Electric Power Supply Association et al v. Star et al
MEMORANDUM Opinion and Order. Signed by the Honorable Manish S. Shah on 7/14/2017: Defendants' and Exelon's motions to dismiss are granted. The plaintiffs' claims are dismissed in part for lack of subject-matter jurisdiction and in part for failure to state a claim. The plaintiffs' motions for a preliminary injunction are denied. The Clerk shall enter final judgment and terminate these cases. [For further detail see attached order.] Notices mailed. (psm, )
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UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
VILLAGE OF OLD MILL CREEK, et al.,
ANTHONY M. STAR , in his official
capacity as Director of the Illinois
Power Agency, et al.,
No. 17 CV 1163 and
No. 17 CV 1164
Judge Manish S. Shah
ELECTRIC POWER SUPPLY ASSOCIATION,
ANTHONY M. STAR , in his official
capacity as Director of the Illinois
Power Agency, et al.,
MEMORANDUM OPINION AND ORDER
The state of Illinois created a “zero emission credit” program to effectively
subsidize nuclear power generation and corresponding sales of nuclear power in the
wholesale market. The Future Energy Jobs Act1 amended the Illinois Power Agency
Act, 20 ILCS 3855/1-1 et seq., and created a new commodity, the ZEC. The statute
See SB 2814, Public Act 099-0906, 99th Gen. Assemb. (Ill. 2016), available at
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grants ZECs to certain qualifying energy-generating facilities. Those facilities are
likely to be two nuclear power plants owned by Exelon in Illinois. Utilities that sell
electricity to consumers must purchase ZECs from the qualifying power plants, and
those utilities will pass the costs of ZECs onto their customers. The result is money
in the coffers of Exelon from the sale of ZECs that will give it a benefit when pricing
its energy in the wholesale market relative to competing energy producers that do
not receive ZEC payments.
Two sets of plaintiffs filed suit to challenge the statute. In one case, the
plaintiffs, Village of Old Mill Creek, Ferrite International Company, Got It Maid,
Inc., Nafisca Zotos, Robert Dillon, Richard Owens, and Robin Hawkins, are delivery
services customers of Commonwealth Edison Company in Illinois. In the second
suit, plaintiff Electric Power Supply Association is a national industry association
for competitive electric power producers, and plaintiffs Calpine Corporation, Dynegy
Inc., Eastern Generation, LLC, and NRG Energy, Inc. are independent power
producers that operate generators nationwide and provide wholesale electricity to
utilities. Both the consumer plaintiffs and the generator plaintiffs bring claims
against Anthony Star in his official capacity as Director of the Illinois Power Agency
and the Commissioners of the Illinois Commerce Commission in their official
capacities, seeking to invalidate the statute. Exelon intervened in both actions to
defend the ZEC program.
Defendants and Exelon each filed motions to dismiss the complaints. The
motions are granted.
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To survive a motion to dismiss under Federal Rule of Civil Procedure
12(b)(6), a complaint must contain factual allegations that plausibly suggest a right
to relief. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). When analyzing a motion under
Rule 12(b)(6), a court must accept all factual allegations as true and draw all
reasonable inferences in the plaintiffs’ favor, but a court need not accept legal
conclusions or conclusory allegations. Virnich v. Vorwald, 664 F.3d 206, 212 (7th
Cir. 2011) as amended (Jan. 3, 2012) (citing Iqbal, 556 U.S. at 680–82). Rule
12(b)(6) limits a court’s consideration to “allegations set forth in the complaint itself,
documents that are attached to the complaint, documents that are central to the
complaint and are referred to in it, and information that is properly subject to
judicial notice.” Williamson v. Curran, 714 F.3d 432, 436 (7th Cir. 2013); see also
Fed. R. Evid. 201(b). A challenge to plaintiffs’ standing to bring a claim is a
challenge to the court’s subject-matter jurisdiction, and as in a Rule 12(b)(6) motion,
the facts of the complaint are accepted as true. Silha v. ACT, Inc., 807 F.3d 169,
173–74 (7th Cir. 2015).
These two lawsuits are companion cases. The complaints are substantially
similar, except that the consumer plaintiffs have an additional claim under the
equal protection clause. In responding to defendants’ and Exelon’s motions to
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dismiss, the consumer plaintiffs largely adopted the generator plaintiffs’
The Federal Power Act, FERC, and Wholesale Energy Markets
The Federal Power Act, 16 U.S.C. § 791a et seq., allows both the Federal
Energy Regulatory Commission and the states to regulate aspects of the electricity
industry. Under the Federal Power Act, FERC has exclusive jurisdiction over
wholesale sales of electric energy in the interstate market; it has the power to
regulate wholesale electricity rates and any rule or practice that affects such rates.3
16 U.S.C. §§ 824(b), 824e(a). The states may regulate “any other sale” of electricity,
which includes retail electric energy sales. Id. § 824(b).
FERC regulates wholesale rates of electric energy via interstate auctions. 
¶¶ 29–30. For most of Illinois, wholesale electricity is exchanged through auctions
conducted by the Midcontinent Independent System Operator, Inc.4 Id. ¶ 30. In
Chicago and parts of northern Illinois, wholesale electricity is exchanged through
auctions conducted by PJM Interconnection, L.L.C.5 Id. Gaps between the supply
and demand of electric energy can cause “uncontrolled widespread blackouts.” Id.
¶ 32. To prevent such gaps, MISO and PJM continuously run two types of wholesale
Bracketed numbers refer to entries on the district court docket, and unless otherwise
noted, citations are to the 17-cv-1164 docket; referenced page numbers are from the
CM/ECF header placed at the top of filings.
A “wholesale” sale is the sale of electric energy to a buyer “for resale” to another buyer. 16
U.S.C. § 824(d).
MISO is an independent system operator that serves fifteen states as well as one
Canadian province.  ¶ 30.
PJM is a regional transmission organization that serves thirteen states and the District of
Columbia.  ¶ 30.
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auctions, “energy” and “capacity,” because electricity cannot be stored economically
or in sufficient quantities. Id. ¶¶ 31–32.
Both MISO and PJM run day-ahead and real-time energy auctions. Id. ¶ 31.
In the day-ahead energy auction, generators submit a bid for a price at which they
are willing to generate a particular quantity of electricity to be delivered the next
day. Id. ¶ 34. In the real-time energy auction, MISO and PJM each increase or
decrease the prices of electric energy every five minutes to signal the need for
generators to produce more or less electricity as conditions change in real time. Id.
“In contrast to the energy auctions, where electricity itself is bought and sold,
capacity auctions are for the purchase and sale of options to purchase electricity.”
Id. ¶ 38 (emphasis original). MISO and PJM calculate the generating capacity
needed for the electric grid to run reliably each year and they establish the amount
of capacity that retail electric suppliers, known as load serving entities, must
purchase to meet customer demand in their territory each year.6 Id. ¶ 37. To satisfy
capacity obligations, load servicing entities may either enter into bilateral contracts
with generators or they may participate in an auction market conducted by MISO
or PJM. Id. “Each generator that sells capacity in the MISO and PJM capacity
markets is required to participate in the day-ahead energy market, and to respond
in real-time, if conditions warrant.” Id. ¶ 38.
FERC oversees this process and requires MISO to purchase annual capacity obligations
one month before the relevant delivery period and PJM to purchase capacity obligations
three years ahead of the relevant delivery period.  ¶ 39.
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For both energy and capacity auctions, MISO and PJM use a process called
“stacking” to accept generators’ bids. Id. ¶¶ 41–42. The generators’ bids are stacked
from lowest to highest in price, and MISO and PJM accept bids in that order until
the demand has been met. Id. ¶ 41. Each bid that is accepted is said to “clear the
market.” Id. The price of the highest-accepted bid is called the “market clearing
price”; all generators receive that price for each bid they submitted that cleared the
market, even if a generator submitted a bid at a lower price. Id. ¶¶ 35, 41. Since
nuclear generators run continuously at maximum output and have no alternative to
selling their output in MISO and PJM auctions, they submit conservative bids in
the hopes of clearing the auction.7 Id. ¶ 36. During times of oversupply, nuclear
generators will even pay to offload their energy output onto the grid, by submitting
a bid for a negative price, so that they have room to generate more energy in the
future. Id. This bidding strategy results in lower market clearing prices. Id.
Illinois’s Future Energy Jobs Act and the ZEC Program
Exelon Corporation announced that it would shut down two of its nuclear
generator facilities, Clinton and Quad Cities, unless the Illinois General Assembly
passed “adequate legislation.” [38-4] at 2–3. The two plants had lost more than $800
million over the last six years; but closing the plants would result in the estimated
loss of 4,200 direct and secondary jobs, as well as approximately $1.2 billion in
economic activity within four years. Succumbing to that pressure, the Illinois
Generators’ sources of compensation are predominantly their energy market and capacity
market revenues; to a much lesser extent they also receive compensation from their
ancillary services.  ¶ 43.
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General Assembly created the zero emission credit program in the Future Energy
Jobs Act.8 The statute amends the Illinois Power Agency Act. See 20 ILCS 3855/1-1
et seq. When the governor signed the legislation into law, Exelon confirmed that
Clinton and Quad Cities would operate for another ten years due to the new
legislation. [38-11] at 2–3.
According to plaintiffs, the legislature’s asserted goal for the statute,
“environmental protection,” was mere pretext for a bailout for Exelon’s Clinton and
Quad Cities plants.  ¶ 58. The actual purpose of the statute—to save jobs and
local tax revenues—was clear from its title, “Future Energy Jobs Act.” Id. Plaintiffs
also noted that when the governor signed the bill into law, he said, “The Future
Energy Jobs bill protects taxpayers, ratepayers, and the good-paying jobs at the
Clinton and Quad Cities’ plants.” Id. ¶ 61.
The statute created a new commodity called a zero emission credit. A ZEC is
a tradeable credit that represents the environmental attributes of one megawatt
hour of energy produced from a zero emission facility (a nuclear power plant
interconnected with MISO or PJM). 20 ILCS 3855/1-10. The Illinois Power Agency
confers ZECs on those facilities that are “reasonably capable of generating costeffective zero emission credits in an amount approximately equal to 16%9 of the
Illinois governor signs energy bill to help Exelon nuclear plants, S&P GLOBAL PLATTS,
Plaintiffs are suspicious of the 16% figure since it perfectly aligns with the amount of
electricity that Clinton and Quad Cities provide.  at 24:2–8. They believe that the fact
that the legislature used the 16% figure instead of calculating a competitive environmental
amount that is universally beneficial is further proof that this is not an “open-ended
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actual amount of electricity delivered by each electric utility to retail customers in
the State during calendar year 2014.”10 20 ILCS 3855/1-75(d-5)(1). Utilities are
required to enter into contracts to purchase the ZECs from the winning zero
emission facilities. Id. § 1-75(d-5)(1)(C-5). The contracts will have a term of ten
years, ending May 31, 2027. Id. § 1-75(d-5)(1).
The retail suppliers must purchase all of the ZECs conferred on the selected
zero emission facilities in each delivery year. Id. The price for each ZEC is the Social
Cost of Carbon11; but, it may be reduced according to a “Price Adjustment,” which is
“the amount [. . .] by which the market price index12 for the applicable delivery year
program” in which other plants can compete, but it is a subsidy for Clinton and Quad
Cities. Id. at 24:2–8, 30:11–17.
The Illinois statute modeled the ZEC program on Renewable Energy Credit programs,
which many states, including Illinois, have enacted. [38-3] ¶ 46;  ¶ 51; see also 20 ILCS
3855/1-75(c). Generally, under such programs, “qualified renewable generators (such as
solar, wind, and biomass) earn RECs for each MWh of electricity they generate,” and retail
suppliers “are required to acquire a certain number of RECs each year or make an
Alternative Compliance Payment.”  ¶ 51. All qualified renewable generators create
RECs. Id. ¶ 52. “RECs are competitively traded outside of the wholesale energy markets, so
that their value varies based on supply and demand.” Id.
The U.S. Interagency Working Group on Social Cost of Carbon set the price for the Social
Cost of Carbon at $16.50 per megawatt hour in August 2016. 20 ILCS 3855/1-75(d5)(1)(B)(i).
The market price index each delivery year is the sum of projected energy and capacity
prices. 20 ILCS 3855/1-75(d-5)(1)(B)(iii). Projected energy prices are calculated using the
energy forward prices for each month of the applicable delivery year averaged for each
trade date during the calendar year immediately preceding that delivery year. Id. § 1-75(d5)(1)(B)(iii)(aa). Projected capacity prices are calculated using the sum of fifty percent of the
Base Residual Auction price, as determined by PJM, divided by twenty-four hours per day,
and multiplied by fifty percent of the resource auction price, as determined by MISO’s
resource auction, divided by twenty-four hours per day. Id. § 1-75(d-5)(1)(B)(iii)(bb). PJM’s
Base Residual Auction is held each year during the month of May; it determines capacity
obligations for a delivery year three years in advance. See RPM Base Residual Auction
FAQs, PJM, available at https://www.pjm.com/~/media/markets-ops/rpm/rpm-auctioninfo/rpm-base-residual-auction-faqs.ashx.
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exceeds the baseline market price index13 for the consecutive 12-month period
ending May 31, 2016.” Id. § 1-75(d-5)(1)(B). The purpose of the price adjustment is
“to ensure that the procurement remains affordable to retail customers in this State
if electricity prices increase.” Id.
To receive ZECs, facilities must participate in a procurement process and
submit eligibility information, such as annual power generation and cost
projections, to the Illinois Power Agency. Id. § 1-75(d-5)(1)(A). The IPA will publish
its proposed zero emission standard procurement plan, which will explain how bids
will be selected based on “public interest criteria,” such as minimizing carbon
dioxide emissions that result from electricity consumed in Illinois, and minimizing
sulfur dioxide, nitrogen oxide, and particulate matter emissions that adversely
affect the citizens of Illinois. Id. § 1-75(d-5)(1)(C). The procurement plan will also
provide a detailed explanation about how the IPA will consider and weigh each
public interest factor. Id. In developing the plan, the IPA will review “any reports
issued by a State agency, board, or commission [. . .], as well as publicly available
analyses and studies performed by or for regional transmission organizations that
serve the State and their independent market monitors.” Id.
The baseline market price index for the consecutive twelve-month period ending May 31,
2016 is $31.40 per megawatt hour. 20 ILCS 3855/1-75(d-5)(1)(B)(ii). This is based on the
sum of the average of PJM’s day-ahead energy auction price, fifty percent multiplied by the
Base Residual Auction capacity price, as determined by PJM, divided by 24 hours per day,
and fifty percent multiplied by the Planning Resource Auction capacity price, as determined
by MISO, divided by 24 hours per day. Id.
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Effects of the ZEC Program
The sale of ZECs will provide those selected nuclear plants with out-ofmarket payments for each megawatt hour of electricity they produce, “effectively
replacing the auction clearing price received by these plants with the alternative,
higher price preferred by the Illinois General Assembly.”  ¶ 4. This will affect the
FERC-approved energy market auction structure not only because the nuclear
plants will not retire as scheduled, but also because they will continue to bid into
the wholesale market auctions at artificially lower prices. Id. ¶¶ 6, 10.14 Lower
auction prices lead to lower revenues for all generators. Id. ¶ 10. In turn, low
revenues could cause generators that are more efficient than the ZEC recipients to
exit the market or it could deter potential new generators from entering the market.
Id. Additionally, “artificially suppressed wholesale market prices are likely to result
in higher energy bills for retail ratepayers as they are forced to pay the nuclear
subsidy as a charge on their retail electric bills.” Id. ¶ 11. ZECs are estimated to
cost Illinois’ ratepayers $235 million per year over ten years. Id. ¶ 3.
The generator plaintiffs believe that they will incur millions of dollars in
damages because they will lose auctions they otherwise would have won and they
will receive less revenue from auctions they do win. Id. ¶ 66. Meanwhile, the
consumer plaintiffs will face higher utilities bills as Commonwealth Edison
Company and Amaren Illinois increase retail charges pursuant to the automatic
At current wholesale prices, for every megawatt hour of energy the subsidized nuclear
plants sell into the FERC-jurisdictional market, they will receive the locational price of
energy (approximately $18 and $25 per MWh at Quad Cities and Clinton, respectively),
plus a ZEC payment subsidy (approximately $16.50 in 2017, with possible increases in
future years).  ¶ 7.
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adjustment tariffs.15 17-cv-1163,  ¶ 2 (citing 20 ILCS 3855/1-75(d-5)(1)(B) and
Plaintiffs seek to invalidate the ZEC program by arguing that it is preempted
by the Federal Power Act and that it violates the dormant commerce clause. See 
¶¶ 76–93. The consumer plaintiffs also allege that the program denies them the
equal protection of federal laws governing the wholesale electricity markets, in
violation of the Fourteenth Amendment. 17-cv-1163,  ¶¶ 88–94.
Article III of the United States Constitution limits federal court jurisdiction
to “cases” and “controversies.” U.S. Const., art. III, § 2. To establish constitutional
standing, plaintiffs must show an “injury in fact” that is “fairly traceable” to the
defendant’s conduct and that is “likely to be redressed by a favorable judicial
decision.” Spokeo, Inc. v. Robins, 136 S. Ct. 1540, 1547 (2016), as revised (May 24,
2016). At the pleading stage, the plaintiffs must clearly allege facts that
demonstrate each element. Id. To establish “prudential”16 or statutory standing,
plaintiffs must show that the statutory cause of action encompasses the plaintiffs’
claim. Bank of Am. Corp. v. City of Miami, Fla., 137 S. Ct. 1296, 1302 (2017). The
presumption is that “a statutory cause of action extends only to plaintiffs whose
Commonwealth Edison Company, a subsidiary of Exelon, filed a proposed tariff
modification with the ICC, which will allow Commonwealth Edison Company to bill all
retail customers a ZEC charge of 0.195 cents per kilowatt hour beginning June 1, 2017. 17cv-1163,  at 2; [65-1]. One of the consumer plaintiffs has already received a bill for the
“Zero Emission Standard” charge. 17-cv-1163,  at 2.
See Lexmark International v. Static Control Components, 134 S. Ct. 1377, 1386 (2014)
(describing the “prudential” label as misleading).
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interests ‘fall within the zone of interests protected by the law invoked.’” Lexmark
Int’l, Inc. v. Static Control Components, Inc., 134 S. Ct. 1377, 1388 (2014). Courts
use “traditional tools of statutory interpretation” to decide whether a plaintiff is
within the zone of interests and therefore has statutory standing. Bank of Am., 137
S. Ct. at 1303. The inquiry is not whether Congress should have authorized the
plaintiff’s cause of action, but whether Congress in fact authorized it. Lexmark, 134
S. Ct. at 1388 (“Just as a court cannot apply its independent policy judgment to
recognize a cause of action that Congress has denied, [. . .] it cannot limit a cause of
action that Congress has created merely because ‘prudence’ dictates.”).
The Generator Plaintiffs Do Not Have Article III Standing to
Challenge the Price Adjustment
The generator plaintiffs take issue with the price adjustment feature of the
ZEC program.  at ¶ 63. The plaintiffs argue that the state has tied, or tethered,
its subsidies to auction prices and participation in a manner that is preempted by
federal law. The price adjustment is characterized as a “price collar,” since it
ensures that the ZEC price decreases if wholesale market prices increase, up to a
limit, and it increases if wholesale market prices decrease.  at 24, 27 (citing  ¶ 40).17 A price collar insulates ZEC recipients from changes in wholesale market
prices, the generator plaintiffs argue. As Exelon points out, though, eliminating the
“The amount of the ZEC payment received by a generator will thus fluctuate between $0
and $16.50/MWh, depending on future wholesale energy and capacity prices in Illinois. A
participating nuclear generator (i.e., Exelon) will receive no ZEC payments in a given
delivery year if projected energy and capacity prices in Illinois rise above $47.90/MWh for
that year (= $31.40 baseline market index + $16.50 SCC). Within these two bookends, the
ZEC payment varies in a formulaic way based on current and projected wholesale energy
and capacity prices.” [38-3] ¶ 39.
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price adjustment feature would leave in place a fixed ZEC price that is equal to the
Social Cost of Carbon. This would create a larger subsidy for ZEC recipients, which
would cause more harm to the generator plaintiffs, under their theory. The injury
caused by the ZEC subsidy is not traceable to the price adjustment, because that
injury would exist even if the statute were cured of its ties to wholesale auction
prices. See Johnson v. U.S. Office of Pers. Mgmt., 783 F.3d 655, 661–62 (7th Cir.
The generator plaintiffs argue that Johnson is distinguishable from their
case because the plaintiffs in Johnson were injured by amendments to a different
rule than the one they were challenging, whereas the generator plaintiffs challenge
the same regulation that they allege injured them. What the generator plaintiffs
gloss over, however, is that the court rejected the argument that a plaintiff has
standing to challenge a rule as a whole simply because that rule is “indivisible” and
one part of the rule injured the plaintiff. Id. at 662–63. The court reasoned that
“demonstrating an injury caused by one aspect of a legislative action [is] not
sufficient to give [. . .] standing to challenge other aspects of that action.” Id. at 662.
The generator plaintiffs do not have standing to challenge the ZEC program’s price
But the generator plaintiffs have alleged an injury by a ZEC priced at the
Social Cost of Carbon, and that injury is traceable to an aspect of the challenged
statute—the creation of a minimum subsidy that rewards a nuclear power plant
and leads to subsidized participation in the federally regulated market. A court
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order prohibiting enforcement of the ZEC program altogether would redress that
injury. See Allco Fin. Ltd. v. Klee, No. 16-2946, 2017 WL 2782856, at *8–9 (2d Cir.
June 28, 2017). The generator plaintiffs present a case or controversy over the ZEC
The Consumer Plaintiffs Do Not Have Prudential Standing
for Preemption Claims
The states have the power to regulate retail sales of electricity and to impose
charges on retail bills. Nevertheless, the consumer plaintiffs challenge the ZEC
program on preemption grounds, arguing that they will be harmed by the resulting
charges on their utility bills and that their payments will be used by utilities to
purchase ZECs. 17-cv-1163,  ¶¶ 9, 11–12. Since the ZEC program authorizes
utilities to recover its costs from all retail customers through an “automatic
adjustment clause tariff,” the consumer plaintiffs note that even customers who
purchase electricity from competitive suppliers and not the utilities will see
increased charges. Id. ¶¶ 52, 62.
The consumer plaintiffs are injured by the ZEC charges on their bills, which
are traceable to the Illinois statute and would be redressed if the charges were
prohibited. They have Article III standing, but that does not mean that they can
bring preemption claims under the Federal Power Act. Courts look to the provision
upon which the plaintiff relies, not the overall purpose of the legislation in question,
to determine if the plaintiffs’ interest is within the statute’s zone of interests.
Bennett v. Spear, 520 U.S. 154, 175–76 (1997). The consumer plaintiffs’ complaint
refers to 16 U.S.C. §§ 824 and 824d. Section 824 states that “the business of
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transmitting and selling electric energy for ultimate distribution to the public is
affected with a public interest,” and that while federal regulation “of the
transmission of electric energy in interstate commerce and the sale of such energy
at wholesale in interstate commerce” is necessary, it should not extend to matters
that are subject to regulation by the states. 16 U.S.C. § 824(a). The consumer
plaintiffs’ claim is expressly excluded from § 824’s interests because the states have
the power to regulate retail sales of electricity and impose retail charges that are
subject to state regulation.
Although § 824d is titled, “Rates and charges; schedules; suspension of new
rates; automatic adjustment clauses,” it refers only to FERC’s authority and
obligation to ensure that wholesale electricity rates, and the rules and regulations
affecting them, are “just and reasonable.” 16 U.S.C. § 824d. It describes what public
utilities may and may not do with respect to charges, but those directives refer to
FERC as the enforcer. Id. § 824d(b)–(e). Section 824d also provides that FERC must
review public utilities’ practices under automatic adjustment clauses and, after an
evidentiary hearing, FERC may order a public utility to modify the terms or
practices in connection with an automatic adjustment clause. Id. § 824d(f).
Section 824d does not grant similar authority or establish any such obligation on
public utilities or retail consumers. Given that the consumer plaintiffs’ injury
involves the retail surcharge, their interests are outside of the zone of interests of
the federal statutes. See Nw. Requirements Utils. v. F.E.R.C., 798 F.3d 796, 809 (9th
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Plaintiffs Do Not Have Article III Standing for Dormant
Commerce Clause Claims
“[A] plaintiff must demonstrate standing for each claim he seeks to press.
This means that, for each claim of wrongdoing alleged, a plaintiff must
demonstrate [. . .] that he has suffered (or is imminently threatened with) an injury
that is traceable to the wrongdoing alleged in that particular claim.” Johnson, 783
F.3d at 661 (internal citations omitted) (emphasis original). The dormant commerce
clause challenges raise a standing issue distinct from the other claims. The injuries
are similar—the market impact on wholesale prices and increased rates passed onto
consumers—but if those harms are not traceable to discrimination against the
commerce of other states, then plaintiffs do not present a case or controversy under
the dormant commerce clause.
The generator plaintiffs say the ZEC program favors the Clinton and Quad
Cities nuclear plants (because of the weighted factors in the ZEC procurement
process), and thereby discriminates against non-Illinois nuclear generators.  ¶ 90.
But the injury to the generator plaintiffs is from the ZEC subsidy, not the identity
of the ZEC recipient.18 If the procurement process were non-discriminatory, the out-
One of the members of plaintiff EPSA is a nuclear plant in Pennsylvania, [38-3] at 47
n.93, and it claims that it is injured by not being able to receive ZECs. Although this
allegation was not in the complaint, I do consider it. This entity is more likely to have an
injury traceable to in-state favoritism, but it does not allege that it intends to seek ZECs or
that it is in fact prohibited from participating in the ZEC procurement process. Its injury,
then, is like the other generator plaintiffs’. It is harmed by the subsidy, whether or not that
subsidy is awarded on the basis of in-state economic protectionism. Moreover, EPSA brings
this action “as an organization,” see  ¶ 15 n.3, so this additional fact about one of its
members does not change the organization’s discrimination theory, and it remains true that
the allegations in the complaint are insufficient to confer standing for the dormant
commerce clause claims.
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of-state, non-nuclear plaintiffs would still be injured. Similarly, the general marketdistorting effects on non-nuclear plants outside of Illinois would still be felt if the
ZEC procurement process subsidized nuclear plants without favoring in-state
interests. Finally, the retail surcharges passed onto the consumer plaintiffs would
be the same even if the utilities purchased ZECs from out-of-state facilities.
The generator plaintiffs respond that they have alleged an inability to
compete “on equal footing” in the interstate market and that courts have found
Article III standing for similarly injured plaintiffs. See All. for Clean Coal v. Miller,
44 F.3d 591, 594 (7th Cir. 1995) (quoting Ne. Florida Chapter of Associated Gen.
Contractors of Am. v. City of Jacksonville, Fla., 508 U.S. 656, 666 (1993)). But in
these cases, the discrimination against out-of-state plaintiffs caused the injury;
here, favoritism for Clinton and Quad Cities is a feature of the overall legislation,
but it is not the source of the injury. The plaintiffs’ “injur[ies] would continue to
exist even if the [legislation] were cured” of the alleged discrimination. Johnson, 783
F.3d at 662. Regardless of whether ZEC recipients are in Illinois or not, the
generator plaintiffs’ injury from lower wholesale prices remains the same, and the
consumer plaintiffs will receive higher bills. Since plaintiffs’ injuries are not
traceable to the alleged in-state favoritism, they do not have Article III standing to
I do not reach Exelon’s arguments that plaintiffs do not fall within the zone of interests of
the dormant commerce clause. I note, however, that the consumer plaintiffs are not like the
plaintiffs in Gen. Motors Corp. v. Tracy, 519 U.S. 278, 286 (1997). The plaintiffs in Tracy
were directly burdened by the challenged law. The consumer plaintiffs here are not the
direct target of discrimination by the ZEC program; their activity in interstate commerce is
not altered by Illinois’s statute. The consumer plaintiffs also argue that since the ZEC
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The plaintiffs’ preemption and dormant commerce clause claims are, in large
part, not justiciable. But since the generator plaintiffs have adequately alleged
standing to challenge the ZEC program in part, and since the consumer plaintiffs
bring an equal protection claim (the increased electricity rates they will pay give
them standing to bring such a claim), the cases do present controversies that are
within the judicial power to adjudicate. I therefore address the merits of defendants’
motions to dismiss for failure to state a claim. But see Freedom From Religion
Found., Inc. v. Obama, 641 F.3d 803, 805 (7th Cir. 2011) (citing Steel Co. v. Citizens
for a Better Env’t, 523 U.S. 83, 101–02 (1998) (courts must not reach the merits if
standing is lacking).
The Preemption Cause of Action
The ability to sue to enjoin unconstitutional actions by state or federal
officers is a judge-made remedy that does not rest on an implied right of action in
the supremacy clause. Armstrong v. Exceptional Child Ctr., Inc., 135 S. Ct. 1378,
1384 (2015). While federal courts retain the power to enjoin such unlawful action,
that power is subject to express and implied statutory limits. Id. at 1385.
In Armstrong, the Supreme Court considered § 30(A) of the Medicaid Act, 42
U.S.C. § 1396a(30)(A), and found that Congress explicitly conferred enforcement of
a “judgment-laden standard” exclusively on the Secretary of Health and Human
Services, and held that plaintiffs could not bring a private right of action to enforce
program provides for an automatic pass-through of the costs, it harms the consumers and
not the utilities, which are mere conduits. But, it does not follow from the automatic passthrough of costs that the utilities have no injury and no standing. See Bacchus Imports, Ltd.
v. Dias, 468 U.S. 263, 267 (1984) (wholesalers paying a discriminatory tax have standing to
challenge the tax even though they pass the costs of the tax onto their customers).
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the act. Id. at 1385. Specifically, the Court explained: “[t]he sheer complexity
associated with enforcing § 30(A), coupled with the express provision of an
administrative remedy, § 1396c, shows that the Medicaid Act precludes private
enforcement of § 30(A) in the courts.” Id. Plaintiffs distinguish the Federal Power
Act from § 30(A) of the Medicaid Act by arguing that the Federal Power Act does not
provide a sole remedy and it expressly gives district courts exclusive jurisdiction over
“all suits in equity and actions at law.”  at 42 (citing 16 U.S.C. § 825p). The act does
not expressly prohibit a private suit for injunctive relief, but that is not the only way for
Congress to signal a limitation on judicial power, and the cause of action it did
authorize does not provide the answer plaintiffs suggest. Section 825p of the Federal
Power Act gives district courts jurisdiction over suits that FERC is authorized to bring
under § 825m(a), but such vesting jurisdiction in the district courts does not create a
private cause of action. See Montana-Dakota Utilities Co. v. Nw. Pub. Serv. Co., 341
U.S. 246, 249 (1951).
Plaintiffs’ preemption claims do not constitute “proper cases” for private suits for
injunctive relief. See Armstrong, 135 S. Ct. at 1384. First, “where Congress has
prescribed a detailed remedial scheme for the enforcement against a State of a
statutorily created right, a court should hesitate before casting aside those limitations
and permitting an action against a state officer based upon Ex parte Young.” Seminole
Tribe of Florida v. Florida, 517 U.S. 44, 74 (1996); see also Ex parte Young, 209 U.S.
123 (1908). In the wholesale electricity markets arena, parties can bring a
complaint to FERC if they believe a practice interferes with the markets or creates
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unjust or unreasonable rates or practices20; FERC can take corrective actions to
ensure that wholesale rates and practices remain just and reasonable; and parties
that disagree with FERC’s decision can seek review in the circuit courts. 16 U.S.C.
§§ 824d(e), 824e(a), 824l(b). Relatedly, if FERC discovers that rates or the practices
affecting rates are unjust or unreasonable, it is expressly authorized to bring an
action in federal court to enjoin such acts or practices. 16 U.S.C. § 825m(a). Express
provisions, such as these, which provide for the enforcement of a substantive rule,
signal Congress’s intention to preclude other methods of enforcing the same
substantive rule. Armstrong, 135 S. Ct. at 1385 (quoting Alexander v. Sandoval, 532
U.S. 275, 290 (2001)).
Additionally, Congress provided a private cause of action under the Federal
Power Act in the Public Utility Regulatory Policies Act. The act authorizes a private
cause of action to challenge state rules governing small power production facilities if
the private party had already petitioned FERC to bring suit itself. 16 U.S.C. § 824a3(h)(2)(B). By its terms, the act does not apply to this case. It demonstrates,
however, Congress’s intention to create only a limited private remedy in the Federal
Power Act. As Exelon asserts, the omission of a general private right of action in the
Federal Power Act should, therefore, be understood as intentional. See also
Massachusetts Mut. Life Ins. Co. v. Russell, 473 U.S. 134, 147 (1985) (“[W]here a
statute expressly provides a particular remedy or remedies, a court must be chary of
Exelon points out that some plaintiffs have already brought such a complaint to FERC.
[53-1] at 35 n.12. FERC does not have a quorum,  at 2, so it is not surprising that
plaintiffs look to the courts. But FERC’s current paralysis does not change the structural
limitations on judicial power.
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reading others into it.” (citation omitted)). It also shows that even when Congress
chose to create a private cause of action in the Federal Power Act, it required
administrative exhaustion, see 16 U.S.C. § 824a-3(h)(2)(B), which would suggest
that plaintiffs’ failure to exhaust here is also problematic. Finally, a coherent
regulatory policy for interstate electricity markets is a desirable outcome, and it is
one that private suits undermine. See Armstrong, 135 S. Ct. at 1385. Following the
reasoning of Armstrong, I conclude that the Federal Power Act does not authorize a
private cause of action for injunctive relief against the defendants.
Plaintiffs argue that this court can issue a declaratory judgment or an
injunction against defendants in their official capacities under Ex parte Young. The
doctrine of Ex parte Young provides a narrow exception to Eleventh Amendment
immunity for claims brought against state officers in their official capacities if the
complaint seeks prospective injunctive relief in order to end a continuing federal
law violation. Seminole, 517 U.S. at 73. Ex parte Young actions historically involved
a party bringing a preemptive action against a state official, to challenge a possible
enforcement proceeding under state law. See Virginia Office for Prot. & Advocacy v.
Stewart, 563 U.S. 247, 262 (2011) (Kennedy, J., concurring). Plaintiffs agree that
they are not the potential target of any state enforcement proceedings. That leaves
the prospect of an Ex parte Young-style equitable action discussed in Armstrong,
135 S. Ct. at 1385. Such an action is foreclosed if it would require the application of
“judicially unadministrable” standards. Id.
The Federal Power Act directs FERC to ensure that wholesale electricity
rates, and the rules and practices affecting those rates, are “just and reasonable.” 16
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U.S.C. § 824e(a). This is the kind of “judgment-laden” standard that is “judicially
unadministrable.” Armstrong, 135 S. Ct. at 1385; see also Montana-Dakota Utilities,
341 U.S. at 251 (“Statutory reasonableness is an abstract quality represented by an
area rather than a pinpoint. It allows a substantial spread between what is
unreasonable because too low and what is unreasonable because too high. To reduce
the abstract concept of reasonableness to concrete expression in dollars and cents is
the function of [FERC].”).
Plaintiffs insist that the relief they seek is not judicially unadministrable
because they are “ask[ing] the Court only to decide whether, as in Hughes, a state
regulatory program ‘impermissibly intrudes upon the wholesale electricity market, a
domain Congress reserved to FERC alone.’”  at 43 (citing Hughes v. Talen Energy
Mktg., LLC, 136 S. Ct. 1288, 1292 (2016)). But, the parties in Hughes did not challenge
whether the plaintiffs were entitled to seek declaratory relief under the Supremacy
Clause, so the Court “assume[d] without deciding that they may.” 136 S. Ct. at 1296
n.6. Therefore, citing to Hughes on this point does not advance plaintiffs’ claim.
Furthermore, as Exelon argues, as a practical matter, plaintiffs are asking the court
to do more than just declare the ZEC program unlawful. While it may be possible to
simply declare a program preempted and enjoin it in its entirety, the gist of
plaintiffs’ claims requires more. Plaintiffs agree that states can affect the wholesale
market by subsidizing local industry, but they argue that this program distorts the
market too much.  at 12, 38. The declaration sought by plaintiffs would require
a court to draw some lines, to give the state direction on how not to interfere with
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wholesale rates while acting within its undisputed authority to regulate, and once a
court enters that arena, it treads on FERC’s exclusive expertise.
Plaintiffs cannot bring an equitable cause of action to enjoin the ZEC
program on the basis of preemption.21
Federal Power Act Preemption
Preemption of a state law by federal law may be express or implied; it “is
compelled whether Congress’ command is explicitly stated in the statute’s language
or implicitly contained in its structure and purpose.” Shaw v. Delta Air Lines, Inc.,
463 U.S. 85, 95 (1983) (citation omitted). Implied preemption takes two forms: field
preemption, “where it regulates conduct in a field that Congress intended the
Federal Government to occupy exclusively,” and conflict preemption, where “state
law is pre-empted to the extent that it actually conflicts with federal law.” English
v. Gen. Elec. Co., 496 U.S. 72, 79 (1990). Preemption results from congressional
action and agency action when the federal agency acts within the scope of its
authority. Louisiana Pub. Serv. Comm’n v. F.C.C., 476 U.S. 355, 369 (1986).
The plaintiffs argue that Illinois’s ZEC program is preempted by the Federal
Power Act and FERC’s exclusive authority. The parties rely on and discuss at
length three Supreme Court cases: Oneok, Inc. v. Learjet, Inc.,22 F.E.R.C. v. Elec.
Power Supply Ass’n,23 and Hughes,24 as well as one FERC decision: WSPP.25
I nevertheless reach the merits of plaintiffs’ preemption claims, in the event their claims
can be read to seek a blanket injunction with no reference to the reasonableness of
135 S. Ct. 1591 (2015).
136 S. Ct. 760 (2016) as revised (Jan. 28, 2016).
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In Oneok, the Supreme Court warned courts to proceed cautiously when
considering a state law that may apply to energy sales within the federal agency’s
jurisdiction, and find “pre-emption only where detailed examination convinces [the
court] that a matter falls within the pre-empted field as defined by our precedents.”
135 S. Ct. at 1599. Like earlier cases, Oneok reiterated “the importance of
considering the target at which the state law aims in determining whether that law
is pre-empted.” Id. (emphasis original). Oneok upheld an antitrust law that a state
applied to regulate wholesale gas prices, which inevitably affected the wholesale
market, because its purpose was to combat antitrust violations, not regulate
wholesale prices. Id. at 1599–60.
Defendants assert that under Oneok, FERC does not have exclusive
jurisdiction over everything that affects wholesale sales or rates. Since Oneok
rejected the argument that state laws affecting wholesale rates or sales are field
preempted, defendants conclude that the Federal Power Act does not impliedly
occupy the entire field of things affecting wholesale rates or sales. Plaintiffs
acknowledge that laws “aimed at ‘subjects left to the States to regulate,’ such as
generally applicable state antitrust laws, blue sky laws, tax laws, and recycling
laws, are not field preempted because their impact on interstate wholesale rates is
incidental or indirect.”  at 22 (citing Oneok, 135 S. Ct. at 1600–01). But,
plaintiffs argue that the ZEC program is not a broadly applicable law because ZECs
are only available to specifically selected, non-viable nuclear plants, as determined
136 S. Ct. 1288.
139 FERC ¶ 61061 (Apr. 20, 2012).
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by the Illinois Power Agency.26 Moreover, they believe that the program was aimed
at the wholesale market, because the point of the ZECs is to keep the nuclear power
plants generating electricity for sale into the wholesale market.
Plaintiffs’ theory that the ZEC program is preempted because it intends to
alter the outcomes of the wholesale auctions is not supported by Oneok or Northwest
Central Pipeline Corporation v. State Corporation Commission of Kansas, 489 U.S.
493 (1989), on which Oneok relied. Northwest Central upheld state regulation that
was “[d]esigned as a counterweight to market, contractual, and regulatory forces,”
and it expressly rejected a version of plaintiffs’ argument: “To find field pre-emption
of [state] regulation merely because purchasers’ costs and hence rates might be
affected would be largely to nullify that part of NGA § 1(b) that leaves to the States
control over production” because “there can be little if any regulation of production
that might not have at least an incremental effect on the costs of purchasers in
some market and contractual situations.” 489 U.S. at 497, 514. Oneok does not
stand for the proposition that a state law that regulates generation is invalid if the
state knew the law would affect the wholesale market.
States may influence, through regulation, which generators participate in
FERC’s market, even though the end result may affect the wholesale market.
Plaintiffs do not dispute that REC programs, tax incentives, and carbon taxes,
which are within the states’ jurisdiction, are lawful. See  at 26 n.12, 31–32. REC
The ZEC program does not expressly exclude any generators from applying. It describes a
detailed bid selection process and the criteria that will be considered in that process, but
plaintiffs do not explain how those or other provisions lead to the conclusion that the ZEC
program does not apply broadly.
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programs and tax incentives encourage renewable generators to produce, while
carbon taxes discourage fossil fuel generation. Similarly, the ZEC program is aimed
at a certain type of electricity generation facilities. Although the ZEC program will
affect wholesale electricity rates, those rates were not its target27; thus, the general
rule supplied by Oneok (and Northwest Central) does not require preemption.
The parties agree that EPSA defined FERC’s exclusive jurisdiction as that
which “directly affects” the wholesale rate.  at 19;  at 27–28; see also 136 S.
Ct. 760. The Supreme Court explained:
FERC has the authority [. . .] to ensure that rules or practices
‘affecting’ wholesale rates are just and reasonable. [. . .] [T]hat
statutory grant could extend FERC’s power to some surprising
places. [. . .] So if indirect or tangential impacts on wholesale
electricity rates sufficed, FERC could regulate now in one
industry, now in another, changing a vast array of rules and
practices to implement its vision of reasonableness and justice.
We cannot imagine that was what Congress had in mind. For
that reason, [. . .] we now approve, a common-sense construction
of the [Federal Power Act]’s language, limiting FERC's
‘affecting’ jurisdiction to rules or practices that ‘directly affect
the [wholesale] rate.’
EPSA, 136 S. Ct. at 774 (citation omitted).
Plaintiffs allege that ZECs, by providing out-of-market payments, effectively
replace the auction clearing price, and they argue that EPSA should not be read to
limit FERC’s jurisdiction to only those transactions that establish the amount of
money a purchaser will hand over in exchange for wholesale power. Plaintiffs also
Defendants note that while plaintiffs argue that the statute’s stated purpose was pretext,
the complaint does not allege that the statute’s true aim or purpose was to adjust or
disregard wholesale rates. Instead, plaintiffs allege that its actual purpose was to save jobs
and generate local tax revenues. See  ¶ 58.
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argue that “a state regulation that substantially affects the quantity or terms of
wholesale sales is preempted.”  at 28 n.14 (citing Mississippi Power & Light Co.
v. Mississippi ex rel. Moore, 487 U.S. 354, 371 (1988); Schneidewind v. ANR Pipeline
Co., 485 U.S. 293, 307–08 (1988); N. Nat. Gas. Co. v. State Corp. Comm’n of Kan.,
372 U.S. 84, 90–93 (1963); PPL EnergyPlus, LLC v. Nazarian, 753 F.3d 467, 477
(4th Cir. 2014), aff’d sub nom. Hughes, 136 S. Ct. 1288).
EPSA stands for the opposite of what plaintiffs describe. First, EPSA defined
rate-setting as establishing the amount of money a purchaser will “hand over in
exchange for [wholesale] power.” EPSA, 136 S. Ct. at 777. Second, EPSA expressly
rejected the argument that a law could “effectively” regulate wholesale rates when
it did not do so “nominal[ly]”; the Supreme Court reasoned that such an argument
made “[t]he modifier ‘effective’ [do] more work than any conventional understanding
of rate-setting.” Id. Nothing in the Federal Power Act, the Court said, even
“suggest[ed]” that “expansive” of a definition of rate-setting. Id. at 777–78.
Furthermore, as Exelon notes, EPSA explained that FERC cannot take action that
transgresses states’ authority over generation, “no matter how direct, or dramatic,”
the program’s “impact on wholesale rates.”  at 19 (quoting 136 S. Ct. at 775, 780
EPSA recognized that wholesale and retail markets in electricity cannot be
“hermetically sealed” from one other. 136 S. Ct. at 776. As a result, transactions in
the wholesale market will have “natural consequences” at the retail level, as will
FERC’s regulation of wholesale matters. Id. Although the opinion addressed a
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question of FERC encroaching on the state, the analysis applies equally to the
states encroaching on FERC. Thus, under EPSA, a state regulation that
substantially affects the quantity and terms of wholesale sales is not necessarily
preempted. Id. (“[A] FERC regulation does not run afoul of § 824(b)’s proscription
just because it affects—even substantially—the quantity or terms of retail sales.”).
The key inquiry is whether FERC or the state is regulating what takes place in
their respective markets, because when the state regulates what takes place in the
retail market, in furtherance of its charge to improve that market, then the effect on
wholesale rates is irrelevant. Id. (“whatever the effects at the retail level,” when
“every aspect of the regulatory plan happens exclusively on the wholesale market
and governs exclusively that market’s rules” there is no preemption).
Hughes involved a state regulatory program that provided subsidies through
state-mandated contracts benefitting new generators on the condition that the new
generator would sell its capacity into a FERC-regulated wholesale auction. 136 S.
Ct. at 1292. Competitors of the new generators brought suit, and ultimately, the
Supreme Court held that the state’s regulatory scheme invaded FERC’s exclusive
jurisdiction. Id. The Court’s holding was “limited”:
We reject Maryland’s program only because it disregards an
interstate wholesale rate required by FERC. [. . .] Nothing in
this opinion should be read to foreclose Maryland and other
States from encouraging production of new or clean generation
through measures ‘untethered to a generator’s wholesale market
participation.’ So long as a State does not condition payment of
funds on capacity clearing the auction, the State’s program
would not suffer from the fatal defect that renders Maryland's
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Id. at 1299 (internal citations omitted). Based on this passage, defendants and
Exelon argue that the ZEC program is distinguishable from the regulatory scheme
that Hughes rejected. They argue that because the ZEC program exclusively
regulates separate sales of credits that represent environmental benefits of nuclear
power generation and it does not regulate the rate or transaction terms of wholesale
power, the program does not run afoul of Hughes.
Plaintiffs respond that Hughes is not distinguishable because the facilities’
receipt of ZECs is conditioned on their participation in the wholesale auction.
Plaintiffs explain that generators can only receive ZECs if they produce electricity
and they can only dispose of that electricity by selling it in the wholesale auctions;
and since generators have to dispose of electricity to be able to make more, they
have to sell electricity to the wholesale auctions to continue receiving ZECs.
According to plaintiffs, Hughes “[cannot] be read to allow state measures that in
reality intrude on exclusive federal jurisdiction just because they do not contain
express language to that effect. A de facto implicit requirement is enough.”  at
23 n.10 (citing N.J. Realty Title Ins. Co. v. Div. of Tax Appeals in Dep’t of Taxation
& Fin. of N.J., 338 U.S. 665, 673 (1950); Retail Indus. Leaders Ass’n v. Fielder, 475
F.3d 180, 192–95 (4th Cir. 2007); S. Dakota Min. Ass’n, Inc. v. Lawrence Cty., 155
F.3d 1005, 1011 (8th Cir. 1998); Blue Circle Cement, Inc. v. Bd. of Cty. Comm’rs of
Cty. of Rogers, 27 F.3d 1499, 1508 (10th Cir. 1994)).28
In these cases, the state effectively prohibited conduct that federal law authorized.
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PJM requires all generators in its region to offer their capacity into the PJM
capacity auction; if a generator’s capacity clears, PJM requires the generator to sell
into PJM’s energy market.29 Since the ZECs provide insufficient revenue to support
the plant, PJM argues in its amicus brief, “the nuclear plant must offer below its
real costs to ensure it clears the wholesale auction,” which gives them revenue from
the auction in addition to revenue from future ZECs for continued operation.  at
12. Finally, PJM argues that because PJM requires generators to participate in the
wholesale markets, the ZEC program did not need to include a condition similar to
the one included in Hughes; therefore, in practice, the ZEC program is not
distinguishable from the regulatory scheme in Hughes.
Illinois does not require participation in wholesale auctions in order to
receive ZECs. PJM requires participation in the capacity auction, but generators
are not required to clear that auction. In fact, they can receive ZECs even if they do
not clear the capacity auction and even if they do not participate in the energy
auction. Generators in MISO’s region are not required to participate in or clear any
auctions in order to receive ZECs.30 It is true that: (1) bid stacking creates an
incentive for generators to submit low enough bids to clear the auction so that they
can offload their supply; and (2) ZEC-selling generators will have an additional
PJM “is exploring” ways to change its participation requirement to “remove subsidized
resources from the price formation process and thus accommodate state subsidies in a
manner that might be acceptable to FERC and PJM’s stakeholders.”  at 12 n.6.
Plaintiffs argue that because Clinton is designated as an Exempt Wholesale Generator
under the Public Utility Holding Company Act, 42 U.S.C. § 16451 et seq., it can only sell its
electricity in MISO’s wholesale auction. But, Clinton could forego its EWG status and seek
ICC approval to sell its energy at retail, and then it would no longer be limited to selling its
electricity in MISO’s wholesale auctions.
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incentive to clear the auction, and therefore, they are perhaps more likely to submit
low bids. Nevertheless, the ZEC program does not mandate auction clearing in PJM
or MISO, and the state, while taking advantage of these attributes to confer a
benefit on nuclear power, is not imposing a condition directly on wholesale
Plaintiffs also argue that the ZEC program is analogous to the state
regulatory scheme in Hughes because ZECs are “tethered” to the generators’
wholesale market participation through the program’s price adjustment feature.
 at 24. As discussed above, the initial price of ZECs (the Social Cost of Carbon)
has nothing to do with wholesale prices. See 20 ILCS 3855/1-75(d-5)(1)(B). The price
adjustment allows the price of ZECs to fall below that initial price, and the amount
by which it decreases is calculated using a composite of projected prices from the
energy and capacity markets; therefore, even an adjusted ZEC price is not based on
the wholesale price a ZEC recipient receives. Id. § 1-75(d-5)(1)(B). These projected
and composite prices are not within FERC’s jurisdiction. Thus, the “tether” in this
case is not to wholesale participation or transactional pricing; the tether is to
broader, indirect wholesale market forces.
Read together, EPSA and Hughes stand for the proposition that preemption
applies whenever a tether to wholesale rates is indistinguishable from a direct
effect on wholesale rates. The qualifier “direct” is important; influencing the market
See Allco, No. 16-2946, 2017 WL 2782856, at *10 (rejecting a claim that a state program
compelled wholesale transactions where the program directed certain contracts, but did not
guarantee that the wholesale transaction would occur).
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by subsidizing a participant, without subsidizing the actual wholesale transaction,
is indirect and not preempted. Since a generator can receive ZECs for producing
electricity and the credits are not directly conditioned on clearing wholesale
auctions, ZEC payments do not suffer from the “fatal defect” in Hughes, see 136 S.
Ct. at 1299, nor do they alter the amount of money that is exchanged for wholesale
electricity, see EPSA, 136 S. Ct. at 777. Hughes should not be extended to invalidate
state laws that do not include an express condition, but that in practice (and when
combined with other market forces), have the effect of conditioning payment on
clearing the wholesale auction. That is not the kind of market participation that
worried the Court in Hughes, and to read Hughes to apply to this program would
intrude on the state’s authority to regulate power generation.
RECs are similar to ZECs, and the parties do not suggest that RECs are
preempted. In WSPP, FERC held that when RECs are “unbundled” and sold
independently of electricity, the REC transaction falls outside of FERC’s
jurisdiction. 139 FERC ¶ 61,061, ¶ 24 (2012). FERC reasoned that an REC sale is
“not a charge in connection with a wholesale sale,” and it does not set or even “affect
wholesale electricity rates.” Id. Plaintiffs note that WSPP was not a “sweeping
ruling,” it was an uncontested proceeding that was limited to facts involving RECs;
it does not require this court to reach a similar decision as to ZECs.  at 34. That
is true, but FERC’s conclusion that it is possible to unbundle an environmental
attribute credit from the sale of electricity without stepping on FERC’s toes is
persuasive when applied to ZECs. Illinois’s ZECs, unlike RECs, must be purchased
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by utilities in an amount proportional to their retail sales, which in turn are
proportional to their wholesale electricity purchases, but this does not mean the
ZEC transaction is bundled with wholesale transactions. A bundled, or dependent
transaction is one where a credit sale takes place as part of the same transaction as
a wholesale energy sale. 139 FERC ¶ 61,061, at ¶ 24. The ZEC transactions
required by the Illinois statute are distinct from wholesale energy sales. While not
dispositive, FERC’s acknowledgment that RECs are outside its jurisdiction
indicates that similar programs that authorize transactions in state-created credits
that are distinct from wholesale transactions are not preempted.
Plaintiffs argue that the ZEC program invades FERC’s field of exclusive
jurisdiction because it provides nuclear plants with substantial out-of-market
payments, thereby directly affecting the revenue that nuclear generators will be
paid and effectively replacing the auction clearing price. I conclude, however, that
the ZEC program falls within Illinois’s reserved authority over generation facilities;
Illinois has sufficiently separated ZECs from wholesale transactions such that the
Federal Power Act does not preempt the state program under principles of field
State law that conflicts with federal law is preempted. English, 496 U.S. at
79 (citations omitted). Such conflicts occur where: (1) “it is impossible for a private
party to comply with both state and federal requirements,” or (2) “[the] state law
‘stands as an obstacle to the accomplishment and execution of the full purposes and
objectives of Congress.” Id. Conflict preemption asks whether the state law does
“clear damage” to the goals of federal legislation. Nw. Cent., 489 U.S. at 522
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(“Unless clear damage to federal goals would result, FERC’s exercise of its authority
must accommodate a State’s regulation of production.”).
Plaintiffs contend that the ZEC program conflicts with federal law because it
interferes with the wholesale auction process, which FERC has selected as the
method for establishing just and reasonable rates. A core principle of conflict
preemption is that “courts must be careful not to confuse the ‘congressionally
designed interplay between state and federal regulation,’ [. . .] for impermissible
tension that requires pre-emption under the Supremacy Clause.” Hughes, 136 S. Ct.
at 1300 (Sotomayor, J., concurring) (quoting Nw. Cent., 489 U.S. at 518).
Plaintiffs’ allegations that the ZEC program will affect FERC’s wholesale
auction process do not support a finding that the ZEC program does “clear damage”
to FERC’s goals. The market distortion caused by subsidizing nuclear power can be
addressed by FERC and the interplay between state and federal regulation can
continue to exist.32 Plaintiffs’ theory of conflict preemption is that distorting the
wholesale market conflicts with FERC’s preference for competitive auctions. This is
too broad a theory of preemption and would inappropriately limit state authority.
So long as FERC can address any problem the ZEC program creates with respect to
just and reasonable wholesale rates—and nothing in the complaints suggest that
Not surprisingly, Exelon was opposed to these kinds of subsidies until it was a
beneficiary of them. See  at 37. That it has taken both sides of the policy debate over
subsidies is irrelevant to whether the state-created market distortions at issue here conflict
with federal regulations. There is no dispute that ZECs will affect the market and that
Illinois has created a subsidy that favors certain participants in the wholesale auctions. The
program, however, does not require auction clearing and does not prevent FERC from
setting wholesale rates. Exelon’s biases notwithstanding, Illinois is not in conflict with
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FERC is hobbled in any way by the state statute—there is no conflict. The
complaint certainly alleges that ZECs will cause billions of dollars in market
impact, but it does not allege that FERC is damaged in its ability to determine just
and reasonable rates. The regulatory structure remains unaltered, and FERC’s
power undiminished.33 Consequently, the ZEC program does not conflict with the
Federal Power Act.
The Commerce Clause
The commerce clause provides that Congress shall have power “[t]o regulate
Commerce with foreign Nations, and among the several States.” U.S. Const., art. I,
§ 8, cl. 3. The clause includes an implicit restraint on state authority to regulate
interstate commerce, even in the absence of a conflicting federal statute. United
Haulers Ass’n, Inc. v. Oneida-Herkimer Solid Waste Mgmt. Auth., 550 U.S. 330, 338
(2007). This dormant commerce clause guards against “the evils of ‘economic
isolation’ and protectionism,” while also “recognizing that incidental burdens on
interstate commerce may be unavoidable when a State legislates to safeguard the
health and safety of its people.” City of Philadelphia v. New Jersey, 437 U.S. 617,
Plaintiffs argue that the subsidies will stand as an obstacle to the federal plan for
competitive wholesale auctions and that Illinois is doing indirectly what it cannot do
directly—adjusting wholesale auction-clearing prices. See Int’l Paper Co. v. Ouellette, 479
U.S. 481, 495 (1987). But indirect effects are permissible under EPSA and Hughes, and, in
my view, the proper articulation of the federal interest here is in setting just and
reasonable wholesale rates. FERC can continue to use all the tools at its disposal to set just
and reasonable rates, and the possible need to react to ZECs is not sufficient to amount to
clear damage to wholesale rate-setting.
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A law that discriminates against interstate commerce on its face, has the
effect of favoring in-state economic interests over out-of-state interests, or harbors a
discriminatory purpose, is subject to a per se rule of invalidity. United Haulers, 550
U.S. at 338. The state may only overcome the per se rule of invalidity by showing
that it has no other means to advance a legitimate local purpose. Id. at 338–39. By
contrast, “[w]here the statute regulates even-handedly to effectuate a legitimate
local public interest, and its effects on interstate commerce are only incidental, it
will be upheld unless the burden imposed on such commerce is clearly excessive in
relation to the putative local benefits.” Pike v. Bruce Church, Inc., 397 U.S. 137, 142
(1970). In balancing the Pike factors, courts consider the nature of the local interest
involved and whether an alternative existed that could promote the local interest
with a lesser impact on interstate commerce. Id. Accordingly, dormant commerce
clause claims, especially of the latter category, turn on a “sensitive, case-by-case
analysis” of the facts, including the “purposes and effects” of the law at issue. See,
e.g., W. Lynn Creamery, Inc. v. Healy, 512 U.S. 186, 201 (1994). Cases involving
facially neutral laws typically require an evidentiary record to be developed before
resolution is possible. See United Haulers, 550 U.S. at 337.
Plaintiffs argue that the state statute discriminates against interstate
commerce on its face because: (1) “ZECs solely benefit certain in-state wholesale
producers of nuclear energy in Illinois, to the disadvantage of out-of-state producers
who compete in the wholesale market,”  at 46 (citing  ¶¶ 58–59); and (2) “the
purported ‘procurement process,’ based on ‘public interest criteria,’ is a sham, as
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Clinton and Quad Cities have been pre-determined to be the ‘winners’ of the ZEC
contracts,” id. (citing  ¶ 59).34 I disagree. The statute is not facially
discriminatory because it does not preclude out-of-state generators from submitting
bids for ZECs. The alleged sham process to select ZEC recipients indicates that the
scales are tipped in favor of Clinton and Quad Cities, but that does not mean that
the agencies charged with selecting the recipients will discriminate. The statute
gives neutral, non-discriminatory standards to the agencies, and plaintiffs do not
allege that the agencies will deliberately flout the ZEC bid-selection process. See
Pac. States Box & Basket Co. v. White, 296 U.S. 176, 186 (1935). Since the complaint
does not include any plausible allegations that the ICC will ignore its statutory
duties, there is no support for the conclusion that the procurement process is
facially discriminatory. See Godfrey v. United States, 997 F.2d 335, 338 n.4 (7th Cir.
1993) (only “clear evidence to the contrary” will persuade a court that “public
officers” have not “properly discharged their official duties”).
Plaintiffs also contend that the statute has the clear effect of favoring in-state
economic interests over out-of-state interests. Assuming that only Illinois nuclear
Plaintiffs say that “[the statute] directs the IPA to consider reports under House
Resolution 1146,” and one such report identifies the Clinton and Quad Cities plants as
plants that will potentially close; this is relevant because preserving zero emission facilities
is a factor in the “public interest” criteria of the bid selection process.  at 46. The same
provision that plaintiffs draw on, however, directs the IPA to consider other reports, some
of which, Exelon argues, are about out-of-state plants. 20 ILCS 3855/1-75(d-5)(1)(C).
Considering such reports does not facially favor in-state plants. Additionally, the ICC and
not the IPA selects the plants that will receive ZECs. Since the ICC may only consider three
neutral environmental criteria—(1) “minimizing carbon dioxide emissions that result from
electricity consumed in Illinois,” (2) “minimizing sulfur dioxide, nitrogen oxide, and
particulate matter emissions that adversely affect the citizens of this State,” and (3) “the
incremental environmental benefits resulting from the procurement,” Id. § 1-75(d-5)(1)(C5)(i)–(ii)—it does not discriminate based on a plant’s geographic location.
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generators are selected, the ZEC program would not be invalid, necessarily, because
there are many ways to explain how a valid program could produce that end. For
example, it is possible that no out-of-state generator will submit a bid, thereby
mooting plaintiffs’ discriminatory effects claim. It is also possible that the ICC will
decide that Illinois generators are in the best position to reduce air pollutants in
Illinois, which would justify a decision to select only Illinois generators. In light of
plaintiffs’ facial challenge, and accepting the allegations of how the program will
work in practice, I conclude that there is a substantial possibility that the statute
will be non-discriminatory in effect.
Plaintiffs also argue that the statute has a discriminatory purpose. They say
that it was enacted for political reasons, to save jobs and property tax revenues tied
to Clinton and Quad Cities. Plaintiffs point to the statements Governor Rauner
made when he signed the bill into law: “The Future Energy Jobs bill protects
taxpayers, ratepayers, and the good-paying jobs at the Clinton and Quad Cities’
plants.”  at 47. Plaintiffs argue that the stated environmental purpose was a
mere pretext; they cite the original version of the statute, which set the ZEC price
as the difference between the nuclear generator’s costs and revenues from energy
and capacity markets.35 Plaintiffs explain that this price formula was changed in
the final version in response to Hughes. Id. (citing 20 ILCS 3855/1-75(d-5)(1)(B)).
Defendants say that the statute was intended to advance public health and
protect the environment by reducing the emissions of air pollutants created by
 at 19 n.7 (citing S.A. 3, S.B. 1585, at 82–83, 99th Gen. Assemb. (Ill. May 12, 2016),
available at http://www.ilga.gov/legislation/99/SB/PDF/09900SB1585sam003.pdf.
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energy generators; it attempts to achieve these goals by offering credits to zeroemission generators. 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.’” Minnesota v. Clover Leaf Creamery Co., 449 U.S. 456, 463 n.7
(1981) (citation omitted). The statute was both environmental legislation and jobsaving legislation. Notwithstanding the allegations of the complaint, the
circumstances surrounding the enactment of the statute do not warrant an
inference of discrimination. Plaintiffs do not cite any language in the legislation
that would support such an inference. 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. 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 statute is not subject to a per se rule of invalidity. Plaintiffs argue that
the ZEC program fails the Pike test because its impacts on interstate commerce far
outweigh any claimed environmental benefits. Specifically, the complaint alleges
that the ZEC program distorts the market by driving out and deterring the entry of
more cost-efficient, environmentally-friendly, out-of-state generators,  ¶¶ 45–50;
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and that the reduction of carbon emissions can be achieved through means that do
not discriminate against interstate commerce, id. ¶¶ 14, 89. Exelon notes that the
state offers a payment through the ZEC program, but the state allows all other
actors to participate in commerce freely, which does not make interstate commerce
more difficult. The commerce clause 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. Hughes v. Alexandria Scrap Corp., 426 U.S. 794, 810 (1976).
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 participate.
Ordinarily, the fact-dependent balancing required to assess a dormant
commerce clause challenge would preclude dismissal under Rule 12(b)(6). But here,
where the complaints allege a state-created commodity that only indirectly burdens
other generators’ ability to compete in wholesale auctions, they fail to state a
dormant commerce clause claim. As a matter of law, the state’s legitimate interests
include not only environmental concerns, see Clover Leaf, 449 U.S. at 471, but also
the right to participate in or create a market, see Alexandria Scrap, 426 U.S. at 810,
and the right to encourage power generation of its choosing, see Hughes, 136 S. Ct.
at 1299. The alleged harm to out-of-state power generators who will be competing in
auctions against subsidized participants is not clearly excessive when balanced
against these weighty and traditional areas of permissible state regulation.
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The Equal Protection Clause
“The Equal Protection Clause of the Fourteenth Amendment commands that
no State shall ‘deny to any person within its jurisdiction the equal protection of the
laws,’ which is essentially a direction that all persons similarly situated should be
treated alike.” City of Cleburne, Tex. v. Cleburne Living Ctr., 473 U.S. 432, 439
(1985) (quoting U.S. Const. amend. XIV). Under the rational basis test, which the
parties agree applies in this case, “the [state’s] action simply ‘cannot run afoul of the
Equal Protection Clause if there is a rational relationship between the disparity of
treatment and some legitimate governmental purpose.’” Smith v. City of Chicago,
457 F.3d 643, 652 (7th Cir. 2006) (quoting Bd. of Trustees of Univ. of Alabama v.
Garrett, 531 U.S. 356, 367 (2001)).
The consumer plaintiffs allege that the ZEC program violates the equal
protection clause because it favors Illinois-based nuclear generators over other
electricity producers by imposing wholesale electricity costs on Illinois consumers
but not on electricity consumers of the several other states in the MISO and PJM
regions. 17-cv-1163,  ¶ 65. They argue that the ZEC program does not pass the
rational basis test because it makes Illinois electricity consumers “second-class
consumers” in the MISO or PJM regions for ten years. 17-cv-1163,  at 19–20
(citing Zobel v. Williams, 457 U.S. 55 (1982); Williams v. Vermont, 472 U.S. 14 (1985);
and Hooper v. Bernalillo Cty. Assessor, 472 U.S. 612 (1985)). Specifically, plaintiffs
argue, “an additional ZEC charge will be added to the bills of Illinois electricity
consumers, but not to bills of electricity consumers in other states in PJM or MISO
even if they purchase electricity generated by Clinton or Quad Cities, for the wholly
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arbitrary reason that Clinton and Quad Cities are located in Illinois.” 17-cv-1163,
 at 20 (emphasis original). The Constitution only requires Illinois to treat
equally the people within its jurisdiction. As such, Illinois does not run afoul of the
Fourteenth Amendment by treating Illinoisans differently from citizens from other
states that live in the MISO or PJM regions. Furthermore, the complaint does not
allege that Illinois could have imposed a surcharge on people in the MISO and PJM
regions that lived outside of Illinois.
The consumer plaintiffs also allege that the ZEC program does not pass the
rational basis test because the stated environmental purpose of the ZEC program
was an attempt to mask the legislature’s true goal of subsidizing the Clinton and
Quad Cities plants and such “[u]ltra vires and unlawful purposes can never be
legitimate government purposes.” 17-cv-1163,  at 21. Yet, “[w]hen dealing with
local economic regulation, ‘it is only the invidious discrimination, the wholly
arbitrary act, which cannot stand consistently with the Fourteenth Amendment.’”
Goodpaster v. City of Indianapolis, 736 F.3d 1060, 1071 (7th Cir. 2013) (citation
omitted). The rational basis test requires courts to presume legislation is valid and
to uphold it as long as there is a rational relation to some legitimate end. Id.
(citation omitted). “Once [the court] identif[ies] a plausible basis for the legislation,
[the] inquiry is at its end.” Id. (citation omitted).
The rational basis for the ZEC program is outlined in § 1.5 of the statute,
which states in relevant part: “The General Assembly therefore finds that it is
necessary to establish and implement a zero emission standard, which will increase
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the State’s reliance on zero emission energy through the procurement of zero
emission credits from zero emission facilities, in order to achieve the State’s
environmental objectives and reduce the adverse impact of emitted air pollutants on
the health and welfare of the State’s citizens.” See SB 2814, Public Act 099-0906,
99th Gen. Assemb. (Ill. 2016).36 These reasons are plausible; accordingly, I look no
further. The consumer plaintiffs do not state an equal protection claim.
Defendants’ and Exelon’s motions to dismiss are granted. The plaintiffs’
claims are dismissed in part for lack of subject-matter jurisdiction and in part for
failure to state a claim. The plaintiffs’ motions for a preliminary injunction are
denied.37 The Clerk shall enter final judgment and terminate these cases.
Manish S. Shah
United States District Judge
Date: July 14, 2017
Available at http://www.ilga.gov/legislation/publicacts/99/099-0906.htm.
Because the complaints fail to state a claim, plaintiffs cannot show a likelihood of success
on the merits and preliminary injunctive relief would not be appropriate. Courts usually
give plaintiffs an opportunity to amend a complaint after a first dismissal. Here, however,
the deficiencies in plaintiffs’ claims cannot be cured with different allegations. These
plaintiffs cannot pursue the legal theories they have articulated (or they do not have
standing to do so). Therefore, I decline to give them leave to amend.
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