Statutory Interpretation – Federal Power Act

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7^th Circuit Court of Appeals

Case Name: Electric Power Supply Association, et al. v. Anthony M. Star, et al.

Case No.: 17-2433; 17-2445

Officials: EASTERBROOK and SYKES, Circuit Judges, and REAGAN, District Judge.

Focus: Statutory Interpretation – Federal Power Act

Regional transmission organizations manage the interstate grid for electricity. See, e.g., Benton County Wind Farm LLC v. Duke Energy Indiana, Inc., 843 F.3d 298 (7th Cir. 2016); MISO Transmission Owners v. FERC, 819 F.3d 329 (7th Cir. 2016). Midcontinent Independent System Operator (MISO) and PJM Interconnection handle the grid in and around the Midwest. Many large generators of electricity sell most if not all of their power through auctions conducted by regional organizations, which are regulated by the Federal Energy Regulatory Commission. States must not interfere with these auctions. Hughes v. Talen Energy Marketing, LLC, 136 S. Ct. 1288 (2016).

Illinois has enacted legislation subsidizing some of the state’s nuclear generation facilities, which the state fears will close. 20 ILCS 3855/1‐75(d‐5). These favored producers receive what the state calls “zero emission credits” or ZECs. (We call them credits.) Generators that use coal or gas to produce power must purchase these credits from the recipients at a price set by the state. The price of each credit is $16.50 per megawatt‐hour, a number Illinois derived from a federal working group’s calculation of the social cost of carbon emissions. (Coal and gas plants emit carbon dioxide; nuclear, wind, solar, and hydro plants don’t.) The price per credit falls if a “market price index” exceeds $31.40 per megawatt‐hour. Illinois derives this index from the annual average energy prices in the auction conducted by PJM and the prices in two of the state’s regional energy markets. The adjustment is designed “to ensure that the procurement [of electricity] remains affordable to retail customers … if electricity prices increase”. 20 ILCS 3855/1‐75(d‐5)(1)(B).

Plaintiffs (an association representing electricity producers, plus several municipalities) contend that the price‐ adjustment aspect of the state’s system leads to preemption by the Federal Power Act because it impinges on the FERC’s regulatory authority. They concede that a state may take many steps that affect the price of power.

Illinois has not engaged in any discrimination beyond what is required by the rule that a state must regulate within its borders. All carbon‐emitting plants in Illinois need to buy credits. The subsidy’s recipients are in Illinois; so are the payors. The price effect of the statute is felt wherever the power is used. All power (from inside and outside Illinois) goes for the same price in an interstate auction. The cross‐subsidy among producers may injure investors in carbon‐ releasing plants, but only those plants in Illinois (for the state’s regulatory power stops at the border). The combination of §824(b)(1) and the absence of overt discrimination de‐ feats any constitutional challenge to the state’s legislation.

Affirmed

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Attorney Derek A. Hawkins is the managing partner at Hawkins Law Offices LLC, where he heads up the firm’s startup law practice. He specializes in business formation, corporate governance, intellectual property protection, private equity and venture capital funding and mergers & acquisitions. Check out the website at www.hawkins-lawoffices.com or contact them at 262-737-8825.