17‐2654‐cv
Coalition for Competitive Electricity, et al. v. Zibelman, et al.
United States Court of Appeals
for the Second Circuit
AUGUST TERM 2017
No. 17‐2654‐cv
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
Before: JACOBS, LIVINGSTON, Circuit Judges, CHEN, District Judge.1
Judge Pamela K. Chen, of the United States District Court for the Eastern District of
1
New York, sitting by designation.
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”: state‐created and state‐issued credits certifying the zero‐
emission 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 Flexner LLP, Fort
Lauderdale, Florida, for Plaintiffs‐
Appellants.
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.
2
Graham, Public Service Commission of the
State of New York, Albany, New York, for
Defendants‐Appellees.
MATTHEW E. PRICE (David W. DeBruin,
Zachary C. Schauf, William K. Dreher, on
the brief), Jenner & Block LLP, Washington,
DC, for Intervenors‐Defendants‐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
3
Law, New York, New York, for 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,
4
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 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.
5
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 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 Assʹn 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: 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
6
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, 39‐40). 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.
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).
7
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).
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
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).
8
(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. 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 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.
9
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 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.
10
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] statuteʹs pre‐
emptive effect is guided by the rule that the purpose of Congress is the ultimate
touchstone in every pre‐emption case.” Altria 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.
Commʹn 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
11
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
(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. Commʹn, 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 displacing 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‐for‐differences”
with a favored power plant. 135 S. Ct. at 1294. Local utilities were required to
12
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 generatorʹs 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 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
13
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 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.
14
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.
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
15
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 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.
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.
16
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 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.
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 zero‐emissions attributes of one megawatt‐hour of
17
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.
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
18
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 zero‐emissions 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.
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
19
their REC programs.
It is telling that Plaintiffs cannot persuasively explain why FERC’s holding
regarding RECs does not 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.
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.
20
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, 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
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.
21
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, state‐approved 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 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
22
governing matters of local concern which 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 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
23
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 non‐discriminatory
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 market‐distorting effects of the ZEC program. In short,
Plaintiffs’ injuries “would continue to exist even if the [legislation] were cured”
of the alleged discrimination. 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.
24