Environmental Law & Policy Center, others step into court fight over IL 'Zero Emissions Credit' program

By Jonathan Bilyk | Apr 11, 2017

Even as Illinois state electricity regulators have asked a federal judge to dismiss a lawsuit alleging a state law unconstitutionally rigs the wholesale electricity generation and supply markets in favor of electricity generation giant Exelon, a prominent environmental activist organization has also stepped into the court fight, asking the court to allow it to defend the law’s renewable energy requirements, which it says the lawsuit also threatens.

On April 10, the Environmental Law and Policy Center filed a motion in Chicago federal court, asking the court to give it permission to intervene in the litigation launched by some of Exelon’s rival power generation companies, including Dynegy Inc., Eastern Generation LLC, NRG Energy Inc. and Calpine Corporation, as well as trade group, the Electric Power Supply Association.

The lawsuit had been filed on Feb. 14 against defendants including the Illinois Power Agency and agency director Anthony Star, taking aim at the provision in a state law enacted in December 2016 mandating the Illinois Power Agency obtain “zero emissions credits” (ZEC) for electrical utilities ComEd, an Exelon-owned power distributor, which covers northern Illinois, and Ameren Illinois, which serves central and southern Illinois, solely from “certain nuclear-fueled generating plants” over the next decade.

The lawsuit alleged the law is crafted in such a way that those credits can only be obtained from Exelon’s Quad Cities and Clinton power plants, while passing on the costs of the credits to Illinois electricity customers.

The lawsuit argued the ZEC system unconstitutionally oversteps the state’s authority to regulate electricity markets by upsetting wholesale supply and generation markets regulated by the Federal Energy Regulatory Commission (FERC). Specifically, the lawsuit alleged the ZEC system would guarantee price premiums for two Exelon plants of more than 70 percent, paid for by Illinois electricity customers, on each Megawatt hour (MWh) of power sold.

The “ZEC program was enacted for political reasons in an attempt to save jobs and property tax revenues at the subsidized generators,” the power suppliers’ lawsuit said. “Illinois’ attempts to preserve local industry from the rigors of interstate competition are prohibited by the (U.S. Constitution’s) Commerce Clause.

“Although all nuclear facilities connected (to the state’s power distribution networks) are purportedly eligible to apply for ZEC subsidies, the procurement criteria have been rigged so that only Clinton and Quad Cities may be selected as the ‘winning bidders,’” the power suppliers further alleged.

The plaintiffs filed on March 31 for a preliminary injunction, asking the court to block the state from rolling out its ZEC program.

That motion had itself followed a motion by PJM Interconnection, an organization tasked by the federal government with operating Illinois’ electricity supply markets, to intervene in the case on behalf of the plaintiffs against the ZEC program.

“Suppliers must believe that the market fundamentals will determine the success or failure of their investment or they will not invest, the market will not sustain adequate supply, and the federal regulatory approach will fail,” PJM wrote in its motion to intervene. “The ZEC Subsidies Program is incompatible with the PJM market design, threatens the foundations of the PJM market and interferes with the federal regulatory scheme.”

The judge presiding in the case, U.S. District Judge Manish Shah, has set a briefing schedule on the PJM intervention request for later this month.

The Illinois Power Agency, represented by lawyers from the Illinois Attorney General’s office, responded on April 10 with a motion to dismiss, arguing the court should unplug the litigation, which they said was legally offline in its characterization of the program.

The state argued the ZEC program “falls comfortably within the authority reserved to the States” to regulate electric power generation under federal law, and so cannot be preempted by federal authority or the U.S. Constitution.

“The program does not encroach on FERC’s exclusive jurisdiction by setting rates for, or otherwise regulating, interstate sales of wholesale power,” the state argued in a memorandum accompanying its motion to dismiss. “Nor does it conflict with any exercise of FERC’s federal law authority to ensure that rules or practices directly affecting wholesales rates within its jurisdiction are just and reasonable.

“Instead, although Illinois’ ZEC program may have an incidental effect on FERC-approved wholesale rates, the program lawfully implements Illinois’ state law authority to promote environmental benefits relating to the generation and retail sale of electric energy.”

The judge has not yet ruled on either the plaintiffs’ injunction request or the state’s motion to dismiss.

However, on April 10, the ELPC also sought to jump into the legal fight.

While noting the plaintiffs are not seeking to target the renewable energy mandates codified in the law establishing the ZEC program, the ELPC said the arguments being advanced by the plaintiffs are similar to those being used in other cases to challenge other states’ renewable energy requirements.

The ELPC’s motion to intervene noted the plaintiffs’ preliminary injunction motion specifically “cites cases that question the constitutionality of state RPS laws, creating the risk that a court order striking down the ZEC program could also affect the Illinois RPS.”

“ELPC’s concerns about Plaintiffs’ characterization of preemption and dormant commerce clause doctrine in this case are not merely theoretical,” the ELPC’s filing stated. “Litigants have used both of these theories to attack (mostly unsuccessfully) state renewable energy laws in several other pending or recently-decided cases, including cases in California, Colorado, Connecticut, and New York.

“ELPC seeks permissive intervention … to defend the Illinois RPS from Plaintiffs’ constitutional claims that threaten it.”

The judge also has not ruled on the ELPC’s request.

The ELPC is represented in the action by their staff legal counsel.

The plaintiffs are represented by attorneys with the firms of Massey & Gail LLP, of Washington, D.C. and Chicago, and Boies Schiller & Flexner LLP, of New York and Fort Lauderdale, Fla.

PJM Interconnection is represented by attorneys with the firm of Wright & Talisman P.C., of Washington, D.C.

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Organizations in this Story

Boies, Schiller & Flexner Environmental Law & Policy Center Exelon Corporation IL Attorney General Office Massey & Gail

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