State Programs to Encourage Zero-Emitting Generation Are Constitutional

Late last month, the 2nd Circuit Court of appeals rejected a challenge to Connecticut laws intended to encourage use of renewable energy.  Earlier this month, Judge Manish Shah, of the Northern District of Illinois, issued a companion decision, rejecting challenges to the Illinois Future Energy Jobs Act, which grants “Zero Emission Credits” to certain facilities, “likely to be two nuclear power plants owned by Exelon in Illinois.”

(Caveat:  This firm represents, in unrelated matters, a number of the generators who challenged the statute.  We also represent numerous renewable energy firms generally supportive of state authority to provide incentives to renewable energy.  This post is definitely agnostic about the Illinois statute.  It is the broader question of state authority that interests me here.)

Like the plaintiffs in the Connecticut case, the plaintiffs here argued both that the statute was preempted and that it violates the Dormant Commerce Clause.  The Court rejected both arguments.  As to preemption, the importance of the decision is its preservation of state authority, even if it “substantially affects the quantity and terms of wholesale sales,” so long the program does not “directly” affect wholesale rates:

influencing the market by subsidizing a participant, without subsidizing the actual wholesale transaction, is indirect and not preempted.

As to the Dormant Commerce Clause, plaintiffs alleged that the environmental benefits of the statute were a sham, and that its real intent was simply to benefit Exelon.  The Court concluded that the statute imposes neutral standards and the plaintiffs had not alleged that the agencies would implement the statute in a biased way.  The Court also rejected the plaintiffs’ argument that the statute has a discriminatory intent.

Courts must “assume that the objectives articulated by the legislature are actual purposes of the statute, unless an examination of the circumstances forces [the Court] to conclude that they ‘could not have been a goal of the legislation.’”

Overall, the case, together with the 2nd Circuit decision in Klee, provides strong support for state authority to encourage renewable or low-emitting sources of energy.  Individuals can argue about the merits of the Illinois statute – and the Connecticut statutes – but certainty is generally a good principle in the law, and we are moving towards greater certainty about state authority in this area.

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