Allco Fin. Ltd. v. Klee

• Citation: 861 F.3d 82
• Decision Date: 28 June 2017
• Docket Number: August Term, 2016,Docket Nos. 16-2946,16-2949
• Parties: ALLCO FINANCE LIMITED, Plaintiff-Appellant, v. Robert J. KLEE, in his official capacity as Commissioner of the Connecticut Department of Energy and Environmental Protection, Defendant-Appellee, Katherine S. Dykes, John W. Betkoski, III, and Michael Caron, in their official capacities as Commissioners of the Connecticut Public Utilities Regulatory Authority, Defendants-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)

861 F.3d 82

ALLCO FINANCE LIMITED, Plaintiff-Appellant,

v. Robert J. KLEE, in his official capacity as Commissioner of the Connecticut Department of Energy and Environmental Protection, Defendant-Appellee,Katherine S. Dykes, John W. Betkoski, III, and Michael Caron, in their official capacities as Commissioners of the Connecticut Public Utilities Regulatory Authority, Defendants-Appellees.^*

Docket Nos. 16-2946

16-2949

August Term, 2016

United States Court of Appeals, Second Circuit.

Argued: December 9, 2016

Decided: June 28, 2017

Thomas Melone, Allco Renewable Energy Limited, New York, New York, for Plaintiff-Appellant.

Robert D. Snook, Assistant Attorney General, Hartford, Connecticut, for George Jepsen, Attorney General for the State of Connecticut, for Defendant-Appellee Robert J. Klee.

Seth Hollander, Assistant Attorney General (Clare E. Kindall, Assistant Attorney General, on the brief), New Britain, Connecticut, for George Jepsen, Attorney General for the State of Connecticut, for Defendants-Appellees Katherine S. Dykes, John W. Betkoski, III, and Michael Caron.

Ann H. Rubin, Carmody Torrance Sandak & Hennessey LLP, Waterbury, Connecticut, for Amicus Curiae The Connecticut

Light and Power Company, DBA Eversource Energy, in support of Defendants-Appellees.

Gene Grace (Julia Dreyer, on the brief), American Wind Energy Association and RENEW Northeast, Washington, D.C., for Amicus Curiae American Wind Energy Association, in support of Defendants-Appellees.

M. Elaine Meckenstock, Deputy Attorney General (Robert W. Byrne, Senior Assistant Attorney General, Gavin G. McCabe, Supervising Deputy Attorney General, and Melinda Pilling, Deputy Attorney General, on the brief), Oakland, California, for Xavier Becerra, Attorney General, California Office of the Attorney General, for Amici Curiae States of Massachusetts, New York, Oregon, Vermont, and Washington, and the California Air Resources Board, in support of Defendants-Appellees.

Before: CALABRESI, RAGGI, LYNCH, Circuit Judges.

CALABRESI, Circuit Judge:

Plaintiff-Appellant Allco Finance Limited ("Allco" or "Plaintiff") appeals from a final judgment entered by the United States District Court for the District of Connecticut (Haight, J .), which dismissed two of Allco's related, but not formally consolidated, Complaints ("the Complaints"). The Complaints focus on Connecticut's implementation of Connecticut Public Acts 13-303 and 15-107, which empower the state's energy regulator to solicit proposals for renewable energy generation, to select winning bids from such solicitations, and then to "direct" Connecticut's utilities to "enter into" wholesale energy contracts with the winning bidders. One of the Complaints also challenges a separate Connecticut program, the Renewable Portfolio Standard, which requires Connecticut's utilities either to produce renewable energy themselves or to buy renewable energy credits from other renewable energy producers located in the region.

Allco brought these two actions against the Commissioners of Connecticut's state energy regulators in their official capacities ("the Defendants"), arguing that the state programs violate federal law and the dormant Commerce Clause of the United States Constitution, and that Connecticut's implementation of the programs has injured Allco. In addition to seeking damages and fees under 42 U.S.C. §§ 1983 and 1988, Allco sought declaratory judgments that Connecticut regulators had violated federal law in their implementation of the programs, and that any contracts that arose out of solicitations conducted under Public Acts 13-303 and 15-107 were void. Allco also sought equitable relief in the form of an injunction barring Connecticut from violating federal law in any pending or future solicitation.

In each action, the Defendants moved to dismiss the Complaint for lack of standing and for failure to state a claim. Allco opposed these motions, and moved for preliminary injunctive relief. On August 18, 2016, in a single omnibus decision, the district court granted Defendants' motions to dismiss the Complaints and denied Allco's motions for injunctive relief as moot. Allco filed a timely notice of appeal on August 23, 2016, and then, on October 3, 2016, filed a motion for an emergency injunction pending this appeal. On November 2, 2016, a motions panel of this court granted the emergency injunction and expedited this appeal. We heard oral arguments on December 9, 2016, and vacated the emergency injunction on December 12, 2016.

We now AFFIRM the district court's judgment. We hold: (1) that Allco failed to state a claim that Connecticut's renewable energy solicitations conducted pursuant Connecticut Public Acts 13-303 and 15-107 are preempted by federal law, and (2) that Allco failed to state a claim that Connecticut's Renewable Portfolio Standard program violates the dormant Commerce Clause.

I. BACKGROUND

A. The Federal Power Act and the Public Utility Regulatory Policies Act

The Federal Power Act ("FPA") gives the Federal Energy Regulatory Commission ("FERC") exclusive authority to regulate the sale of electric energy at wholesale in interstate commerce. See 16 U.S.C. § 824(b)(1) ; Hughes v. Talen Energy Mktg., LLC , ––– U.S. ––––, 136 S.Ct. 1288, 1292, 194 L.Ed.2d 414 (2016). A "sale of electric energy at wholesale" is defined as a "sale of electric energy to any person for resale." 16 U.S.C. § 824(d). The FPA requires "FERC to oversee all prices for those interstate transactions and all rules and practices affecting such prices," and further "provides that ‘all rates and charges made, demanded or received by any public utility for or in connection with’ interstate transmissions or wholesale sales ... must be ‘just and reasonable.’ " FERC v. Elec. Power Supply Ass'n , ––– U.S. ––––, 136 S.Ct. 760, 767, 193 L.Ed.2d 661 (2016) ("EPSA ") (quoting 16 U.S.C. § 824d(a) ). "If ‘any rate [or] charge,’ or ‘any rule, regulation, practice, or contract affecting such rate [or] charge’ falls short of that standard," FERC "must rectify the problem: It then shall determine what is ‘just and reasonable’ and impose ‘the same by order.’ " Id . (quoting 16 U.S.C. § 824e(a) ) (alterations in original). Although the FPA "places beyond FERC's power, leaving to the States alone, the regulation of ‘any other sale’—i.e. , any retail sale—of electricity," id. at 762 (quoting 16 U.S.C. § 824(b) ), states may not regulate interstate wholesale sales of electricity unless Congress creates an exception to the FPA. 16 U.S.C. § 824(b).

The Public Utility Regulatory Policies Act¹ ("PURPA") contains such an exception, permitting states to foster electric generation by certain power production facilities ("qualifying facilities" or "QFs") that have no more than 80 megawatts of capacity and use renewable generation technology. Id. § 824a–3; see id. § 796(17)(A). A state may regulate wholesale sales of electricity made by QFs by requiring utilities to purchase power from QFs at the utilities' "avoided costs," which are the costs that the utility would have otherwise incurred in procuring the same quantity of electricity from another source. See id. § 824a–3(b); 18 C.F.R. § 292.304(b)(2). Section 210(a) of PURPA, 16 U.S.C. § 824a-3(a), also provides all QFs with a guaranteed right to sell their energy and capacity to electricity utilities at the utilities' avoided costs. See 16 U.S.C. § 824a-3(b), (d) ; 18 C.F.R. § 292.304(b)(2) ; see also Am. Paper Inst., Inc. v. Am. Elec. Power Serv. Corp. , 461 U.S. 402, 404–06, 417, 103 S.Ct. 1921, 76 L.Ed.2d 22 (1983). PURPA imposes obligations on each state regulatory authority to implement FERC's PURPA regulations, 16 U.S.C. § 824a–3(f)(1), and provides a private right of action to QFs to enforce a state's obligations under PURPA, see id. § 824a–3(h)(2)(B) ; FERC v. Mississippi , 456 U.S. 742, 772 & n.2, 102 S.Ct. 2126, 72 L.Ed.2d 532 (1982).²

B. The Interstate Electricity Market

Three general categories of actors in the interstate electricity market are relevant to this opinion: generators, load serving entities (LSEs), and transmitters. See Hughes , 136 S.Ct. at 1292. Generators include power plants and other sources of electricity production. LSEs, otherwise known as utilities, sell electricity at retail to end users. Id. Transmitters transmit the electricity from generators to the LSEs. Id.

"Until relatively recently, most state energy markets were vertically integrated monopolies—i.e. , one entity, often a state utility, controlled electricity generation, transmission, and sale to retail consumers." Id. Over the past few decades, however, many states, including Connecticut, have deregulated their energy markets. Id. In deregulated markets, LSEs purchase electricity at wholesale from independent power generators. Id. In order "[t]o ensure reliable transmission of electricity from independent generators to LSEs, FERC has charged nonprofit entities, called Regional Transmission Organizations (RTOs) and Independent System Operators (ISOs), with managing certain segments of the electricity grid." Id . The New England ISO ("ISO-NE"), the transmitter involved in this case, manages the grid in most of New England, including all of Connecticut.

Given the changes to the energy market that came with deregulation, FERC altered its regulatory methods, and today it "often forgoes the cost-based ratesetting traditionally used to prevent monopolistic pricing. [FERC] instead undertakes to ensure ‘just and reasonable’ wholesale rates by enhancing competition—attempting ... ‘to break down regulatory and economic barriers that hinder a free market in wholesale electricity.’ " EPSA , 136 S.Ct. at 768 (quoting Morgan Stanley Capital Grp. Inc. v. Pub. Util. Dist. No. 1 of Snohomish Cty. , 554 U.S. 527, 536, 128 S.Ct. 2733, 171 L.Ed.2d 607 (2008) ). Thus, in Connecticut and other states that have deregulated their energy markets, interstate wholesale transactions typically occur through two FERC-regulated mechanisms. The first mechanism is...