Elec. Power Supply Ass'n v. Star, s. 17-2433 & 17-2445

• Citation: 904 F.3d 518
• Decision Date: 13 September 2018
• Docket Number: Nos. 17-2433 & 17-2445,s. 17-2433 & 17-2445
• Parties: ELECTRIC POWER SUPPLY ASSOCIATION, et al., Plaintiffs-Appellants, v. Anthony M. STAR, Director of the Illinois Power Agency, et al., Defendants-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

904 F.3d 518

ELECTRIC POWER SUPPLY ASSOCIATION, et al., Plaintiffs-Appellants,

v.Anthony M. STAR, Director of the Illinois Power Agency, et al., Defendants-Appellees.

Nos. 17-2433 & 17-2445

United States Court of Appeals, Seventh Circuit.

Argued January 3, 2018

Decided September 13, 2018

Rehearing Denied October 9, 2018

Patrick N. Giordano, Attorney, GIORDANO & ASSOCIATES, LTD., Evanston, IL, Paul Gregory Neilan, Attorney, LAW OFFICES OF PAUL G. NEILAN, Highland Park, IL, for Plaintiffs-Appellants in 17-2433.

David W. DeBruin, Attorney, William K. Dreher, Attorney, Matthew E. Price, Attorney, Zachary C. Schauf, Attorney, JENNER & BLOCK LLP, Washington, DC, for Intervenor-Appellee.

Benjamin Norris, IV, Attorney, AMERICAN PETROLEUM INSTITUTE, Washington, DC, for Amicus Curiae AMERICAN PETROLEUM INSTITUTE.

Robert Gordon Mork, Attorney, OFFICE OF UTILITY CONSUMER COUNSELOR, Indianapolis, IN, for Amicus Curiae NATIONAL ASSOCIATION OF STATE UTILITY CONSUMER ADVOCATES.

Aaron Martin Panner, Attorney, KELLOGG, HANSEN, TODD, FIGEL & FREDERICK PLLC, Washington, DC, for Amicus Curiae ENERGY ECONOMISTS.

Jeffrey Whitefield Mayes, Attorney, MONITORING ANALYTICS, LLC, Norristown, PA, for Amicus Curiae MONITORING ANALYTICS, LLC, acting in its capacity as the Independent Market Monitor for PJM.

Jonathan B. Amarilio, Attorney, TAFT STETTINIUS & HOLLISTER LLP, Chicago, IL, for Amici Curiae ILLINOIS CHAMBER OF COMMERCE and ILLINOIS INDUSTRIAL ENERGY CONSUMERS.

Eugene Grace, Attorney, AMERICAN WIND ENERGY ASSOCIATION, Washingtion, DC, for Amicus Curiae AMERICAN WIND ENERGY ASSOCIATION.

Ari Peskoe, I, Attorney, Jim Rossi, HARVARD ENVIRONMENTAL POLICY INITIATIVE, Cambridge, MA, for Amicus Curiae ELECTRICITY REGULATION SCHOLARS.

Jonathan M. Rund, Attorney, NUCLEAR ENERGY INSTITUTE, Washington, DC, for Amicus Curiae NUCLEAR ENERGY INSTITUTE.

Margaret Elaine Meckenstock, Attorney, OFFICE OF THE ATTORNEY GENERAL, Oakland, CA, Melinda Pilling, Attorney, OFFICE OF THE ATTORNEY GENERAL, San Francisco, CA, for Amicus Curiae STATE OF CALIFORNIA.

Clare E. Kindall, New Britain, CT, for Amicus Curiae STATE OF CONNECTICUT.

Maura Healey, OFFICE OF THE ATTORNEY GENERAL, Boston, MA, for Amicus Curiae STATE OF MASSACHUSETTS.

Eric T. Schneiderman, OFFICE OF THE ATTORNEY GENERAL, New York, NY, for Amicus Curiae STATE OF NEW YORK.

Ellen F. Rosenblum, OFFICE OF THE ATTORNEY GENERAL, Salem, OR, for Amicus Curiae STATE OF OREGON.

Robert W. Ferguson, OFFICE OF THE ATTORNEY GENERAL, Olympia, WA, for Amicus Curiae STATE OF WASHINGTON.

Thomas J. Donovan, Jr., OFFICE OF THE ATTORNEY GENERAL, Montpelier, VT, for Amicus Curiae STATE OF VERMONT.

Thomas Zimpleman, Attorney, NATURAL RESOURCES DEFENSE COUNCIL, Washington, DC, for Amicus Curiae NATURAL RESOURCES DEFENSE COUNCIL.

Michael Panfil, Attorney, Washington, DC, for Amicus Curiae ENVIRONMENTAL DEFENSE FUND.

Kristin Munsch, Attorney, CITIZENS UTILITY BOARD, Chicago, IL, for Amicus Curiae CITIZENS UTILITY BOARD.

Anne McKibbin, ELEVATE ENERGY, Chicago, IL, for Amicus Curiae ELEVATE ENERGY.

Joel J. Africk, Attorney, RESPIRATORY HEALTH ASSOCIATION, Chicago, IL, for Amicus Curiae RESPIRATORY HEALTH ASSOCIATION.

Samuel Taylor Walsh, Attorney, HARRIS, WILTSHIRE & GRANNIS LLP, Washington, DC, for Amici Curiae DALLAS BURTRAW, CHRISTOPHER KNITTEL, JOSHUA LINN, GILBERT METCALF, and SUSAN TIERNEY.

Howard A. Learner, Attorney, ENVIRONMENTAL LAW & POLICY CENTER, for Amicus Curiae ENVIRONMENTAL LAW AND POLICY CENTER.

Robert Lundman, Attorney, DEPARTMENT OF JUSTICE, Washington, DC, for Amicus Curiae UNITED STATES OF AMERICA.

Anand Viswanathan, Attorney, FEDERAL ENERGY REGULATORY COMMISSION, Washington, DC, for Amicus Curiae FEDERAL ENERGY REGULATORY COMMISSION.

Suyash Agrawal, Attorney, Paul Berks, Attorney, Leonard A. Gail, Attorney, MASSEY & GAIL LLP, Chicago, IL, William T. Dzurilla, Attorney, Pascual Armando Oliu, Attorney, Stuart H. Singer, Attorney, BOIES, SCHILLER & FLEXNER LLP, Fort Lauderdale, FL, Jonathan Massey, Attorney, MASSEY & GAIL LLP, Washington, DC, Mark Remy Yohalem, Attorney, Fred A. Rowley, Jr., Attorney, Donald B. Verrilli, Jr., Attorney, Henry Weissmann, Attorney, MUNGER, TOLLES & OLSON, Los Angeles, CA, David A. Barrett, Attorney, Jonathan D. Schiller, Attorney, BOIES, SCHILLER & FLEXNER LLP, New York, NY, for Plaintiffs-Appellants in 17-2445.

Before Easterbrook and Sykes, Circuit Judges, and Reagan, District Judge^*

Easterbrook, Circuit Judge.

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 , ––– U.S. ––––, 136 S.Ct. 1288, 194 L.Ed.2d 414 (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. It may levy a tax on carbon emissions. It may tax the assets and incomes of power producers. It may use tax revenues to subsidize some or all generators of power. It may create a cap-and-trade system under which every firm that emits carbon must buy credits in a market (firms that emit less carbon, or none, will be the sellers). As plaintiffs see matters, although such systems affect the price in the PJM and MISO auctions, they do not regulate that price. But the zero-emission-credit system, plaintiffs insist, indirectly regulates the auction by using average auction prices as a component in a formula that affects the cost of a credit. The district judge did not agree with this argument and granted summary judgment to the defendants. 2017 U.S. Dist. LEXIS 109368 (N.D. Ill. July 14, 2017).

The parties’ briefs address a number of procedural questions. These include whether a claim of preemption may be presented directly under the Supremacy Clause of the Constitution and whether relief under the theory of Ex parte Young , 209 U.S. 123, 28 S.Ct. 441, 52 L.Ed. 714 (1908), would be appropriate against the state defendants in light of remedies potentially available under the Federal Power Act. See Armstrong v. Exceptional Child Center , ––– U.S. ––––, 135 S.Ct. 1378, 191 L.Ed.2d 471 (2015) ; Verizon Maryland, Inc. v. Public Service Commission of Maryland , 535 U.S. 635, 122 S.Ct. 1753, 152 L.Ed.2d 871 (2002). But none of the procedural disputes concerns subject-matter jurisdiction, which rests on both 28 U.S.C. § 1331 (federal-question jurisdiction) and 16 U.S.C. § 825p (authorizing suits in equity to enforce the Federal Power Act). Because the district court’s jurisdiction is secure, we can go straight to the merits—for, if we decide that federal law does not preempt the state statute, none of the procedural issues matters.

At oral argument we expressed concern that the Federal Energy Regulatory Commission had not decided whether Illinois has interfered with its authority over auctions for interstate power. After receiving submissions from the litigants addressing the possibility of invoking the doctrine of primary jurisdiction (another non-jurisdictional doctrine, despite its name) and waiting for the FERC to act on petitions pending before it, we decided to ask the agency to give us its views as an amicus curiae . The Commission and the United States then filed a joint brief concluding that Illinois’ program does not interfere with interstate auctions and is not otherwise preempted. More briefs from the parties followed, and the appeals are at last ready for decision.

The Federal Power Act divides regulatory authority between states and the FERC. The Commission regulates the sale of electricity in interstate commerce (including auctions conducted by regional organizations), while states regulate local distribution plus the facilities used to generate power. 16 U.S.C. § 824(b)(1). This allocation leads to conflict, because what states do in the exercise of their powers affects interstate sales, just as what the FERC does in the exercise of its powers affects the need for and economic feasibility of plants over which the states possess authority. For decades the Supreme Court has attempted to confine both the Commission and the states to their proper roles, while acknowledging that each use of authorized power necessarily affects tasks that have been assigned elsewhere. See, e.g., Federal Power Commission v. Southern California Edison Co. , ...