Judge pulls plug on challenge to IL 'Zero Emissions Credit' Exelon nuclear plant bailout

By Jonathan Bilyk | Jul 18, 2017

Saying the law could both simultaneously be a subsidy designed to prop up two Illinois nuclear power plants and a legitimate attempt to reduce carbon emissions, a Chicago federal judge has pulled the plug on attempts by a group of power generators and electricity consumers to challenge a recent state law the plaintiffs claimed unconstitutionally used “green energy” goals as a pretext to rig the wholesale electricity generation and supply markets in favor of electricity generation giant Exelon.

On July 14, U.S. District Judge Manish S. Shah dismissed the legal actions brought against the state, through the Illinois Power Agency and its director, Anthony Star. The power generator plaintiffs filed a notice of appeal on July 17, federal court records indicate.

The lawsuits, filed in February in Chicago federal court, asked the court to invalidate portions of the so-called Future Energy Jobs Act.

The law, approved by the Democratic Party-controlled General Assembly and signed by Republican Gov. Bruce Rauner in December 2016, restructured certain aspects of the state’s energy efficiency programs, as well as calling for greater use of energy from renewable sources, such as wind and solar power.

The law, however, also mandate the Illinois Power Agency obtain “zero emissions credits” (ZEC) for electrical utilities ComEd, an Exelon-owned power distributors, which covers northern Illinois, and Ameren Illinois, which serves central and southern Illinois, solely from “certain nuclear-fueled generating plants” over the next 10 years.

That provision sparked the legal challenges from a relatively large group of plaintiffs, including some of Exelon’s rival power suppliers, which include Dynegy Inc., NRG Energy Inc., Calpine Corporation and Eastern Generation LLC, as well as the trade group, the Electric Power Supply Association.

A separate, but similar action, was brought by  a group of electricity consumers, including such named plaintiffs as the Village of Old Mill Creek, of Lake County; manufacturer Ferrite International Company, of Wadsworth; business Got It Maid Inc., of Highland Park; and four individual electricity consumers from Chicago and the communities of Riverside, Highland Park and Havel.

The lawsuits argued the Future Energy Jobs Act was crafted in such a way that the required ZECs could only be obtained from Exelon’s Quad Cities and Clinton nuclear power plants. And the costs of those credits would be passed through ComEd and Ameren to Illinois electricity customers.

Manufacturers, for instance, would be online for cost increases of tens of thousands of dollars per month, the challenges alleged.

The lawsuits argued the ZEC system oversteps the state’s constitutional authority to regulate electricity markets, as the state’s ZEC mandate would upset wholesale supply and generation markets which are regulated as interstate commerce by the Federal Energy Regulatory Commission. Specifically, the lawsuits 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 of electricity sold.

The lawsuits alleged such premiums would disrupt the functioning of markets under which suppliers currently bid for electrical supply production and capacity rights, usurping federal supremacy and harming consumers and market competition.

The legal action drew significant outside interest, as well, including interventions from PJM Interconnection, an organization tasked by the federal government with operating Illinois’ electricity supply markets, on behalf of the plaintiffs, and from the Environmental Law and Policy Center, which stepped in on behalf of the state and Exelon in defense of the state’s heightened renewable energy requirements.

Shah ultimately sided with the state, saying the consumers lacked standing to sue, and the power generators’ claims could not demonstrate any abuse of the state’s authority to regulate its electricity market or create new energy standards.

While the plaintiffs argued the environmental standards were merely a pretext to mask a blatant bailout for Exelon worth many millions of dollars, the judge said the law could be considered “both environmental legislation and job-saving legislation.”

“The governor’s and some legislators’ celebratory remarks about the potential job-saving effects of the law do not negate the ZEC program’s environmental purpose and public health interests,” Judge Shah wrote. “These statements suggest political favoritism on the part of some for the local economy, but they do not evince an intent to discriminate against out-of-state commerce.

“The law may have been underinclusive in the breadth of the subsidy, because Illinois could have subsidized more nuclear power, but that does not mean its purpose was protectionist, instead of environmental,” the judge said.

Further, he said, the U.S. Constitution’s so-called Commerce Clause, which grants to the federal government the job of regulating interstate commerce, “is not concerned with the burdens created when a state participates in a market and exercises the right to favor its own citizens over others.”

“The creation of the ZEC has created a new market, and while that market may affect the wholesale energy market, it is an incidental burden on the channels of interstate commerce in which plaintiffs (the rival power suppliers) participate,” Shah wrote.

The plaintiffs were 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.

The Illinois Power Agency was defended by the Illinois Attorney General’s office.

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Boies, Schiller & Flexner Exelon Corporation Massey & Gail State of Illinois

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