as a
condition of receiving the subsidy. Pet. App. 16a–
18a. That reading exalts form over substance and
effectively confines Hughes to its facts, in
21
contravention of the plain import of this Court’s
decision and the statutory policies it implements.
1. Like the Maryland program this Court held
preempted in Hughes, New York’s ZEC program
intrudes on FERC’s exclusive authority by
guaranteeing the favored plants a level of wholesale
compensation in disregard of the auction clearing
price. Just as in Hughes, New York requires LSEs to
make payments to particular State-selected
wholesale sellers to make up the difference between
the FERC-approved market rates and the rates that
New York believes the favored plants need in order to
operate profitably. Just as in Hughes, the subsidy
amount varies inversely with FERC-approved auction
rates; as market prices rise, the subsidy falls, and if
market prices thereafter fall, the subsidy goes back
up. And, just as in Hughes, the subsidy is “received”
by favored producers “in connection with” the sale of
electricity in wholesale markets.
16 U.S.C.
§§ 824d(a), 824d(e). The favored plants receive a ZEC
subsidy for every megawatt-hour of output they sell
at wholesale, and the subsidy fluctuates over time in
reaction to forecast wholesale rates to ensure that
these favored plants will earn revenues in a range
that will be sufficient to cover their costs. See supra
pp. 9–10.
The structure of the ZEC program confirms that
New York is doing exactly what Hughes forbids:
attempting to “second-guess the reasonableness of
interstate wholesale rates.” Hughes, 136 S. Ct. at
1298. A New York nuclear plant is eligible for the
ZEC subsidy only if it cannot operate profitably based
on anticipated revenues from wholesale auctions.
The ZEC subsidy is granted only to plants as to which
22
the State determines the FERC-authorized rate is too
low, and the ZEC subsidy varies so that the FERC
rate is topped up to the higher level that New York
prefers for its favored plants. See supra pp. 9–12.
The provenance of the ZEC program underscores
that its purpose is to guarantee wholesale revenues
at state-determined levels. The PSC’s original ZEC
proposal provided that the subsidy amount would be
“based upon the difference between the anticipated
operating costs of the units and forecasted wholesale
prices.” See supra pp. 11; ZEC Order at 119. After
this Court’s decision in Hughes made clear that the
initial ZEC proposal would not survive preemption
analysis, the PSC tweaked the proposal by replacing
the pricing mechanism that was explicitly based on
financial need with an ostensibly “fuel-neutral carbon
standard” that would achieve the same result by
generating a subsidy amount comparable to the
original formula. Even then, New York recognized
“[t]he potential for federal preemption” because the
program may impermissibly “interfere with federally
supervised wholesale markets.” See ZEC Order at
47, 100.
That New York gave this wholesale subsidy the fig
leaf of maintaining carbon-free power generation at
these plants is irrelevant. As this Court explained in
Hughes, “States may not seek to achieve ends,
however legitimate, through regulatory means that
intrude on FERC’s authority over interstate
wholesale rates.” 136 S. Ct. at 1298. And, “States
interfere … by disregarding interstate wholesale
rates FERC has deemed just and reasonable, even
when States exercise their traditional authority over
retail rates or, as here, in-state generation.” Id. at
23
1298–99. Thus, the analysis does not turn on what
goals New York aims to advance, or even if it is
acting in an area traditionally reserved for State
authority—it is the means New York has chosen that
impermissibly intrudes on FERC’s exclusive
jurisdiction.
In short, New York’s ZEC program is functionally
indistinguishable from Maryland’s program and
should be preempted for the same reason: Whatever
its rationale, New York cannot supplant FERCauthorized wholesale rates by guaranteeing that favored producers will receive an alternative, statedetermined level of compensation in connection with
their wholesale electricity sales. See 136 S. Ct. at
1298–99.
2. The court of appeals nonetheless upheld New
York’s ZEC program because it understood Hughes to
hold that a subsidy program is preempted only if it
expressly conditions receipt of the subsidy on clearing
the wholesale auction. Thus, the court of appeals
stated that in Hughes “the Maryland program was
unlawful because it conditioned payment on auction
sales.” Pet. App. 17a. Because New York ostensibly
required LSEs to pay subsidies for each unit of
electricity produced at the three favored plants,
rather than for each unit of electricity sold in the
wholesale market, the court concluded that nothing
in the ZEC Order itself “requires the ZEC plants to
participate in the wholesale market,” and that the
“‘fatal defect’ that doomed … the program in Hughes”
was therefore not present here. Pet. App. 18a. The
court brushed aside the complaint’s allegations—
which must be accepted as true, Ashcroft v. Iqbal, 556
U.S. 662, 678 (2009)—that the plants must, as a
24
practical matter, sell all their electricity into the
wholesale market, speculating that some of the
subsidized power might be sold directly at retail to
large consumers rather than bid into the wholesale
auctions. 9 Pet. App. 18a. That theoretical possibility,
in the court’s view, was sufficient to render a
generator’s decision whether to participate in the
wholesale markets “a business decision that does not
give rise to preemption concerns.” Pet. App. 18a.
The absence of an express legal requirement that
plants receiving ZECs participate in the wholesale
markets was thus dispositive.
That reasoning cannot be reconciled with Hughes.
The court of appeals relied on a single sentence in
Hughes, which states that the “fatal defect” in the
Maryland scheme was that it “condition[ed] payment
of funds on capacity clearing the auction.” 136 S. Ct.
at 1299.
That sentence appears in the final
substantive paragraph of the Court’s opinion, which
The court of appeals also apparently believed that States may
lawfully subsidize wholesale transactions made through bilateral contracts rather than through auctions. But bilateral contracts are wholesale sales within FERC’s exclusive jurisdiction.
See Snohomish, 554 U.S. at 531–32. And FERC has concluded
that the privately negotiated price of such contract sales is presumptively just and reasonable under the FPA. See Allco Finance Ltd. v. Klee, 861 F.3d 82, 99 (2d Cir. 2017). If a State
then provides for an additional payment for each unit of electricity sold in this way, it is plainly dictating its own rate in disregard of the rate that FERC has determined to be presumptively
just and reasonable. Moreover, even ignoring the complaint’s
allegations and treating bilateral contracts as outside FERC’s
jurisdiction, there is no evidence and the court of appeals never
suggested that bilateral sales even exist in New York and, if
they do, whether they are anything but trivial in comparison to
the auction sales by nuclear plants.
9
25
at the same time cautioned that the Court’s ruling
should not be read to signal that all State programs
promoting or subsidizing power generation will be
preempted by Section 824d(a). But the Court stated
that it was expressing no view on the permissibility of
“various other measures … including tax incentives,
land grants, direct subsidies, construction of stateowned generation facilities, or re-regulation of the
energy sector,” id.—not that any and all such
schemes were permissible.
Maryland’s auctionparticipation requirement left no doubt that its
scheme was preempted. But it does not follow, and
this Court was careful not to imply, that such a
requirement is the only way a State could
impermissibly invade FERC’s exclusive jurisdiction.
As the Court made pellucid elsewhere in its
opinion, whether a state subsidy scheme invades
FERC’s authority depends on whether it “guarantees”
that favored producers will receive a statedetermined rate in connection with wholesale
electricity sales “regardless of the clearing price.” Id.
at 1298–99. The facts of this case amply demonstrate
that a State can accomplish this prohibited result
without imposing an express “bid and clear”
requirement. In actual operation, the ZEC program
provides a subsidy for each megawatt-hour of
electricity sold on the wholesale market because all of
the electricity that Exelon’s favored plants produce
must be sold at wholesale. See Pet. App. 8a. The
complaint alleges—and it is a well-understood
reality—that these generators “have no alternative
way to sell their output” because nuclear plants
cannot increase or decrease production levels in
response to market demand as other types of
generators do; they always run at full output. See
26
Pet. App. 39a. Once generated, the power cannot be
stored. As a result, “[a]ll electricity produced by
these nuclear generators must be sold directly or
indirectly in the NYISO auctions.” Pet. App. 58a.
The court of appeals also found it significant that
rather than being tethered to “actual rates” in the
wholesale market, the ZEC subsidy is derived from
“forecast wholesale prices” after a short period of
being fixed at the “social cost of carbon.” Pet. App.
16a–17a. But that is simply another way of saying
that New York took the formula forbidden by this
Court in Hughes and added some obscuring noise to
it. Tellingly, New York does not tether changes in
the subsidy to fluctuations of, or factors that might
affect, the “social cost of carbon.” The subsidy is
instead designed to vary inversely with FERC’s rates;
indeed, if it worked any other way, the subsidy might
dip below the level necessary to achieve the ZEC
program’s purpose of keeping the favored plants
afloat. That the subsidy lacks the candor or precision
of the subsidy in Hughes does not change its purpose,
function, or effect—or its encroachment on FERC’s
exclusive jurisdiction.
The complaint’s allegations thus establish that the
absence of an express mandate requiring sales in the
FERC-regulated market makes no difference. The
subsidized plants cannot, and in reality do not, sell
electricity other than at wholesale, and the ZEC
program guarantees those plants will receive an
amount other than the FERC-approved rate in
connection with those sales. That is precisely what
this Court in Hughes said the States cannot do. The
court of appeals offered no sound reason, as a matter
of law or policy, why a formal “bid and clear”
27
requirement should mark the boundary between
federal and state regulatory authority—and this case
demonstrates just how arbitrary the court of appeals’
boundary is.
C.
The Court of Appeals’ Analysis
Cannot be Reconciled with This
Court’s Approach to Preemption
The Second Circuit’s interpretation of Hughes is
also incompatible with this Court’s approach to
preemption, both generally and under the FPA.
1. This Court has repeatedly rejected arguments
that a state law is saved from preemption simply
because it does not expressly regulate within the
federal sphere, if the practical effect of the law is to
control conduct that is subject only to federal
regulation. “[A] State may not evade the pre-emptive
force of federal law by resorting to creative statutory
interpretation or description at odds with the
statute’s intended operation and effect.” Wos v.
E.M.A., 568 U.S. 627, 636–37 (2013). Preemption
analysis turns on “what the state law in fact does, not
how the litigant might choose to describe it.” Id. In
National Meat Ass’n v. Harris, 565 U.S. 452 (2012),
for example, this Court held that a California statute
governing what type of meat could be sold at retail
had the impermissible effect of regulating
slaughterhouse operations, which were exclusively
governed by the Federal Meat Inspection Act, 21
U.S.C. § 601 et seq. Id. at 463–64. This Court
explained that permitting States to avoid preemption
by strategically “framing” their regulations would
“make a mockery” of the Supremacy Clause
28
principles reflected in preemption doctrine.
464.
Id. at
2. The Court has applied that same principle in
interpreting the preemptive scope of the FPA in
Northern Natural Gas Co. v. State Corp. Commission
of Kansas, 372 U.S. 84 (1963). There, the Court held
that a state rule requiring an interstate pipeline to
purchase gas ratably from producers was preempted
because its practical effect was to regulate wholesale
gas prices. Although the state did not expressly
regulate wholesale prices, this Court admonished
that “our inquiry is not at an end because the orders
do not deal in terms with prices or volumes of
purchases …. The federal regulatory scheme leaves
no room either for direct state regulation of the prices
of interstate wholesales of natural gas, or for state
regulations which would indirectly achieve the same
result.” Id. at 90–91.
In holding that New York’s ZEC subsidy is not
preempted because it does not expressly require ZEC
recipients to clear the wholesale auctions, the court of
appeals accepted precisely the sort of form-oversubstance argument that this Court has repeatedly
rejected. The court distinguished Northern Natural
Gas on the basis that the program there targeted
purchasers, whereas the New York ZEC program
targets producers—relying on Northwest Central
Pipeline Corp. v. State Corp. Commission of Kansas,
489 U.S. 493 (1989) (FPA did not preempt state law
regulating quantity of gas generators could produce
within certain time frame). Pet. App. 20a–21a. This
misses the point. Northern Natural Gas establishes
that even if a state regulation does not formally
regulate wholesale rates, it is nonetheless preempted
29
if that is its practical effect. See 372 U.S. at 91. The
Court unequivocally reaffirmed that principle in
EPSA, decided during the same term as Hughes. See
136 S. Ct. at 780 (“The FPA “‘leaves no room either
for direct state regulation of the prices of interstate
wholesales’ … or for regulations that ‘would
indirectly achieve the same result.’” (quoting N.
Natural Gas, 372 U.S. at 91)). Yet the court of
appeals interpreted Hughes as holding the opposite:
that only direct regulation via an express bid and
clear requirement is preempted. There is no way to
square that reading of Hughes with this Court’s
longstanding preemption jurisprudence or its holding
in EPSA during the very same term.
3. Finally, a word is warranted on the court of
appeals’ reliance on a “strong presumption” against
preemption. Pet. App. 14a. This Court’s precedent
makes clear that such a presumption has no
application where, as here, Congress has explicitly
delineated federal and state spheres of regulatory
authority. See Cuomo v. Clearing House Ass’n, 557
U.S. 519, 534–35 (2009) (“invok[ing] the presumption
against pre-emption” is “unnecessary … in giving
force to the plain terms” of statute with explicit
preemption provision); see also United States v.
Locke, 529 U.S. 89, 108 (2000) (presumption against
preemption “is not triggered when the State regulates
in an area where there” is an “extensive federal
statutory and regulatory scheme”). Tellingly, this
Court made no mention of any such presumption
against preemption in Hughes or EPSA.
30
II.
This Court’s
Warranted
Review
is
Manifestly
The decisions of the courts of appeals in this case
and in Star have placed the judiciary’s imprimatur on
a fundamental shift in the balance of regulatory
authority between the federal government and the
States under the FPA. In design and operation, the
subsidy schemes that these decisions have blessed
are the very impermissible intrusion on FERC’s
exclusive authority over the wholesale market that
Hughes condemned.
These schemes guarantee
favored producers a state-determined wholesale rate
in disregard of the market-determined rates that
FERC has deemed just and reasonable. 136 S. Ct. at
1298–99. Unless this Court steps in now, States will
know that they have carte blanche to guarantee
generators wholesale rates of the States’ own
choosing, so long as they avoid including any express
auction-clearing requirement.
1. The inevitable result will be a sharp turn away
from the federal policy of relying on market
mechanisms to set just and reasonable wholesale
rates and to provide appropriate signals to wholesale
providers about market entry and exit. The New
York ZEC program alone is estimated to result in a
$7.6 billion subsidy to the favored plants over 12
years (and a corresponding $7.6 billion cost to New
York ratepayers), on top of the revenue the plants
receive from FERC-approved wholesale rates. Pet.
App. 94a, 118a. The Illinois ZEC program at issue in
Star is similarly estimated to provide those favored
plants with a multibillion dollar subsidy over the life
of that program. And several other States—including
Connecticut, New Jersey, Ohio, and Pennsylvania—
31
have already enacted similar subsidy programs or are
contemplating doing so. 10
These subsidy schemes massively distort wholesale
markets. They “encourage[] the favored generators to
bid as price takers and thereby artificially depress
market prices,” and “enable[] the unprofitable plants
to keep dumping substantial amounts of electricity in
the FERC markets …, even though the FERCapproved price signals should cause the plants to
retire.” Pet. App. 26a. And the impact of ZEC
subsidies will only be magnified as more States rush
to adopt comparable programs in the wake of these
decisions. Nor is there any reason to think that
States will limit themselves to subsidizing nuclear
power sold at wholesale. Some States may choose to
provide wholesale revenue guarantees to renewable
energy producers, while others may subsidize local
producers that rely on coal or oil. There is now a real
risk that the national commitment to competition and
market-driven outcomes will be replaced by a
patchwork of political rent-seeking, as electricity
generators muster political power in their home
States to seek special favors in the form of targeted
subsidies that guarantee them higher wholesale
revenues than FERC-authorized auctions would
produce.
10
See Conn. Dep’t of Energy & Environmental Protection and
Conn. Public Util. Regulatory Auth., Resource Assessment of
Millstone Pursuant to Executive Order No. 59 and Public Act 173: Draft Report, at 29-31 (Dec. 14, 2017); N.J. Stat. Ann. § 48:387.5 (2018); Penn. Gen. Assembly Nuclear Energy Caucus, Bicameral Nuclear Energy Caucus Report: 2017-2018 Session, at
30 (Nov. 29, 2018); Ohio S.B. 128 (proposed 2018); Ohio H.B. 381
(proposed 2018).
32
2. Plenary review is warranted notwithstanding
that the United States did not advocate preemption of
the New York ZEC program in the proceedings below
or in the analogous case before the Seventh Circuit.
See Star, 904 F.3d at 522.
Although FERC
apparently read this Court’s decision in Hughes as
foreclosing preemption of these ZEC subsidy
programs, in the Hughes litigation the United States
recognized that “[t]he additional payments made to
the generators by the electric distribution companies
are not to purchase capacity but rather are
mechanisms to guarantee that generators will receive
a specified price based on their wholesale sales and
thereby subsidize the generators for clearing the
auction and selling their capacity.” Amicus Brief in
Opposition to Certiorari, at 19, No. 14-614 (Sept. 16,
2015). As the United States recognized, “[t]hat
arrangement is aimed directly at and distorts the
Commission-approved market mechanism for setting
wholesale rates and is preempted for that reason.”
Id. 19–20.
FERC has subsequently recognized that the ZEC
programs are wreaking havoc on the federal policy of
market-based wholesale rates, and has initiated a
proceeding to explore ways to mitigate these harms.
See Calpine Corp. v. PJM Interconnection, LLC, 163
FERC ¶ 61,236 (June 29, 2018). The order initiating
that proceeding acknowledges that “the integrity of
competition in the wholesale capacity market” is
undermined by “out-of-market support to … existing
uneconomic resources.” Id. at 64. Such subsidies,
FERC said, “significantly impact the capacity market
clearing prices and the integrity of the resulting price
signals on which investors and consumers rely to
guide the orderly entry and exit of capacity resources.
33
We cannot rely on such a construct to harness
competitive market forces and produce just and
reasonable rates.” Id. at 68–69. By “allow[ing]
resources to suppress capacity market clearing
prices,” id. at 63, “out-of-market support, such as
ZEC programs, has changed the circumstances [in
the wholesale markets],” id. at 63, 67, requiring
“sweeping changes” from FERC, id. at 84 (LaFleur,
Commissioner, dissenting).
That FERC has felt compelled to take these steps
starkly confirms that the ZEC subsidies intrude on
FERC’s exclusive jurisdiction and that FERC is
misreading Hughes. See Hughes, 136 S. Ct. at 1298
n.11 (States “cannot regulate in a domain Congress
assigned to FERC and then require FERC to
accommodate [that] intrusion”). In all events, the
“division of regulatory authority” under the FPA is a
“role which our system assigns to Congress.” Pac.
Gas & Elec. Co. v. State Energy Res. Conservation &
Dev. Comm’n, 461 U.S. 190, 222–23 (1983) (rejecting
FERC’s position on preemption question); see also
New York v. FERC, 535 U.S. 1, 41–42 (2002)
(Thomas, J., dissenting) (FERC’s views on the scope
of jurisdiction cannot override the “clear statutory
mandate.”). It is up to this Court to decide, as it did
in Hughes and EPSA, how to interpret the FPA’s
allocation of authority between the federal
government and the States.
3.
This is not a situation in which further
percolation in the courts of appeals is warranted.
Indeed, delay risks long-term distortion of the energy
markets. The emergence of massive state wholesale
subsidy programs marks a critical inflection point in
the evolution of energy markets and the rules that
34
govern them. The programs already in place are
causing multibillion dollar distortions and skewing
decisions about long-term investment in energy
generation. Much more is sure to follow if these
decisions are allowed to stand. Markets are much
easier to break than to fix. As in Hughes, this Court
has not hesitated to grant review in the absence of
any circuit conflict to address fundamental questions
about the proper allocation of regulatory authority
between the federal government and the States under
the FPA in comparable circumstances.
See
Snohomish, 554 U.S. 527; New York, 535 U.S. 1. The
Court’s review is manifestly warranted here as well.
III.
This Case is a Superior Vehicle for
Addressing the Question Presented
Also pending before this Court is a concurrently
filed petition for a writ of certiorari seeking review of
the Seventh Circuit’s judgment in Star, supra.
Petitioners respectfully suggest that the petition for
certiorari should be granted in this case, and that the
petition in Star should be held pending resolution of
this case.
The instant petition is a superior vehicle for
resolution of the question presented because the
Seventh Circuit’s decision is marred by errors that
could complicate review. First, although (as in this
case) the Seventh Circuit was reviewing an order
granting a motion to dismiss, the court incorrectly
stated that it was reviewing a grant of summary
judgment, 904 F.3d at 522, where the complaint’s
allegations need not be taken as true. And the
Seventh Circuit’s decision rested on factual
assumptions about the nature and operation of
35
energy markets that were contradicted by the
complaint, unsupported by any record evidence, and
wrong as a factual matter. Second, the Seventh
Circuit’s decision also rests on an erroneous
understanding of the structure and operation of the
Illinois ZEC program. 11 Although the Court could
reach the merits despite these errors, it would add
needless complications not present in instant case.
CONCLUSION
The petition for a writ of certiorari should be
granted.
Respectfully submitted,
DONALD B. VERRILLI, JR.
Counsel of Record
MUNGER, TOLLES & OLSON LLP
1155 F Street NW, 7th Floor
Washington, DC 20004
(202) 220-1107
Donald.Verrilli@mto.com
HENRY WEISSMANN
MARK R. YOHALEM
STEPHANIE G. HERRERA
MUNGER, TOLLES & OLSON LLP
350 South Grand, 50th Floor
Los Angeles, CA 90071
(213) 683-9150
Henry.Weissmann@mto.com
Mark.Yohalem@mto.com
Stephanie.Herrera@mto.com
These factual and procedural errors were addressed in a rehearing petition, but the court took no corrective action.
11
36
JONATHAN D. SCHILLER
DAVID A. BARRETT
STUART H. SINGER
BOIES SCHILLER FLEXNER LLP
575 Lexington Avenue
New York, New York 10022
(212) 446-2300
January 7, 2019
APPENDIX
1a
APPENDIX A
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
————
No. 17-2654-cv
August Term 2017
————
COALITION FOR COMPETITIVE ELECTRICITY, DYNERGY
INC., EASTERN GENERATION, LLC, ELECTRIC POWER
SUPPLY ASSOCIATION, NRG ENERGY, INC., ROSETON
GENERATING LLC, SELKIRK COGEN PARTNERS, L.P.,
Plaintiffs-Appellants,
v.
AUDREY ZIBELMAN, in her official capacity as
Chair of the New York Public Service Commission,
PATRICIA L. ACAMPORA, in her official capacity as
Commissioner of the New York Public Service
Commission, GREGG C. SAYRE, in his official
capacity as chair of the New York Public Service
Commission DIANE X. BURMAN, in her
official capacity as Commissioner of the
New York Public Service Commission,
Defendants-Appellees,
EXELON CORP., R.E. GINNA NUCLEAR POWER PLANT
LLC, CONSTELLATION ENERGY NUCLEAR GROUP, LLC,
NINE MILE POINT NUCLEAR STATION LLC,
Intervenor-Defendants-Appellees.
————
ARGUED: MARCH 12, 2018
DECIDED: SEPTEMBER 27, 2018
————
2a
Before: JACOBS, LIVINGSTON, Circuit Judges,
CHEN, District Judge.1
Plaintiffs, a group of electrical generators and trade
groups of electrical generators, appeal from a judgment of the United States District Court for the
Southern District of New York (Caproni, J.) granting
Defendants’ Rule 12(b)(6) motions to dismiss. Plaintiffs challenge the constitutionality of New York’s Zero
Emissions Credit (“ZEC”) program, which subsidizes
qualifying nuclear power plants with “ZECs”: statecreated and state-issued credits certifying the zeroemission attributes of electricity produced by a participating nuclear plant.
Plaintiffs argue that the program is preempted
under the Federal Power Act (“FPA”) and that it violates the dormant Commerce Clause. We conclude as
follows: (1) the ZEC program is not field preempted
because Plaintiffs have failed to identify an impermissible “tether” under Hughes v. Talen Energy Marketing,
LLC, 136 S. Ct. 1288, 1293 (2016), between the ZEC
program and wholesale market participation; (2) the
ZEC program is not conflict preempted because
Plaintiffs have failed to identify any clear damage to
federal goals; and (3) Plaintiffs lack Article III standing to raise a dormant Commerce Clause claim.
Affirmed.
DONALD B. VERRILLI, JR., Munger Tolles & Olson
LLP, Washington, DC; Henry Weissmann, Fred A.
Rowley, Jr., Mark R. Yohalem, Munger, Tolles &
Olson LLP, Los Angeles, California; Jonathan D.
Schiller, David A. Barrett, Boies Schiller Flexner LLP,
New York, New York; Stuart H. Singer, Boies Schiller
1
Judge Pamela K. Chen, of the United States District Court
for the Eastern District of New York, sitting by designation.
3a
Flexner LLP, Fort Lauderdale, Florida, for PlaintiffsAppellants.
SCOTT H. STRAUSS (Peter J. Hopkins, Jeffrey A.
Schwarz, Amber L. Martin, on the brief), Spiegel &
McDiarmid LLP, Washington, DC; Paul Agresta, General Counsel, John Sipos, Deputy General Counsel,
John C. Graham, Public Service Commission of the
State of New York, Albany, New York, for DefendantsAppellees.
MATTHEW E. PRICE (David W. DeBruin, Zachary
C. Schauf, William K. Dreher, on the brief), Jenner
& Block LLP, Washington, DC, for IntervenorsDefendants-Appellees.
Aaron M. Panner, Kellogg, Hansen, Todd, Figel &
Frederick, P.L.L.C., Washington, DC, for amici curiae
Energy Economists, in support of Plaintiffs-Appellants.
Ben Norris, American Petroleum Institute, Washington, DC; Dena Wiggins, Natural Gas Supply Association, Washington, DC, for amici curiae American
Petroleum Institute, Natural Gas Supply Association
in support of Plaintiffs-Appellants.
Jeffrey W. Mayes, General Counsel, Monitoring Analytics, LLC, Eagleville, Pennsylvania, for amicus
curiae Independent Market Monitor for PJM, in
support of Plaintiffs-Appellants.
Ari Peskoe, Harvard Law School Environmental
Policy Initiative, Cambridge, Massachusetts, for amici
curiae Electricity Regulation Scholars in support of
Defendants-Appellees.
Richard L. Revesz (Bethany A. Davis Noll, Avi Zevin,
on the brief), Institute for Policy Integrity at New York
University School of Law, New York, New York, for
4a
amicus curiae Institute for Policy Integrity, in support
of Defendants-Appellees.
Thomas Zimpleman (Miles Farmer, on the brief),
Natural Resources Defense Council, Washington,
DC; Michael Panfil, Environmental Defense Fund,
Washington, DC, for amici curiae Natural Resources
Defense Council, Environmental Defense Fund, in
support of Defendants-Appellees.
Jonathan M. Rund (Ellen C. Ginsberg, on the brief),
Nuclear Energy Institute, Washington, DC, for amicus
curiae Nuclear Energy Institute, in support of
Defendants-Appellants.
Clare E. Kindall, Assistant Attorney General (Seth A.
Hollander, Assistant Attorney General, on the brief),
for George Jepsen, Attorney General of Connecticut,
New Britain, Connecticut; M. Elaine Meckenstock,
Deputy Attorney General (Kathleen A. Kenealy, Chief
Assistant Attorney General, Robert W. Byrne, Senior
Assistant Attorney General, Sally Magnani, Senior
Assistant Attorney General, Gavin G. McCabe,
Supervising Deputy Attorney General, Melinda Piling,
Deputy Attorney General, Myung J. Park, Deputy
Attorney General, Dennis L. Beck, Jr., Deputy
Attorney General, on the brief), for Xavier Becerra,
Attorney General of California, Oakland, California,
for amici curiae States of California, Connecticut,
Illinois, Massachusetts, New York, Oregon, Vermont,
and Washington, in support of Defendants-Appellees.
Samuel T. Walsh, Harris, Wiltshire & Grannis LLP,
Washington, DC, for amici curiae Independent Economists, in support of Defendants-Appellees.
Julia Dreyer (Gene Grace, on the brief), American
Wind Energy Association, Washington, DC, for amicus
5a
curiae American Wind Energy Association, in support
of neither party.
DENNIS JACOBS, Circuit Judge:
Plaintiffs, a group of electrical generators and trade
groups of electrical generators, appeal from a judgment of the United States District Court for the
Southern District of New York (Caproni, J.) granting
Defendants’ Rule 12(b)(6) motions to dismiss. In
August 2016, the New York Public Service Commission (“PSC”) adopted the Zero Emissions Credit
(“ZEC”) program as part of a larger energy reform plan
to reduce greenhouse-gas emissions by 40 percent
by 2030. The program subsidizes qualifying nuclear
power plants by creating “ZECs”: state-created and
state-issued credits certifying the zero-emission
attributes of electricity produced by a participating
nuclear plant. The PSC has determined that three
nuclear power plants (FitzPatrick, Ginna, and Nine
Mile Point) qualify for the ZEC program; other facilities, including facilities located outside New York,
may be selected in the future.
Plaintiffs allege that the ZEC program influences
the prices that result from the wholesale auction
system established by the Federal Energy Regulatory
Commission (“FERC”) and distorts the market mechanism for determining which energy generators should
close. Plaintiffs challenge the program’s constitutionality on two grounds: that the program is preempted
under the Federal Power Act (“FPA”) and that it
violates the dormant Commerce Clause. Defendants,
who are members of the PSC, and Intervenors,
who are the nuclear generators (and their owners,
including Exelon Corporation) receiving ZECs, moved
to dismiss on the grounds that Plaintiffs lack a private
cause of action to pursue their preemption claims
6a
because the FPA implicitly forecloses equity jurisdiction, and that (in any event) Plaintiffs’ claims fail as a
matter of law.
We conclude that the ZEC program is not field
preempted, because Plaintiffs have failed to identify
an impermissible “tether” under Hughes v. Talen
Energy Marketing, LLC, 136 S. Ct. 1288, 1293 (2016)
between the ZEC program and wholesale market
participation; that the ZEC program is not conflict
preempted, because Plaintiffs have failed to identify
any clear damage to federal goals; and that Plaintiffs
lack Article III standing as to the dormant Commerce
Clause claim. These conclusions are consistent with
the recent Seventh Circuit decision in Elec. Power
Supply Ass’n v. Star, No. 17-2433, 2018 WL 4356683,
at *1 (7th Cir. Sept. 13, 2018).
The judgment of the district court is affirmed.
I
A
The FPA establishes a collaborative scheme between the states and federal government to regulate
electricity generation. States have exclusive jurisdiction over “facilities used for the generation of electric
energy,” including production and retail sales. 16
U.S.C. § 824(b)(1). FERC regulates electricity sales
at wholesale, ensuring “rates and charges made,
demanded, or received . . . for or in connection with”
such sales are “just and reasonable.” Id. § 824d(a).
FERC has determined that just and reasonable
rates for wholesale electricity should be set by competitive auctions. The New York Independent System
Operator (“NYISO”) manages two types of wholesale
auctions under FERC-approved rules and procedures:
7a
energy and capacity. In energy auctions, generators
bid the lowest price they will accept to sell a given
quantity of electrical output; in capacity auctions,
generators bid (and NYISO purchases) options to call
upon the generator to produce a specified quantity of
electricity in the future. Both types of auction employ
“stacking” of bids from lowest to highest price until
demand is satisfied. App’x 50, 54 (Compl. ¶¶ 33, 3940). The price of the highest-stacked bid sets the
“market clearing price.” Id. Any generator that bids at
or below the market clearing price “clears” the auction
and receives the market clearing price, regardless
of the price the generator actually bid. Id. “A high
clearing price in the capacity auction encourages new
generators to enter the market, increasing supply and
thereby lowering the clearing price. . . . [A] low clearing price discourages new entry and encourages retirement of existing high-cost generators.” Hughes, 136 S.
Ct. at 1293.
Nuclear generators bid into the NYISO auctions as
price-takers: since, unlike other types of electricity
generation, they are unable to vary their output
depending on price, they sell their entire output at the
market clearing price, even if the price is below the
cost of production.
B
In August 2016, the PSC issued the Clean Energy
Standard (“CES”) Order as an overall scheme to
reduce greenhouse-gas emissions by 40 percent by
2030. The CES Order created two programs that bear
upon this appeal: Renewable Energy Credits (“RECs”)
and ZECs. Plaintiffs challenge only the ZEC program,
arguing that it is preempted by the FPA and violates
the dormant Commerce Clause.
8a
The REC program awards to generators one REC for
each megawatt-hour (MWh) of energy that is produced
from renewable sources like wind and solar. App’x 190
(CES Order at 106). The New York State Energy
Research and Development Authority (“NYSERDA”)
purchases RECs from generators, thereby providing
them a subsidy. App’x 100 (CES Order at 16). In turn,
NYSERDA sells the RECs to local utilities that sell
energy to consumers at retail. Id. The CES Order
requires the utilities either to purchase RECs in an
amount based on the percentage of the total load
served by that utility or to make an alternative compliance payment. App’x 98-100 (CES Order at 14-16). The
utilities may (and no doubt do) pass on the cost of
RECs to consumers. App’x 101 (CES Order at 17).
The ZEC program aims to prevent nuclear generators that do not emit carbon dioxide from retiring until
renewable sources of energy can pick up the slack.
A ZEC is a subsidy: a “credit for the zero‐emissions
attributes of one megawatt‐hour of electricity production by” a participating nuclear power plant. App’x
254. The PSC selects plants for the ZEC program
based on five criteria: (1) “verifiable historic contribution . . . to the clean energy resource mix . . . in New
York”; (2) the degree to which projected wholesale
revenues are insufficient to prevent retirement;
(3) costs and benefits of ZECs relative to clean‐energy
alternatives; (4) impacts on ratepayers; and (5) the
public interest. App’x 208 (CES Order at 124). Based
on these criteria, the PSC chose three nuclear plants
for the ZEC program: FitzPatrick, Ginna, and Nine
Mile Point; it is asserted that other facilities, including
facilities located outside New York, may be selected in
the future. App’x 209 (CES Order at 125).
9a
The ZEC price is based on the so‐called “social cost
of carbon”: a federal inter‐agency task force’s estimate
of the damage from carbon emissions, which the PSC
uses to measure the hypothetical environmental damage from nuclear plants’ retirement. App’x 215 (CES
Order at 131).2 The PSC then subtracts the portion of
that cost already captured through New York’s participation in the Regional Greenhouse Gas Initiative
(“RGGI”), and multiplies the result by the tons of
carbon avoided per MWh of zero‐emission energy.
App’x 219‐20 (CES Order at 135‐36). The ZEC price
generated for the program’s first two years is $17.48.
App’x 69 (Compl ¶ 70). Accordingly, “each qualifying
nuclear generator will get an additional $17.48 for
each MWh of electricity it generates (subject to a
possible cap), in addition to the price the facility
receives for the sale of the electricity and capacity in
the [NYISO] market.” Id.
Beginning in 2019, the PSC intends to calculate a
new ZEC price every two years. The price may be
reduced based on two considerations. First, if the New
York energy market experiences “additional renewable energy penetration,” App’x 221 (CES Order at
137), the price will fall, reflecting the reduced value of
nuclear plants if renewable energy generation gains
steam. Second, the ZEC price may be adjusted downward based on forecast wholesale prices. App’x 222
(CES Order at 138). For each two-year period, the PSC
calculates a “reference price forecast” that is equal to
the sum of forecast NYISO “Zone A” (i.e., Western New
York) energy and capacity prices during the period. Id.
2
See generally Jason Bressler, Note, Blocking Interstate
Natural Gas Pipelines: How to Curb Climate Change While
Strengthening the Nation’s Energy System, 44 COLUM. J. ENVTL. L.
(forthcoming Jan. 2019).
10a
The reference price forecast is not paid to the ZEC
plants, but rather sets a benchmark for reducing the
ZEC price: if the reference price forecast exceeds
$39/MWh (a historical approximation of Zone A energy
and capacity prices), the two-year ZEC price is reduced
by the difference. Id.
As in the REC program, the NYSERDA purchases
ZECs from the selected plants, and local utilities are
required to purchase ZECs from NYSERDA in proportion to its share of total state electric load. App’x 70-71
(Compl. ¶ 73). Alternatively, the utilities may purchase both ZECs and energy directly from the generators. App’x 235-36 (CES Order at 151-52). The utilities
may then pass along these costs to consumers.
C
The complaint, filed October 19, 2016, alleges that
the ZEC program alters the prices that result from
FERC’s auction system and distorts the market
mechanism for determining which nuclear power
plants should close. The subsidized nuclear generators
receive the value of the ZECs in addition to what they
earn in the wholesale markets; as a result (it is
alleged), New York “is using the ZEC subsidy to exert
a large depressive effect on energy and capacity prices,
which one group of experts estimated at $15 billion
over 12 years.” App’x 58-59 (Compl. ¶ 47). Plaintiffs
claim that the depressive effect will cause (1) generators (such as themselves) to receive a lower price than
they would have otherwise and, as a result, (2) their
bids to fail to clear auctions when they otherwise
would have cleared. App’x 71, 74 (Compl. ¶¶ 74, 87).
Accordingly, the complaint claims that the ZEC
portion of the CES Order is both field and conflict
11a
preempted by FERC’s authority over wholesale electricity sales, and that it violates the dormant Commerce Clause because the ZECs benefit only nuclear
power plants located in New York. App’x 42-43 (Compl.
¶¶ 7-8). The nuclear plants (and their owners),
beneficiaries of the ZEC program, intervened as a
Defendant.
The district court granted the motions by Intervenors and the state Defendants to dismiss under Rule
12(b)(6). As to the preemption claim, the court held
that the FPA forecloses parties from invoking equity
jurisdiction to bring a claim under the FPA, and that,
in any event, Plaintiffs failed to state a plausible
claim. As to the Commerce Clause claim, the court
held that Plaintiffs lack a cause of action because their
alleged injuries did not fall within the zone of interests
protected by the dormant Commerce Clause; as to the
merits, the court held the Plaintiffs’ claim fails
because New York was acting as a market participant,
rather than a regulator, when it created ZECs.
This appeal followed.
II
We review de novo a district court’s grant of a motion
to dismiss under Rule 12(b)(6), “construing the complaint liberally, accepting all factual allegations as
true, and drawing all reasonable inferences in the
plaintiff’s favor.” Nicosia v. Amazon.com, Inc., 834
F.3d 220, 230 (2d Cir. 2016). The complaint must
“state a claim to relief that is plausible on its face.”
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)).
“A claim has facial plausibility when the plaintiff
pleads factual content that allows the court to draw
the reasonable inference that the defendant is liable
12a
for the misconduct alleged.” Id. For Rule 12(b)(6) purposes, the complaint “include[s] any written instrument attached to it as an exhibit or any statements or
documents incorporated in it by reference.” Allco
Finance Ltd. v. Klee, 861 F.3d 82, 97 n.13 (2d Cir.
2017) (internal quotation marks omitted).
III
Plaintiffs invoke the court’s equity jurisdiction to
prevent enforcement of the CES Order on the ground
that it is preempted by the FPA, while Defendants
argue that such jurisdiction is implicitly foreclosed by
the same statute. See Armstrong v. Exceptional Child
Center, 135 S. Ct. 1378 (2015). However, as the
Seventh Circuit recognized in Electric Power Supply
Association, this dispute does not implicate the
district court’s subject‐matter jurisdiction, which rests
securely on 18 U.S.C. § 1331 and 16 U.S.C. § 825p. See
2018 WL 4356683, at *1. We need not consider the
parties’ disagreement regarding equity jurisdiction
because we conclude (as did the Seventh Circuit) that
federal law does not preempt the state statute that
is, since Plaintiffs’ claims fail either on the merits or
for lack of standing, the question regarding equity is
obviated.
IV
The laws of the United States are “the supreme Law
of the Land . . . any Thing in the Constitution or Laws
of any State to the Contrary notwithstanding.” U.S.
Const. art. VI cl. 2. Congress therefore may preempt
state law through federal legislation. “Our inquiry into
the scope of a [federal] statute’s preemptive effect is
guided by the rule that the purpose of Congress is the
ultimate touchstone in every pre-emption case.” Altria
13a
Group, Inc. v. Good, 555 U.S. 70, 76 (2008) (internal
quotation marks omitted).
If Congress has not expressly preempted a state
statute, it may do so implicitly through either “field”
or “conflict” preemption. Under field preemption,
a state law is preempted if “Congress has legislated
comprehensively to occupy an entire field of regulation, leaving no room for the States to supplement
federal law.” Nw. Cent. Pipeline Corp. v. State Corp.
Comm’n of Kan., 489 U.S. 493, 509 (1989). Conflict
preemption arises “where compliance with both state
and federal law is impossible, or where the state law
stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.”
Oneok, Inc. v. Learjet, Inc., 135 S. Ct. 1591, 1599
(2015) (internal quotation marks omitted). Plaintiffs
challenge the ZEC program on both scores. We consider field preemption first and conflict preemption
next.
V
The FPA divides responsibility for regulating energy
between the states and the federal government. FERC
has exclusive power to regulate “the sale of electric
energy at wholesale in interstate commerce.” 16 U.S.C
§ 824(a). FERC must ensure that “[a]ll rates and
charges made, demanded, or received by any public
utility for or in connection with the transmission or
sale of electric energy subject to the jurisdiction of the
Commission . . . shall be just and reasonable.” 16 U.S.C.
§ 824d(a). While FERC’s authority extends to “rules
or practices affecting wholesale rates,” this affecting
jurisdiction is limited to “rules or practices that
directly affect the [wholesale] rate” so that FERC’s
jurisdiction does not “assum[e] near-infinite breadth.”
FERC v. Elec. Power Supply Ass’n, 136 S. Ct. 760, 774
14a
(2016) (internal quotation marks omitted) (emphasis
and alteration in original).
However, “the law places beyond FERC’s power, and
leaves to the States alone, the regulation of ‘any other
sale’—most notably, any retail sale—of electricity.” Id.
at 766 (quoting 16 U.S.C. § 824(b)). The states are thus
authorized to regulate energy production, 16 U.S.C.
§ 824(b), and facilities used for the generation of
electric energy, 16 U.S.C. § 824(b)(1). See Pac. Gas &
Elec. Co. v. State Energy Res. Conservation and Dev.
Comm’n, 461 U.S. 190, 205 (1983) (“Need for new
power facilities, their economic feasibility, and rates
and services, are areas that have been characteristically governed by the States.”).
When “coordinate state and federal efforts exist
within a complementary administrative framework,
and in the pursuit of common purposes, the case for
federal pre-emption becomes a less persuasive one.”
New York State Dept. of Social Servs. v. Dublino, 413
U.S. 405, 421 (1973). Courts must avoid mistaking the
“‘congressionally designed interplay between state
and federal regulation’ for impermissible tension that
requires pre-emption under the Supremacy Clause.”
Hughes, 136 S. Ct. at 1300 (Sotomayor, J., concurring)
(quoting Northwest Central, 489 U.S. at 518). In this
Circuit, there is a “strong presumption against finding
that the [State’s] powers” are preempted by the FPA,
Niagara Mohawk Power Corp. v. Hudson River-Black
River Regulating Dist., 673 F.3d 84, 94 (2d Cir. 2012),
legislation that was “drawn with meticulous regard for
the continued exercise of state power,” Rochester Gas
& Elec. Corp. v. PSC of N.Y., 754 F.2d 99, 104 (2d Cir.
1985). That presumption may be overcome only if dis-
15a
placing state authority was Congress’ “clear and manifest purpose.” Wyeth v. Levine, 555 U.S. 555, 565
(2009).
A
An FPA field preemption claim was recently considered by the Supreme Court in Hughes v. Talen Energy
Marketing, LLC, 136 S. Ct. 1288 (2016). A Maryland
program required utilities to enter into a “contract-fordifferences” with a favored power plant. 135 S. Ct. at
1294. Local utilities were required to pay the shortfall
if the plant cleared the capacity auction, but the
clearing price fell below the state-determined contract
price; if the clearing price exceeded the contract price,
the plant paid the difference to the utilities. Id. at
1295. The Maryland program thus provided subsidies
to the generator that were conditioned on the generator’s sale of capacity into a FERC-regulated auction.
Id. at 1292. By guaranteeing a rate distinct from the
auction clearing price, “Maryland’s program invade[d]
FERC’s regulatory turf,” and was therefore preempted. Id. at 1297.
The Court cautioned, however, that “[n]othing in
this opinion should be read to foreclose Maryland and
other States from encouraging production of new or
clean generation through measures untethered to
a generator’s wholesale market participation.” Id. at
1299 (internal quotation marks omitted) (emphasis
added). The Court expressly left open the viability of
other measures to develop energy generation, such as
“tax incentives, land grants, direct subsidies, construction of state-owned generation facilities, or re-regulation of the energy sector.” Id. “So long as a State does
not condition payment of funds on capacity clearing
the auction, the State’s program would not suffer from
16a
the fatal defect that renders Maryland’s program
unacceptable.” Id.
Plaintiffs argue that the ZEC program is indistinguishable from the Maryland program preempted in
Hughes. The program is said to be “expressly tethered
to wholesale prices resulting from the NYISO auctions” because (1) “the state requires [utilities] to
make up the difference between the state’s rate and
the FERC-approved market rates”; (2) “the subsidy
varies inversely with FERC-approved auction rates”;
and (3) “the subsidy is ‘received’ by the favored producers ‘in connection with’ the sale of electricity on wholesale markets.” Br. of Appellants 6, 32 (quoting 16
U.S.C. § 824d(a), 824d(e)). Plaintiffs mischaracterize
Hughes and the ZEC program.
The Maryland contract-for-differences program
insulated generators from fluctuations in wholesale
prices by guaranteeing that they would receive “the
difference between . . . the clearing price” and the
state-determined “price guaranteed in the contract for
differences.” Hughes, 135 S. Ct. at 1295. New York’s
scheme avoids (or skirts) the Hughes prohibition.
Until 2019, the ZEC price cannot vary from the social
cost of carbon, as determined by a federal interagency
workgroup. App’x 213–14, 266. After 2019, the ZEC
price is fixed for two-year periods, and does not
fluctuate during those periods to match the wholesale
clearing price. Because the fixed ZEC price is capped
based on an independent variable (the social cost of
carbon), generators are exposed to market risk in the
event that energy prices fall. Moreover, the price may
be fixed below the social cost of carbon, but only on the
basis of forecast wholesale prices forecasts based on
futures prices that FERC does not regulate, Hunter v.
FERC, 711 F.3d 155, 157 (D.C. Cir. 2013) and there
17a
is no true-up to reconcile forecasts with actual rates.
The ZEC price also adjusts based on the amount of
renewable energy generation in New York. App’x 221
(CES Order at 137). Accordingly, there is no support
for Plaintiffs’ contention that the “subsidy varies in
almost exactly the same manner” as in Hughes. Br. of
Appellants 38.
Plaintiffs argue that Hughes preempts state programs if they are tethered to “FERC-regulated
wholesale electricity prices.” Br. of Appellants 10; see
also id. at 40–42, 48. But the tether in Hughes is tied
to “wholesale market participation,” not prices, 136 S.
Ct. at 1299 (emphasis added); the Maryland program
was unlawful because it conditioned payment on auction sales.
As the district court held, Rochester Gas forecloses
Plaintiffs’ price-tethering theory. It was argued in that
case that the FPA preempted the PSC’s policy of calculating intrastate retail rates by making a “reasonable estimate” of wholesale sales revenues. Id. at 100–
01. We held that tying retail prices (which are under
state jurisdiction) to estimates of wholesale revenues
(which are under FERC’s) is permissible because there
is “a distinction between” a state impermissibly “regulating [wholesale] sales” and a state “reflecting the
profits from a reasonable estimate of those sales” when
acting within its jurisdiction. Id. at 105.
Plaintiffs attempt to distinguish Rochester Gas on
two grounds. First, they argue that Rochester Gas
addresses only retail rate-making, whereas the ZEC
program addresses wholesale rate-making. But that
argument mischaracterizes the ZEC program, which
avoids setting wholesale prices and instead regulates
the environmental attributes of energy generation and
in the process considers forecasts of wholesale pricing.
18a
Second, Plaintiffs distinguish Rochester Gas on
the ground that the ZEC program has a direct impact
on the generators’ “position toward” the wholesale
markets. Br. of Appellants 39. But the same was true
in Rochester Gas: the PSC policy allowed generators
to keep operating, regardless of wholesale revenue,
because recovery of costs was guaranteed through
retail rates. What mattered in Rochester Gas was
whether the retail rate adjustment, which factored in
expected wholesale revenues, intruded on FERC’s
jurisdictional turf by compelling wholesale market
participation. The analogous question here would be
whether ZECs compel generators to make wholesale
sales. We conclude that they do not.
Plaintiffs argue that the plants’ owners are “Exempt
Wholesale Generators” (“EWGs”), which are “legally
required to sell their output into wholesale markets.”
Br. of Appellants 33. Accepting the allegations of the
complaint as true (and ignoring the fact that neither
Exelon nor LIPA have EWG status), Plaintiffs point to
nothing in the CES Order that requires the ZEC plants
to participate in the wholesale market. EWG status
affords an exemption from certain regulations; but a
ZEC plant may relinquish EWG status in order to
sell directly to consumers (if it deems the tradeoff
worthwhile) and still receive ZECs. As the district
court concluded, a generator’s decision to sell power
into the wholesale markets is a business decision that
does not give rise to preemption concerns. Special
App’x 20-21. Accordingly, there is no support for
Plaintiffs’ assertion that the CES Order tethers the
ZEC plants’ receipt of ZECs to participation in the
wholesale markets the “fatal defect” that doomed the
contract-for-differences program in Hughes. 136 S. Ct.
at 1299.
19a
Citing Allco Finance Ltd. v. Klee, 861 F.3d 82 (2d
Cir. 2015), Plaintiffs argue that the absence of a
statutory compulsion for generators to sell into the
wholesale market does not save a state program that
would otherwise be preempted. Allco considered a
Connecticut statute that arranged for utilities to enter
into bilateral wholesale electricity contracts with
renewable energy generators. The plaintiff argued
that the statute “[c]ompe[lled] a wholesale transaction” between the generators and utilities and thus
regulated wholesale sales. Id. at 97. We disagreed,
because generators and utilities (rather than the
state) made the ultimate decision to sign the contracts.
Id. at 98, 100.
Plaintiffs contend that Allco supports their argument because the Court emphasized that the contracts
were subject to FERC evaluation as just and reasonable, whereas the ZEC transactions are not. Id. at 199.
However, the evident reason that the contracts were
subject to FERC review is that they were contracts
for wholesale electricity sales, over which FERC has
jurisdiction. Here, the only transactions New York
compels are ZEC sales, and ZECs are sold separately
from wholesale sales. Because there is no wholesale
sale when ZECs change hands, FERC lacks jurisdiction to decide whether the ZEC transactions are just
and reasonable. Allco is therefore inapposite.
B
Plaintiffs concede that the ZEC program “does not
expressly mandate that the plants receiving ZEC subsidies bid into the NYISO auctions,” Br. of Appellants
8; rather, they argue that the “practical effect” of the
ZEC program is to regulate wholesale prices, id. at 35,
and that a state law is preempted even if it does not
formally regulate wholesale prices, if that is its
20a
practical effect. Plaintiffs rely on Northern Natural
Gas Co. v. State Corporation Commission of Kansas,
372 U.S. 84 (1963), in which a Kansas law requiring an
interstate pipeline to purchase gas ratably from
producers was preempted by the Natural Gas Act
(“NGA”). 3 The state rule did not expressly regulate
wholesale prices, but the Court reasoned that “our
inquiry is not at an end because the orders do not deal
in terms with prices or volumes of purchases. . . . The
federal regulatory scheme leaves no room either for
direct state regulation of the prices of interstate
wholesales of natural gas, or for state regulations
which would indirectly achieve the same result.” Id. at
90‐91 (citations omitted).
However, Northern Natural held that the Kansas
law was preempted because it was “unmistakably and
unambiguously directed at purchasers [i.e., interstate
pipelines] who take gas in Kansas for resale after
transportation in interstate commerce.” Id. at 92. The
Court emphasized that “our cases have consistently
recognized a significant distinction,” with “constitutional consequences, between conservation measures
aimed directly at interstate purchasers and wholesales for resale, and those aimed at producers and
production.” Id. at 94.
This distinction between regulating purchasers and
producers yielded the opposite result in Northwest
Central Pipeline Corp. v. State Corp. Commission of
Kansas, 489 U.S. 493 (1989). Kansas hit on another
way to encourage interstate pipelines to purchase
3
The Supreme Court has “routinely relied on NGA cases in
determining the scope of the FPA.” Hughes, 136 S. Ct. at 1298
n. 10.
21a
additional Kansas-Hugoton gas, but did so by regulating the producers: unless they produced their allowable quantity of gas within a certain timeframe, they
would lose the right to produce it later and of course
the pipelines could not purchase gas unless it was
produced. Id. at 497, 505. Relying on Northern Natural
for the proposition that federal law preempts state
regulations that have “either a direct or indirect effect
on matters within federal control,” the pipelines asked
the Court to invalidate the Kansas rule “because it
exert[ed] pressure” on them to “increase purchases
from Hugoton producers.” Id. at 497, 507.
FERC’s brief to the Court argued that while Kansas
“intended to influence” the pipeline’s purchasing
decisions, the state did “no more than fix[] limits on
when producers may produce their gas” and therefore
stayed within its jurisdiction. Northwest Central
FERC Br. at *20. Furthermore, FERC regulation of
the pipelines does not “protect [them] from the effect
of state regulations that form the environment in
which [they] conduct[] business within the state.” Id.
at *32.
The Supreme Court agreed: it would be “strange
indeed” to hold that Congress intended to allow the
states to regulate production, but only if doing so did
not affect interstate rates. Northwest Central, 489 U.S.
at 512-13. In Northern Natural, Kansas “crossed the
dividing line . . . by imposing purchasing requirements
on interstate pipelines,” but in Northwest Central, the
state achieved the same end result by “regulat[ing]
production,” a matter “firmly on the States’ side of that
dividing line.” Id. The Court concluded that “we must
take seriously the lines Congress drew in establishing
[this] dual regulatory system,” and therefore held that
the Kansas law was not preempted. Id.
22a
New York has kept the line in sight, and gone as
near as can be without crossing it. ZECs are created
when electricity is produced in a statutorily-defined
manner, regardless of whether or how the electricity
is ultimately sold. They are defined as “the zeroemissions attributes of one megawatt-hour of electricity production by an eligible Zero Carbon Electric
Generating Facility.” App’x 254 (emphasis added).
Accordingly, Northwest Central defeats Plaintiffs’
argument premised on practical effect: even though
the ZEC program exerts downward pressure on wholesale electricity rates, that incidental effect is insufficient to state a claim for field preemption under the
FPA.
C
FERC has confirmed that REC programs fall within
the jurisdiction of the states, which is telling because
RECs and ZECs share many similar characteristics.
WSPP, Inc., 139 FERC ¶ 61,061 (2012), concerned an
agreement that facilitated wholesale sales among
300 Canadian and American parties. The parties
asked FERC to determine if it had jurisdiction over
“unbundled” REC transactions. Id. PP 2, 5 & 9. FERC
asserted jurisdiction over bundled REC transactions,
in which “a wholesale energy sale and a REC sale take
place as part of the same transaction,” but disclaimed
jurisdiction over unbundled REC sales. Id. “RECs are
state-created and state-issued instruments certifying
that electric energy was generated pursuant to certain
requirements.” Id. P 21. When RECs are unbundled,
the payment is “not a charge in connection with a
wholesale sale,” does not “affect wholesale electricity
rates,” and therefore “falls outside FERC jurisdiction.”
Id. P 24.
23a
As the district court observed: “Like a REC, a ZEC
is a certification of an energy attribute that is separate
from a wholesale charge or rate. . . . Like a REC, the
purchase or sale of a ZEC is independent of the
purchase or sale of wholesale energy. Like a REC,
payment for a ZEC is not conditioned on the generator’s participation in the wholesale auction; rather,
RECs and ZECs are given in exchange for the renewable energy or zero-emissions production of energy by
generators.” Special App’x 27 (emphases in original).
Plaintiffs argue that ZECs and RECs are nevertheless
distinguishable for the purposes of preemption analysis, for two reasons.
First, Plaintiffs argue that, unlike RECs, the ZEC
subsidy is tethered to wholesale prices. For reasons
explained above, Plaintiffs’ price-tethering theory is
foreclosed by Hughes and Rochester Gas; furthermore,
it mischaracterizes the ZEC program: ZEC prices are
capped by the social cost of carbon, and may adjust
downwards in future years on the basis of forecast
wholesale energy prices. See supra Part V.A.
Second, Plaintiffs allege that ZECs are available
only to generators that sell in the NYISO auctions,
thereby guaranteeing that ZEC transactions are tied
to the sale of electricity at wholesale. True, ZEC plants
may sell the electricity they generate into the wholesale auction, and all of them may well do so, but
(as described above, supra at Part V.B), there is no
support for Plaintiffs’ argument that the CES Order
requires ZEC plants to sell power into the wholesale
market. Under the program, the production of zeroemissions energy results in the creation of ZECs; how
those plants sell their electricity is a business decision
that does not raise preemption concerns. Accordingly,
Plaintiffs’ two proposed distinctions fall flat.
24a
Plaintiffs rely on a distortion of WSPP’s holding.
First, they assert that FERC “was careful to limit
its holding to the features of the three specific REC
products before it.” Br. of Appellants 42. However,
WSPP clearly disclaims FERC jurisdiction over RECs
when they are sold separately from electricity: the only
REC feature that was dispositive was whether the
REC was “unbundled” (sold separately from electricity) or “bundled” (sold together). 139 FERC ¶ 61,064,
P 24. There is no dispute that ZECs are similarly
unbundled from electricity transactions. Second,
Plaintiffs quote FERC’s observation that REC (and
therefore presumably ZEC) transactions “could still
fall under [FERC’s jurisdiction” if they were “in connection with” or “affect[ed]” wholesale rates. Br. of
Appellants 43 (quoting 139 FERC ¶ 61,061 P 22). But
when FERC applied this jurisdictional standard two
paragraphs later, it held (categorically) that unbundled REC transactions are not “in connection with a
wholesale sale” and “do[] not affect wholesale electricity rates.” 139 FERC ¶ 61,061 P 24. Finally, Plaintiffs
emphasize that the REC program had “no connection
to an organized market with energy and capacity
auctions.” Br. of Appellants 42. But WSPP acknowledged that some REC recipients (like certain ZEC
recipients) are EWGs, who are required to sell their
output exclusively at wholesale. 139 FERC ¶ 61,061
P 9. And several states addressed in WSPP required
renewable generators to bid into wholesale auctions.
See West-Wide Must-Offer Requirements, 157 FERC
¶ 61,051, PP 2–5 (2016) (western states subject to
must-offer capacity mandate from 2001 to 2016 to
address California energy crisis). Yet WSPP nevertheless upheld their REC programs.
It is telling that Plaintiffs cannot persuasively
explain why FERC’s holding regarding RECs does not
25a
apply equally to ZECs. We conclude that Plaintiffs
have failed to state a plausible claim of field
preemption.
VI
A state law may be conflict preempted if it “stands
as an obstacle to the accomplishment and execution of
the full purposes and objectives of Congress,” Oneok,
135 S. Ct. at 1595, or “interferes with the method by
which the federal statute was designed to reach this
goal,” Int’l Paper Co. v. Ouellette, 479 U.S. 481, 494
(1987). Given the FPA’s dual regulatory scheme,
“conflict-pre-emption analysis must be applied sensitively in this area, so as to prevent the diminution of
the role Congress reserved to the States while at the
same time preserving the federal role.” Northwest
Central, 489 U.S. at 515. So long as a state is
“regulat[ing] production or other subjects of state
jurisdiction, and the means chosen [are] at least
plausibly . . . related to matters of legitimate state
concern,” there is no conflict preemption “unless clear
damage to federal goals would result.” Id. at 518, 522.
The FPA seeks to ensure, through FERC, that
rates for wholesale sales remain just and reasonable,
while simultaneously preserving state authority to
regulate generation facilities and retail sales. 16
U.S.C. §§ 824d(a), 824(b). As explained above, the ZEC
program regulates production: its stated aspiration is
to “preserve existing zero-emissions nuclear generation resources as a bridge to the clean energy future,”
and to “prevent backsliding” that otherwise “likely
could not be avoided.” App’x 85, 229. Accordingly, ZEC
program is not conflict preempted unless Plaintiffs can
show that it would cause clear damage to federal goals.
26a
Plaintiffs describe “the very goal of FERC’s wholesale market design” as “competition from more efficient generators.” Br. of Appellants 46. ZECs, Plaintiffs argue, “enable[] the unprofitable plants to keep
dumping substantial amounts of electricity in the
FERC markets for over a decade, even though the
FERC-approved price signals should cause the plants
to retire.” Id.
Furthermore, Plaintiffs allege that the ZEC program “distort[s] price signals to all other wholesale
generators by encouraging the favored generators to
bid as price takers and thereby artificially depress
market prices.” Id.
However, FERC itself has sanctioned state programs that increase capacity or affect wholesale
market prices, so long as the states regulate matters
within their jurisdiction. Thus, states may “grant
loans, subsidies or tax credits to particular facilities
on environmental or policy grounds,” Cal. PUC, 133
FERC ¶ 61,059, P 31 n.62, including when that makes
clean generation “more competitive in a cost comparison with fossil-fueled generation” or “allow[s] states
to affect” the price, S. Cal. Edison Co., 71 FERC
¶ 61,269, 62,080 (1995). States may “require
retirement of existing generators” or construction of
“environmentally-friendly units, or . . . take any other
action in their role as regulators of generation,” even
though it may “affect[] the market clearing price.”
Conn. Dep’t of Pub. Util. Control v. FERC, 569 F.3d
477, 481 (D.C. Cir. 2009); see also New England States
Comm. on Elec. v. ISO New England Inc., 142 FERC
¶ 61,108, at 61,490 (2013) (LaFleur, Comm’r, concurring) (“[S]tates have the unquestioned right to make
policy choices through the subsidization of capacity.”);
N.Y. State PSC, 158 FERC ¶ 61,137, 2017 WL 496267,
27a
at *11 (2017) (Bay, Comm’r, concurring) (observing
that “all energy resources” receive subsidies, and that
“an idealized vision of markets free from the influence
of public policies . . . does not exist”). Similarly, FERC
told the Supreme Court in Hughes that states are
“free” to adopt such programs, “even if the price signals in the regional wholesale capacity market indicate that no [such] resources are needed.” Hughes U.S.
Amicus Brief at 33.
As explained above, Allco considered a state initiative to raise revenue for clean energy generators via
long-term bilateral contracts, thereby “increas[ing]
the supply of electricity” and “plac[ing] downward
pressure on” wholesale prices. 861 F.3d at 89. But the
Court concluded that “[t]his incidental effect on wholesale prices does not . . . amount to a regulation of the
interstate wholesale electricity market that infringes
on FERC’s jurisdiction.” Id. at 1014; see also Northwest
Central, 489 U.S. at 516 (“[R]egulating producers in
such a way as to have some impact on the purchasing
decisions and hence costs of interstate pipelines does
not without more result in conflict pre-emption.”).
Faced with this precedent, Plaintiffs concede New
York’s authority to enact “measures that may have an
indirect effect on . . . price signals,” but insist that
“New York cannot directly distort the price signals
that the auctions send by setting a higher, stateapproved rate for wholesale electricity sales.” Br. of
Appellants 49. To the extent the ZEC program distorts
an efficient wholesale market, it does so by increasing
4
Allco did not explicitly state whether its holding fell under a
field or conflict preemption analysis. However, as the district
court notes, Special App’x 33 n.22, there is no basis to conclude
that an “incidental effect” on wholesale prices withstands field
preemption, but not conflict preemption.
28a
revenues for qualifying nuclear plants, which in turn
increases the supply of electricity, which in turn
lowers auction clearing prices. But that is (at best) an
incidental effect resulting from New York’s regulation
of producers. In any event, ZECs do not guarantee a
certain wholesale price that displaces the NYISO
auction price.
FERC uses auctions to set wholesale prices and to
promote efficiency with the background assumption
that the FPA establishes a dual regulatory system
between the states and federal government and that
the states engage in public policies that affect the
wholesale markets. Accordingly, the ZEC program
does not cause clear damage to federal goals, and
Plaintiffs have failed to state a plausible claim for
conflict preemption.
VII
The Commerce Clause authorizes Congress “[t]o
regulate Commerce . . . among the several States.”
U.S. Const. art. I, § 8, cl. 3. “[T]he Clause was designed
in part to prevent trade barriers that had undermined
efforts of the fledgling States to form a cohesive whole
following their victory in the Revolution.” Hughes
v. Alexandria Scrap Corp., 426 U.S. 794, 807 (1976).
Accordingly, the Supreme Court has inferred a “negative or dormant implication” to the Commerce Clause,
which “prohibits state taxation or regulation that
discriminates against or unduly burdens interstate
commerce and thereby impedes free private trade
in the national marketplace.” Gen. Motors Corp. v.
Tracy, 519 U.S. 278, 287 (1997) (internal quotation
marks omitted).
However, the states retain “a residuum of power . . .
to make laws governing matters of local concern which
29a
nevertheless in some measure affect interstate commerce or even, to some extent, regulate it.” Kassel v.
Consol. Freightways Corp. of Del., 450 U.S. 662, 669
(1981) (internal quotation marks omitted). Accordingly, a state law or regulation offends the dormant
Commerce Clause only if it “(1) clearly discriminates
against interstate commerce in favor of intrastate
commerce, (2) imposes a burden on interstate commerce incommensurate with the local benefits secured, or (3) has the practical effect of extraterritorial
control of commerce occurring entirely outside the
boundaries of the state in question.” Selevan v. N.Y.
Thruway Auth. 584 F.3d 82, 90 (2d Cir. 2009) (internal
quotation marks omitted).
Plaintiffs contend that the ZEC program violates
the dormant Commerce Clause under the first two
grounds: the program discriminates against interstate
commerce by “deliberately propping up the in‐state
Exelon plants via a distortion of the interstate energy
market,” Br. of Appellants 52, and inflicts an undue
burden on interstate commerce that outweighs any
local interests by “impos[ing] market‐distorting burdens that will drive out, and deter entry of, more
cost‐efficient, environmentally friendly out‐of‐state
generators,” id. at 53. We do not reach the merits of
these claims because we conclude that Plaintiffs lack
Article III standing.
The jurisdiction of the federal courts is limited to
“Cases” and “Controversies.” U.S. Const. art. III, § 2.
There is no case or controversy unless a plaintiff has
standing to challenge the defendant’s conduct. Lujan
v. Defenders of Wildlife, 504 U.S. 555, 560 (1992).
Although the district court did not address whether
Plaintiffs have standing on their dormant Commerce
Clause claim, “[t]he doctrine of standing . . . requires
30a
federal courts to satisfy themselves that the plaintiff
has alleged such a personal stake in the outcome of the
controversy as to warrant his invocation of federal‐
court jurisdiction.” Summers v. Earth Island Inst., 555
U.S. 488, 493 (2009) (internal quotation marks
omitted).
Article III standing requires a plaintiff to have
suffered an “injury in fact” that is “fairly traceable” to
the defendant’s challenged conduct and that is “likely
to be redressed by a favorable decision.” Spokeo, Inc.
v. Robins, 138 S. Ct. 1540, 1547 (2016). At the pleading
stage, “the plaintiff must clearly allege facts demonstrating each element.” Id. (internal quotation marks
and ellipsis omitted). Accordingly, to show standing
for their dormant Commerce Clause claim, Plaintiffs
must demonstrate that their alleged injuries are
traceable to (i.e., “the result of,” City of Los Angeles v.
Lyons, 461 U.S. 95, 102 (1983), or “a consequence of,”
Valley Forge Christian Coll. v. Americans United for
Separation of Church & State, Inc., 454 U.S. 464, 485
(1982)) discrimination against interstate commerce.
Plaintiffs allege that they are injured because the
ZEC program allows “favored New York power plants
to prevail in interstate competition against Plaintiffs”
by underbidding them in the wholesale electricity
markets. Br. of Appellants 49. Plaintiffs do not represent that they own any nuclear plants, in-state or out.
Special App’x 40. If the PSC awarded ZECs in a nondiscriminatory manner to out-of-state nuclear plants
(as it may do in the future under the terms of the CES
Order), there would be no abatement in the injury
Plaintiffs claim to suffer from the general marketdistorting effects of the ZEC program. In short,
Plaintiffs’ injuries “would continue to exist even if the
[legislation] were cured” of the alleged discrimination.
31a
Johnson v. U.S. Office of Pers. Mgmt., 783 F.3d 655,
662 (7th Cir. 2015). Because Plaintiffs’ asserted
injuries are not traceable to the alleged discrimination
against out-of-state entities, but (rather) arises from
their production of energy using fuels that New York
disfavors, they lack Article III standing to challenge
the ZEC program.
CONCLUSION
The judgment of the district court is AFFIRMED.
32a
APPENDIX B
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
At a Stated Term of the United States Court of
Appeals for the Second Circuit, held at the Thurgood
Marshall United States Courthouse, 40 Foley Square,
in the City of New York, on the 27th day of September,
two thousand and eighteen.
————
Docket No. 17-2654
————
COALITION FOR COMPETITIVE ELECTRICITY, DYNEGY
INC., EASTERN GENERATION, LLC, ELECTRIC POWER
SUPPLY ASSOCIATION, NRG ENERGY, INC., ROSETON
GENERATING LLC, SELKIRK COGEN PARTNERS, L.P.,
Plaintiffs-Appellants,
v.
AUDREY ZIBELMAN, in her official capacity as
Chair of the New York Public Service Commission,
PATRICIA L. ACAMPORA, in her official capacity as
Commissioner of the New York Public Service
Commission, GREGG C. SAYRE, in his official
capacity as Commissioner of the New York Public
Service Commission, DIANE X. BURMAN,
in her official capacity as Commissioner of the
New York Public Service Commission,
Defendants-Appellees,
EXELON CORP., R.E. GINNA NUCLEAR POWER PLANT
LLC, CONSTELLATION ENERGY NUCLEAR GROUP, LLC,
NINE MILE POINT NUCLEAR STATION LLC,
Intervenor-Defendants-Appellees.
————
33a
JUDGMENT
Before:
Dennis Jacobs, Debra Ann Livingston,
Circuit Judges,
Pamela K. Chen, District Judge.*
The appeal in the above captioned case from a judgment of the United States District Court for the Southern
District was argued on the district court’s record and
the parties’ briefs. Upon consideration thereof,
IT IS HEREBY ORDERED, ADJUDGED and
DECREED that the judgment of the district court is
AFFIRMED.
For the Court:
Catherine O’Hagan Wolfe,
Clerk of Court
*
Judge Pamela K. Chen, of the United States District Court
for the Eastern District of New York, sitting by designation.
34a
APPENDIX C
UNITED STATES DISTRICT COURT,
S.D. NEW YORK
————
16-CV-8164 (VEC)
————
COALITION FOR COMPETITIVE ELECTRICITY, DYNEGY
INC., Eastern Generation, LLC, Electric Power
Supply Association, NRG Energy, Inc., Roseton
Generating LLC, and Selkirk Cogen Partners, L.P.,
Plaintiffs,
v.
Audrey ZIBELMAN, in her official capacity as Chair of
the New York Public Service Commission, Patricia L.
Acampora, Gregg C. Sayre, and Diane X. Burman,
in their official capacities as Commissioners of the
New York Public Service Commission,
Defendants,
and
Constellation Energy Nuclear Group, LLC, Exelon
Corporation, R.E. Ginna Nuclear Power Plant LLC,
and Nine Mile Point Nuclear Station LLC,
Intervenors.
————
Signed 07/25/2017
————
David A. Barrett, Jonathan David Schiller, Boies,
Schiller & Flexner LLP, New York, NY, Stuart Harold
Singer, William Thomas Dzurilla, Boies, Schiller &
Flexner LLP, Fort Lauderdale, FL, for Plaintiffs.
35a
Elizabeth Austin Edmondson, Jenner & Block LLP,
New York, NY, David W. DeBruin, Matthew E. Price,
William K. Dreher, Zachary C. Schauf, Jenner &
Block, LLP, Jeffrey Alan Schwarz, Peter Hopkins,
Scott Harris Strauss, Amber
Martin, Jessica Bell, Spiegel & McDiarmid, LLP,
Washington, DC, John Calvin Graham, Jonathan D.
Feinberg, Salomon Tsimi Menyeng, State of New
York, Department of Public Service, John J. Sipos,
Office of the Attorney General New York State,
Albany, NY, for Defendants.
MEMORANDUM OPINION & ORDER
VALERIE CAPRONI, United States District Judge:
Some say that human-caused global warming is a
“hoax,”1 while others accept the overwhelming scientific conclusion that human activities, and particularly
carbon dioxide discharges into the atmosphere, are
1
Multiple times before and during his presidential campaign,
President Donald Trump stated that climate change is a hoax.
Louis Jacobson, Yes, Donald Trump Did Call Climate Change a
Chinese Hoax, POLITIFACT (June 3, 2016), http://www.politi
fact.com/truth-ometer/statements/2016/jun/03/hillary-clinton/yesdonald-trump-did-call-climate-changechinese-h/. President Trump
has recently refused to confirm whether he still considers climate
change to be a hoax, Peter Baker, Does Donald Trump Still Think
Climate Change Is a Hoax? No One Can Say, NEW YORK TIMES
(June 2, 2017), https://www.nytimes.com/2017/06/02/us/politics/
climate-changetrump-hoax-scott-pruitt.html, and a number of
senior leaders and advisers in the Executive and Legislative
branches, including Scott Pruitt, the head of the Environmental
Protection Agency, have been deeply skeptical of human-caused
climate change, including to the point of outright denial. Coral
Davenport, Climate Change Denialists in Charge, NEW YORK
TIMES (Mar. 27, 2017), https://www.nytimes.com/2017/03/27/us/
politics/climatechange-denialists-in-charge.html.
36a
causing the planet to warm. Although no individual
State can reverse the trend all by itself, New York and
many other States have decided that they will do their
part to reduce the emissions that contribute to global
warming. The issue in this case is whether the method
New York has chosen to facilitate its doing so is
constitutional. For the reasons that follow, the Court
concludes that the New York program is constitutional.
Plaintiffs are various electrical generators and trade
groups of electrical generators. They challenge one
aspect of the Clean Energy Standard (“CES”) Order,
adopted by the New York Public Service Commission
(“PSC”), that awards credits to certain nuclear generators for their zero-emissions electricity production.
Plaintiffs claim that this program is preempted under
the Federal Power Act (“FPA’’) and that it violates the
dormant Commerce Clause.
Defendants, who are PSC members, move to dismiss
pursuant to Federal Rule of Civil Procedure 12(b)(6),
arguing that there is no private right of action for
Plaintiffs’ preemption claims and that, even if there
were, Plaintiffs’ claims would fail as a matter of law.
Notice of Defendants’ Motion to Dismiss, Dkt. 54.
Intervenors, who are the nuclear generators receiving
the zero-emissions credits and their owners, also move
to dismiss pursuant to Rule 12(b)(6). Notice of Motion,
Dkt. 76. For the following reasons, the Court GRANTS
both motions to dismiss.
37a
BACKGROUND2
The Electricity Market
In New York, wholesale electricity is bought and
sold through market-based auctions administered by
the New York Independent System Operator (“NYISO”).
Compl. ¶ 28. The NYISO, which is regulated by the
Federal Energy Regulatory Commission (“FERC”),
conducts two types of auctions: energy and capacity.
Compl. ¶¶ 28–29. Energy auctions are for the purchase and sale of electricity itself, whereas capacity
auctions are for the purchase and sale of options to
purchase electricity. Compl. ¶ 36. Retail electricity
suppliers, also called load-serving entities (“LSEs”),
purchase electricity at wholesale from generators in
these auctions. Compl. ¶ 35. Although some of the
buyers are located outside New York, most of the
buyers are in-state utilities that resell energy at retail
to New York customers and businesses. Compl. ¶ 28.
The energy suppliers in the wholesale auction include
generators located inside and outside of New York.
Compl. ¶ 28.
The NYISO auctions determine electricity prices
in the New York wholesale market. Compl. ¶ 27. The
2
The facts are taken from the Complaint and the Order
Adopting a Clean Energy Standard (‘‘CES Order”), which is
incorporated by reference in the Complaint. In deciding the
motions to dismiss, the Court accepts as true the facts alleged in
the Complaint and draws all reasonable inferences in Plaintiffs’
favor. Koch v. Christie’s Intern, PLC, 699 F.3d 141, 145 (2d Cir.
2012). The Court may rely directly on the CES Order because a
complaint is “deemed to include . . . any statements or documents
incorporated in it by reference.” Cortec Indus., Inc. v. Sum
Holding L.P., 949 F.2d 42, 47 (2d Cir. 1991). The parties do not
dispute that the Complaint incorporated the CES Order by
reference.
38a
auction operates by “stacking” bids from generators
for the sale of energy or capacity, beginning with the
lowest bid and moving up until demand is satisfied.
Compl. ¶¶ 32–33. The price of the highest-stacked bid
that satisfies demand is known as the “market clearing price.” Compl. ¶ 33. Any generator that bids at or
below the market-clearing price “clears” the auction
and is paid the market-clearing price, regardless of the
price the generator actually bid.3 Compl. ¶¶ 33, 39.
This pricing mechanism incentivizes generators to be
efficient and cost-effective: “it creates price signals for
new capacity to enter the market if [the generator] can
supply capacity at prices below the clearing price. At
the same time, the market provides price signals for
existing suppliers to exit the market if they are unable
to beat the clearing price.” Compl. ¶ 40 (citation and
internal quotation marks omitted).
Nuclear generators, such as Intervenors, bid as socalled “price-takers” in the NYISO auctions, meaning
that they sell their entire output at the marketclearing price. Compl. ¶ 34. Unlike other types of
electricity generators that can adjust their output to
produce more or less energy depending on price, nuclear
generators run continuously at maximum output.
Compl. ¶ 34. Nuclear generators thus sell their entire
electricity output into the auctions regardless of the
3
An example from Hughes v. Talen Energy Mktg., LLC, –––
U.S. ––––, 136 S.Ct. 1288, 194 L.Ed.2d 414 (2016) is illustrative:
“For example, if four power plants bid to sell capacity at,
respectively, $10/unit, $20/unit, $30/unit, and $40/unit, and the
first three plants provide enough capacity to satisfy projected
demand, [the auction administrator] will purchase capacity only
from those three plants, each of which will receive $30/unit, the
clearing price.” 136 S.Ct. at 1293.
39a
price—even if the price is below their cost of production. Compl. ¶ 34.
Plaintiffs allege that the nuclear generators’ pricetaking behavior depresses market-clearing prices
because the nuclear generators increase the energy
supply available at auction. Compl. ¶ 34. Plaintiffs
further allege that all electricity produced by these
nuclear generators must be sold in the NYISO energy
auctions because they have no alternative way to sell
their output. Compl. ¶¶ 34, 64.
New York’s ZEC Program
In order to promote the development of clean energy
as part of New York’s effort to stanch global warning,
the PSC issued the CES Order. CES Order, Dkt. 76–1.
The CES Order created two programs: Renewable
Energy Credits (“RECs”) and Zero–Emission Credits
(“ZECs”). CES Order at 13–14. The CES Order was
adopted in furtherance of New York’s goal to generate
fifty percent of its electricity using renewable sources
by 2030, which supports New York’s broader mission
to reduce greenhouse gas emissions statewide by forty
percent by 2030. CES Order at 2, 12.
Tier 1 of the CES Order, which implements the
REC program, requires all New York LSEs “to serve
their retail customers by procuring new renewable
resources.” CES Order at 14; see also Compl. ¶ 49.
Generators that produce energy from renewable sources,
like wind or solar, are awarded a credit (a REC) for
each megawatt-hour (‘‘MWh”) of renewable-generated
electricity produced from renewable resources. Compl.
¶ 49; CES Order at 106. The New York State Energy
Research and Development Authority (“NYSERDA”)
purchases RECs from generators, thereby subsidizing
their cost of production, and, in turn, sells those RECs
40a
to LSEs. CES Order at 16, 107–08. Each LSE is
required to purchase RECs in an amount based on a
percentage of the total load served by that LSE or
make an alternative compliance payment. Compl.
¶ 49; CES Order at 14–16. The cost of the RECs is
passed on to commodity customers. CES Order at 17.
Tier 3 of the CES Order establishes New York’s ZEC
program, the program challenged in this case. CES
Order at 19. A ZEC is a “credit for the zero-emissions
attributes of one megawatt-hour of electricity production by” an eligible nuclear facility. CES Order, App’x
E, at 1. Through the ZEC program, New York aims to
“encourage the preservation of the environmental
values or attributes of zero-emissions nuclear-powered
electric generating facilities for the benefit of the
electric system, its customers and environment.” CES
Order, App’x E, at 1. In particular, the ZEC program
ensures that New York’s nuclear generators—which
comprise thirty-one percent of New York’s electric
generation mix and collectively avoid the emission of
over fifteen million tons of carbon dioxide per year
continue to contribute to New York’s electric generation mix pending the development of new renewable
energy resources between now and 2030. CES Order
at 19. According to the CES Order, losing the nuclear
energy contributed by the generators before new
renewable resources are developed “would undoubtedly result in significantly increased air emissions”
and a “dangerously higher reliance on natural gas”;
without the carbon-free attributes of the nuclear
generators, New York would have to rely more heavily
on existing fossil-fueled energy plants or the construction of new natural gas plants for its electricity, all of
41a
which would significantly increase carbon emissions.4
CES Order at 19. The CES Order cites Germany as
a case in point: when Germany abruptly closed its
nuclear plants following the Fukushima nuclear disaster, the electricity that had formerly been produced by
nuclear generation was replaced by electricity generated by coal, causing carbon emissions to rise despite
a simultaneous and “aggressive” increase in solar
generation. CES Order at 19.
A nuclear generator is eligible for ZECs if it makes
a showing of “public necessity,” i.e., the facility’s
revenues “are at a level that is insufficient to provide
adequate compensation to preserve the zero-emission
environmental values or attributes historically provided
by the facility.” Compl. ¶ 67 (quoting CES Order at
4
Amici New York Public Interest Research Group, Green
Education and Legal Fund, Inc., Safe Energy Rights Group, Inc.,
and Promoting Health and Sustainable Energy, Inc. (collectively,
“PIRG Amici”) argue that the generation of nuclear power is
“neither emissions free nor ‘zero-emissions,’” but instead emits
radiation, waste heat, and greenhouse gases. Memorandum of
Law of the Amici (“PIRG Amici Mem.”) 5–13, Dkt. 112–3. This
may be true, but PIRG Amici do not go so far as to argue that
the generation of nuclear power produces the same amount of
noxious emissions as the generation of energy from fossil fuel or
natural gas. At least with respect to greenhouse gas emissions,
they assert that among the various ways to generate electricity,
nuclear generation falls in the middle of the spectrum (wind
producing the least and coal the most greenhouse gas emissions).
PIRG Amici Mem. 8–9. The thrust of PIRG Amici’s argument is
that when creating the ZEC program, the PSC did not consider
whether renewable energy sources could have replaced the nuclear
generators or whether some nuclear power plants could be retired
with no impact on electricity availability. PIRG Amici Mem. 8,
14–16, 18. The Court acknowledges that New York may have
been able to adopt a more aggressive approach to reducing greenhouse gas emissions, but nothing requires the States to make the
perfect the enemy of the good.
42a
124). Any nuclear generator, regardless of its location,
is eligible for ZECs, so long as the generator has
historically contributed to the resource mix of clean
energy consumed by New York retail consumers.5
Compl. ¶ 68 (citing CES Order at 124). Pursuant to the
CES Order, the nuclear generators sell their ZECs to
NYSERDA at a price administratively determined by
the PSC. Compl. ¶ 69. LSEs are required to purchase
ZECs from NYSERDA in an amount proportional to
their customers’ share of the total energy consumed in
New York.6 CES Order at 20, 151; Compl. ¶ 73. The
LSEs pass the costs of their ZEC purchases to their
customers, the retail ratepayers. CES Order at 20;
Compl. ¶ 73.
ZEC prices are calculated by the PSC using the
federal estimate of the social cost of carbon and a
5
This year, only three nuclear generators in New York,
Intervenors Robert Emmett Ginna plant (“Ginna”), James A.
FitzPatrick plant (“FitzPatrick”), and Nine Mile Point plant, were
deemed eligible for ZECs. CES Order at 128; see also Compl. ¶ 58.
Plaintiffs allege that without financial support from the State,
the Ginna, FitzPatrick, and Nine Mile Point nuclear generators
would have gone out of business. Compl. ¶¶ 52, 54, 56–58. The
Ginna and Nine Mile Point nuclear plants are indirectly owned
by Intervenor Constellation Energy Nuclear Group, LLC, which
is a joint venture between Intervenor Exelon and nonparty EDF
Inc. Declaration of Jeanne Jones (“Jones Decl.”) ¶ 2, Dkt. 40–3;
see also Compl. ¶ 54. Exelon is in the process of purchasing the
FitzPatrick nuclear plant. Jones Decl. ¶¶ 6–7.
6
LSEs are required to purchase the percentage of ZECs “that
represents the portion of the electric energy load served by all
such LSEs” in a given year. CES Order at 20. Although LSEs
must “enter into a contractual relationship” with NYSERDA to
purchase their pro rata portion of ZECs, LSEs also may seek
permission to purchase ZECs directly from the eligible nuclear
facilities. CES Order at 151–52.
43a
forecast of wholesale electricity prices.7 Compl. ¶ 71
(citing CES Order at 131). Specifically, for a two-year
period, the price of each ZEC is the social cost of carbon
less the generator’s putative value of avoided greenhouse gas emissions less the amount of the forecast
energy price. Compl. ¶¶ 70–71 (citing CES Order at
131). Put differently, if the forecast wholesale price
of electricity increases, the price of a ZEC decreases.
Compl. ¶ 71. For the first two years of the ZEC program, from April 1, 2017, through March 31, 2019, the
PSC has set the ZEC price at $17.48 per MWh. Compl.
¶ 70. Thus, “each qualifying nuclear generator will get
an additional $17.48 for each MWh of electricity it
generates (subject to a possible cap), in addition to the
price the facility receives for the sale of the electricity
and capacity in the [NYSIO] market.” Compl. ¶ 70.
Plaintiffs allege that under the ZEC program, the
nuclear generators eligible for ZECs effectively receive
a higher price for their energy than they would have
without the ZEC program and that the ZEC subsidies
distort the market-clearing price in the NYISO auctions. Compl. ¶¶ 43–45. Plaintiffs allege that because
the ZEC program allows the eligible nuclear generators to participate in the NYISO auctions when they
otherwise would have gone out of business, New York
“is using the ZEC subsidy to exert a large depressive
effect on energy and capacity prices, which one group
of experts estimated at $15 billion over 12 years.”
7
The PSC noted that it established an administrative process
to set ZEC prices, rather than allowing them to be set by the
market, because there would not be a competitive market process
to set ZEC prices. CES Order, App’x E at 4 (‘‘[T]here are too few
owners of the affected generation facilities for there to be a valid
competitive process to determine the prices as the owners would
have too much market power for effective competition.”).
44a
Compl. ¶ 47. According to Plaintiffs, this depressive
effect will cause generators, including Plaintiffs, to
receive a lower price than they otherwise would have
received and will cause their bids to fail to clear the
auctions when they otherwise would have cleared.
Compl. ¶¶ 74, 81, 87.
Plaintiffs claim that the ZEC program is preempted
under the FPA and that it violates the dormant
Commerce Clause. Defendants and Intervenors move
to dismiss, arguing that: Plaintiffs lack a private right
of action to pursue their preemption claims in federal
court; the ZEC program is not preempted; and the
ZEC program does not violate the dormant Commerce
Clause. For the following reasons, the Court holds that
Plaintiffs may not raise their preemption claims pursuant to the Court’s equity jurisdiction; that the ZEC
program is neither field nor conflict preempted; and
that the ZEC program does not violate the dormant
Commerce Clause.
DISCUSSION8
In reviewing a Rule 12(b)(6) motion to dismiss, the
Court accepts all of the nonmovant’s factual allegations as true and draws all reasonable inferences in
the nonmovant’s favor. See Bell Atl. Corp. v. Twombly,
550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929
(2007). Although all factual allegations contained in
the complaint are assumed to be true, this tenet is
8
The Court cites the parties’ briefs as the following: Memorandum of Law in Support of Defendants’ Motion to Dismiss, Dkt.
55, is “Defs. Mem.”; Memorandum of Law in Support of Motion to
Dismiss of Movant–Intervenors, Dkt. 77, is “Intervenors Mem.”;
Plaintiffs’ Memorandum in Opposition to Motions to Dismiss,
Dkt. 95, is “Opp.”; Reply in Support of Defendants’ Motion to
Dismiss, Dkt. 105, is “Defs. Reply”; and Reply in Support of Motion
to Dismiss of Intervenors, Dkt. 103, is “Intervenors Reply.”
45a
“inapplicable to legal conclusions.” Ashcroft v. Iqbal,
556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868
(2009); see also Twombly, 550 U.S. at 555, 127 S.Ct.
1955. To survive a Rule 12(b)(6) motion to dismiss, the
complaint must “state a claim to relief that is plausible
on its face.’’ Iqbal, 556 U.S. at 678, 129 S.Ct. 1937
(quoting Twombly, 550 U.S. at 570, 127 S.Ct. 1955).
""A claim has facial plausibility when the plaintiff
pleads factual content that allows the court to draw
the reasonable inference that the defendant is liable
for the misconduct alleged.” Id.
I. EQUITY JURISDICTION
The Supremacy Clause does not create a cause of
action for preemption claims, Armstrong v. Exceptional
Child Ctr., Inc., ––– U.S. ––––, 135 S.Ct. 1378, 1383,
191 L.Ed.2d 471 (2015), and Plaintiffs do not argue
that the FPA itself creates a private right of action.
Accordingly, Plaintiffs’ preemption claims are dependent
on this Court having equity jurisdiction over the claims.
Since Ex parte Young, 209 U.S. 123, 28 S.Ct. 441,
52 L.Ed. 714 (1908), “the Supreme Court has consistently recognized federal [equity] jurisdiction over
declaratory—and injunctive—relief actions to prohibit
the enforcement of state or municipal orders alleged to
violate federal law.” Friends of the E. Hampton
Airport, Inc. v. Town of E. Hampton, 841 F.3d 133, 144
(2d Cir. 2016) (collecting cases). Nevertheless, federal
courts’ “equity [jurisdiction] to enjoin unlawful executive action is subject to express and implied statutory
limitations.” Armstrong, 135 S.Ct. at 1385. The FPA
does not expressly preclude actions in equity, but the
parties contest whether Congress implicitly intended
to foreclose equitable relief under the FPA.
46a
In Armstrong, the Supreme Court held that Congress
implicitly foreclosed equitable relief under Section
30(A) of the Medicaid Act, which healthcare providers
sought to enforce by enjoining state officials from
reimbursing medical service providers at rates lower
than the federal statute required. 135 S.Ct. at 1382,
1385. The Armstrong Court reasoned that Congress
intended to foreclose equitable relief because (1) pursuant
to the Medicaid Act, “the sole remedy” for a State’s
failure to comply with the Medicaid Act’s requirements was the withholding of Medicaid funds by
the Secretary of Health and Human Services, and
(2) Section 30(A), which mandates that States provide
for payments that are “consistent with efficiency,
economy, and quality of care” while “safe-guard[ing]
against unnecessary utilization of . . . care and services,” was judicially unadministrable. Id. at 1385
(alteration in Armstrong). According to the Supreme
Court, the combination of those two features means
that Congress intended to preclude private enforcement in equity of Section 30(A). Id. (“Explicitly
conferring enforcement of this judgment-laden standard upon the Secretary alone establishes . . . that
Congress ‘wanted to make the agency remedy that it
provided exclusive,’ . . . .” (quoting Gonzaga Univ. v.
Doe, 536 U.S. 273, 292, 122 S.Ct. 2268, 153 L.Ed.2d
309 (2002) (Breyer, J., concurring))).
In Friends of the East Hampton Airport, the Second
Circuit applied Armstrong’s two criteria to the Airport
Noise and Capacity Act (“ANCA’’) in considering
whether Congress intended to foreclose equitable relief;
the Second Circuit held that Congress did not so
intend. 841 F.3d at 145–47. Under ANCA, there is no
“sole remedy” because ANCA not only provides for the
loss of federal funding as a penalty for violating ANCA
but also grants the Secretary of Transportation author-
47a
ity to pursue appropriate legal remedies, including
injunctive relief. Id. at 145–46 (citing 49 U.S.C.
§§ 47526, 47533). The Second Circuit reasoned that
“[t]he fact that Congress conferred such broad enforcement authority on the [Federal Aviation Administration],
and not on private parties, does not imply its intent to
bar such parties from invoking federal jurisdiction
where, as here, they do so not to enforce the federal
law themselves, but to preclude a municipal entity
from subjecting them to local laws enacted in violation
of federal requirements.”9 Id. at 146. The Second
Circuit also held that ANCA was judicially administrable because it set forth a simple rule—namely,
that airports seeking to impose noise restrictions on
certain types of aircraft must obtain the consent of
aircraft operators or the approval of the Federal Aviation
Administration. Id. at 146–47 (citing 49 U.S.C.
§ 47524(c)).
The FPA tacitly forecloses private parties from invoking equity jurisdiction to challenge state laws enacted
in alleged violation of the FPA because Congress
implicitly provided a “sole remedy” in the FPA—specifically, enforcement by FERC. Similar to ANCA, the
FPA grants FERC broad enforcement authority. For
9
The Second Circuit’s caveat relative to private parties who
invoke federal jurisdiction “to enforce the federal law themselves”
as compared to seeking “to preclude a municipal entity from
subjecting them to local laws enacted in violation of federal
requirements” is not entirely clear. It would seem that the Second
Circuit is raising a standing issue because a private party who
seeks to enforce the federal law but does not seek to preclude the
application of a local law to itself would appear to lack standing.
But the Second Circuit does not mention standing in its equity
jurisdiction analysis, nor is it clear how the issue of standing vel
non should be viewed when attempting to determine whether a
cause of action exists in the first instance.
48a
example, the FPA grants FERC discretion to bring an
action in federal district court to enjoin any person
violating the FPA or to enforce compliance. 16 U.S.C.
§ 825m(a). The FPA also requires every public utility
to file with FERC rates for all sales subject to FERC’s
jurisdiction and empowers FERC to hold hearings to
examine new or changed rates, to suspend rates, and
to determine rates. 16 U.S.C. §§ 824d(c)-(e), 824e(a).
Finally, the FPA authorizes any person to file a complaint with FERC to challenge, inter alia, anything
done by a regulated entity in contravention of the
FPA. 16 U.S.C. §§ 824e(a), 825e. But, unlike ANCA,
Congress provided for a narrow private cause of action
under the FPA in the Public Utility Regulatory Policies
Act (“PURPA”), which authorizes private parties to
challenge state rules governing small power production facilities, after first exhausting their administrative
remedies. 16 U.S.C. § 824a–3(h)(2)(B). Congress’s decision to create a limited private cause of action
suggests that “the omission of a general private right
of action in the [FPA] should . . . be understood as
intentional.” Vill. of Old Mill Creek v. Star, No. 17 CV
1163, 2017 WL 3008289, at *9 (N.D. Ill. July 14, 2017);
see Alexander v. Sandoval, 532 U.S. 275, 290, 121 S.Ct.
1511, 149 L.Ed.2d 517 (2001) (“The express provision
of one method of enforcing a substantive rule suggests
that Congress intended to preclude others.”); Mass.
Mut. Life Ins. Co. v. Russell, 473 U.S. 134, 147, 105
S.Ct. 3085, 87 L.Ed.2d 96 (1985) (“[W]here a statute
expressly provides a particular remedy or remedies, a
court must be chary of reading others into it.” (citation
and internal quotation marks omitted omitted)). Thus,
the FPA precludes private enforcement except as provided for by PURPA, and private parties such as
Plaintiffs “cannot, by invoking [the Court’s] equitable
49a
powers, circumvent Congress’s exclusion of private
enforcement.” Armstrong, 135 S.Ct. at 1385.
The second indicator of congressional intent to preclude equitable relief to a private litigant, according
to Armstrong, is the presence of a judicially unadministrable standard. The FPA’s requirement that
wholesale electricity rates be just and reasonable, 16
U.S.C. § 824d(a), is not judicially unadministrable.10
The fact that courts must “afford great deference”
to FERC in its determination of just and reasonable
rates, Morgan Stanley Capital Grp. Inc. v. Pub. Util.
Dist. No. 1 of Snohomish Cty., Wash., 554 U.S. 527,
532, 128 S.Ct. 2733, 171 L.Ed.2d 607 (2008), does not
mean that the determination of just and reasonable
rates is judicially unadministrable—courts may defer
to FERC’s determination, but they do not abstain from
all judgment regarding what constitutes a just and
reasonable rate, see, e.g., id. at 545–46, 128 S.Ct. 2733
(the Supreme Court in Fed. Power Comm’n v. Sierra
Pac. Power Co., 350 U.S. 348, 76 S.Ct. 368, 100 L.Ed.
388 (1956), “provided a definition of what it means for
a rate to satisfy the just-and-reasonable standard in
the contract context”); Cent. Hudson Gas & Elec. Corp.
v. FERC, 783 F.3d 92, 109–11 (2d Cir. 2015) (holding
10
Independent of whether the FPA’s requirement that
wholesale electricity rates be just and reasonable is a judicially
administrable standard, the parties dispute whether Plaintiffs’
preemption claims require the Court to apply that standard.
Plaintiffs argue that they seek only to ensure that the FERC-set
rate continues to govern New York wholesale energy transactions
and are not asking the Court to set rates. Opp. 16–17. Defendants,
on the other hand, argue that Plaintiffs’ preemption claims are
rate-related requests for injunctive relief that implicate the just
and reasonable rate-setting standard. Defs. Reply 11. The Court
agrees with Plaintiffs but does not base its holding on this
argument.
50a
that FERC’s determination of just and reasonable
rates was adequately supported and not unreasonable); Mont. Consumer Counsel v. FERC, 659 F.3d 910,
918 (9th Cir. 2011) (“The Supreme Court has long
held that the statutory command that rates be ‘just
and reasonable’ means that courts must balance ‘the
investor and the consumer interests,’ and ‘[i]f the total
effect of the rate order cannot be said to be unjust and
unreasonable, judicial inquiry . . . is at an end.’’’
(quoting Fed. Power Comm’n v. Hope Natural Gas Co.,
320 U.S. 591, 602–03, 64 S.Ct. 281, 88 L.Ed. 333
(1944))). Indeed, by allowing FERC to file federal
lawsuits, 16 U.S.C. § 825m(a), Congress necessarily
anticipated that courts might have to oversee the
enforcement of the just and reasonable rate standard,
albeit with deference to FERC.11
In sum, the Court finds that the first but not the
second of Armstrong’s factors indicates that Congress
intended to preclude equitable relief to private parties.
There is no indication in Armstrong that both factors
11
In a nearly identical case in which electricity generators
challenged a ZEC program as preempted by the FPA, the District
Court for the Northern District of Illinois came to the opposite
conclusion, namely that determining a “just and reasonable” rate
is a judicially unadministrable standard. Vill. of Old Mill Creek,
2017 WL 3008289, at *9. For the reasons explained supra, this
Court disagrees with the Northern District of Illinois’s conclusion
that “just and reasonable” is judicially unadministrable. Moreover,
unlike this Court, see supra note 10, that court thought that it
would need to apply that standard and effectively get involved in
rate-setting in order to resolve the plaintiffs’ preemption claim.
The Northern District of Illinois concluded that because there
was “too much” distortion of the wholesale market, the court
would be required to address how much states could subsidize
local industry that touched the wholesale energy market before
the effect of those subsidies resulted in a rate that was not just
and reasonable. Id. at *9.
51a
must be satisfied in order to conclude that Congress
intended to foreclose equitable relief to private parties.
To the contrary, the Supreme Court in Armstrong
considered the second factor—judicial administrability—
in the event the provision authorizing the Secretary of
Health and Human Services to enforce the statute by
withholding funds “might not, by itself, preclude the
availability of equitable relief.” 135 S.Ct. at 1385. The
limited private right of action provided by PURPA is
by itself sufficient to establish that Congress intended
to foreclose equitable relief. Between a statute that
establishes a narrow private cause of action allowing
private lawsuits in some but not most cases and a
statute that establishes a specific administrative
remedy, the former indicates more clearly than the
latter that Congress chose to eliminate general equitable relief for private parties. The issue of creating a
private cause of action was squarely before Congress
when it drafted and enacted the former provision,
whereas Congress did not necessarily consider the
possibility of a private right of action in drafting and
enacting the latter provision. This Court can, therefore, more confidently infer that Congress intended to
foreclose a private right of action in equity in the
former scenario than in the latter. Accordingly, this
Court does not have equity jurisdiction over Plaintiffs’
FPA preemption claims. Nevertheless, even if the
Plaintiffs could invoke the Court’s equity jurisdiction,
for the reasons provided below, Plaintiffs’ preemption
claims would fail.
II. PREEMPTION
The Supremacy Clause provides that the laws of
the United States “shall be the supreme Law of the
Land . . . any Thing in the Constitution or Laws of any
State to the Contrary notwithstanding.’’ U.S. CONST.,
52a
art. VI, cl. 2. In other words, “federal law preempts
contrary state law.’’ Hughes, 136 S.Ct. at 1297.
In considering a federal law’s preemptive effect, “the
ultimate touchstone’’ is Congress’s purpose in enacting
the law. Id. at 1297 (quoting Altria Group, Inc. v.
Good, 555 U.S. 70, 76, 129 S.Ct. 538, 172 L.Ed.2d 398
(2008)). Relatedly, in determining whether a state law
is preempted, the Court must “consider[ ] the target
at which the state law aims.’’ Oneok, Inc. v. Learjet,
Inc., ––– U.S. ––––, 135 S.Ct. 1591, 1599, 191 L.Ed.2d
511 (2015) (emphases in original).
State laws may be either “field’’ or “conflict’’ preempted. Field preemption exists where “Congress has
forbidden the State to take action in the field that the
federal statute pre-empts.’’ Oneok, 135 S.Ct. at 1595.
In such circumstances, “Congress may have intended
to foreclose any state regulation in the area, irrespective of whether state law is consistent or inconsistent
with federal standards.’’ Id. (citation and internal
quotation marks omitted). Conflict preemption, by
contrast, “exists where compliance with both state and
federal law is impossible, or where the state law
stands as an obstacle to the accomplishment and
execution of the full purposes and objectives of
Congress.’’ Id. (citation and internal quotation marks
omitted).
Plaintiffs allege that the CES Order is both field and
conflict preempted by the FPA. For the reasons set
forth below, the Court concludes that it is neither.12
12
The Court notes that the Northern District of Illinois also
held that the Illinois ZEC program was neither field nor conflict
preempted, for many of the same reasons discussed infra. Vill. of
Old Mill Creek, 2017 WL 3008289, at *10–14 (granting motions
to dismiss).
53a
A. Field Preemption
The FPA is a paragon of cooperative federalism; it
divides responsibility for the regulation of energy
between state and federal regulators. See Hughes, 136
S.Ct. at 1292. For statutes such as the FPA, “where
‘coordinate state and federal efforts exist within a
complementary administrative framework, and in the
pursuit of common purposes, the case for federal preemption becomes a less persuasive one.’’’ Id. at 1300
(Sotomayor, J., concurring) (quoting New York State
Dept. of Social Servs. v. Dublino, 413 U.S. 405, 421, 93
S.Ct. 2507, 37 L.Ed.2d 688 (1973)).
FERC, on behalf of the federal government, has
exclusive authority “to regulate ‘the transmission of
electric energy in interstate commerce’ and ‘the sale of
electric energy at wholesale in interstate commerce.’’’
FERC v. Elec. Power Supply Ass’n (hereafter, “EPSA”),
––– U.S. ––––, 136 S.Ct. 760, 767, 193 L.Ed.2d 661
(2016) (quoting 16 U.S.C. § 824(b)(1)).13 Particularly
relevant here, FERC also has the authority “to ensure
that rules or practices ‘affecting’ wholesale rates are
just and reasonable.” Id. at 774 (discussing 16 U.S.C.
§ 824e(a)); see also 16 U.S.C. § 824d(a). This “affecting”
jurisdiction is limited to rules or practices that “directly
affect the wholesale rate.’’ EPSA, 136 S.Ct. at 774 (internal marks and citation omitted). “Indirect or tangential
impacts on wholesale electricity rates” do not suffice;
otherwise, the FPA’s grant of jurisdiction to FERC
would “assum[e] near-infinite breadth.” Id.
Although FERC has substantial authority over
interstate wholesale energy sales, the regulation of
retail rates for sales of electricity belongs to the States.
13
A wholesale sale is “a sale of electric energy to any person for
resale.” 16 U.S.C. § 824(d).
54a
Hughes, 136 S.Ct. at 1292. Within the zone of exclusive state jurisdiction are “within-state wholesale
sales” and “retail sales of electricity (i.e., sales directly
to users).’’ EPSA, 136 S.Ct. at 768. States also retain
jurisdiction “over facilities used for the generation of
electric energy.” 16 U.S.C. § 824(b)(1). As discussed
supra, to determine whether a State is regulating
retail or wholesale rates, the Court must consider the
target of the state law. Oneok, 135 S.Ct. at 1599.14
1. Unconstitutional
Hughes
“Tethering”
Under
The Supreme Court recently grappled with the issue
of preemption under the FPA in Hughes v. Talen
Energy Marketing, LLC, ––– U.S. ––––, 136 S.Ct.
1288, 194 L.Ed.2d 414 (2016). In Hughes, the Court
concluded that a Maryland energy program was
preempted because it impermissibly “set[ ] an interstate wholesale rate, contravening the FPA’s division
of authority between state and federal regulators.” 136
S.Ct. at 1297. The Maryland program, which obliged
Maryland LSEs to enter into a contract-for-differences
with a favored generator, required the favored generator to participate in the wholesale capacity auction,
but guaranteed that generator the more favorable
contract price (rather than the market-clearing price)
for its energy. Id. at 1294–95, 1297. Importantly, the
generator’s receipt of the subsidy was explicitly
contingent on the generator’s sale of capacity into the
wholesale auction: if the generator’s capacity cleared
the auction, and the market-clearing price was below
14
Although Oneok involved the Natural Gas Act (“NGA”)
rather than the FPA, the Supreme Court “has routinely relied on
NGA cases in determining the scope of the FPA, and vice versa.”
Hughes, 136 S.Ct. at 1298 n.10.
55a
the price stipulated in the contract-for differences, the
LSEs paid the generator the difference between the
contract price and the clearing price. Id. at 1295. The
generator did not receive the subsidy if its capacity
failed to clear the auction. Id. Because the Maryland
program conditioned the generator’s receipt of the
subsidy on the generator’s participation in the auction,
but guaranteed the generator a rate distinct from the
market-clearing price, Hughes concluded that the
Maryland program “adjust[ed] an interstate wholesale
rate” and was accordingly preempted. Id. at 1297.
Hughes, however, left open the possibility for States
to “encourag[e] production of new or clean generation
through measures ‘untethered to a generator’s wholesale market participation.’” Id. at 1299 (citation
omitted). In doing so, the Supreme Court declined to
address the permissibility of other State measures to
incentivize clean energy, such as “tax incentives, land
grants, direct subsidies, construction of state-owned
generation facilities, or re-regulation of the energy
sector.” Id. Hughes emphasized: “So long as a State
does not condition payment of funds on capacity
clearing the auction, the State’s program would not
suffer from the fatal defect that renders Maryland’s
program unacceptable.” Id.
Plaintiffs argue that the ZEC program is preempted
under Hughes because, like the challenged Maryland
program, the ZEC program is “tethered” to the wholesale
auction. Plaintiffs argue that there is an impermissible tether because: (1) a nuclear generator is eligible
for a ZEC only if the NYISO auction rates are insufficient for the generator to stay in business; (2) ZEC
prices are calculated using forecast wholesale rates;
and (3) the nuclear generators receiving the ZECs sell
all of their power directly into the auction markets.
56a
Opp. 19–22; Oral Arg. Tr. (hereafter, “Tr.”) 22:2–23:22,
32:16–34:14, Dkt. 141 (Mar. 29, 2017). Unsurprisingly,
Defendants and Intervenors dispute all of these arguments. The Court agrees with Defendants and
Intervenors.
The Court is not convinced by Plaintiffs’ first argument. A whole host of measures that States might
employ to encourage clean energy development—such
as tax incentives or direct subsidies—involve propping
up the operation of a generator that might otherwise
be unprofitable. Hughes did not prohibit such state
assistance, see Hughes, 136 S.Ct. at 1299, and Plaintiffs
have not argued that such state subsidies are per se
preempted.
Nor does the use of forecast wholesale rates in
calculating the ZEC price create an unconstitutional
tether. Hughes clearly stated that the impermissible
tether was “to a generator’s wholesale market participation,” id. at 1299 (emphasis added), and nowhere
stated, implied or even considered that a State
pro
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