906 F.3d 41
2d Cir.2018Background
- In 2016 New York's Public Service Commission adopted a Clean Energy Standard (CES) establishing Zero Emissions Credits (ZECs) to subsidize certain nuclear plants (FitzPatrick, Ginna, Nine Mile Point) to avoid premature retirements and reduce greenhouse-gas emissions.
- ZECs are state-created, unbundled credits representing the zero-emission attribute of 1 MWh; NYSERDA buys ZECs and utilities are required to purchase them (costs may be passed to ratepayers).
- The ZEC price is initially tied to the federal interagency "social cost of carbon," fixed for two-year tranches with possible downward adjustments based on renewable penetration and forecast wholesale prices; ZECs are paid in addition to wholesale energy/capacity market receipts.
- Plaintiffs (competitive generators and trade groups) sued, alleging the ZEC program is preempted by the Federal Power Act (FPA) because it improperly tethers payments to wholesale markets and that it violates the dormant Commerce Clause by favoring in-state generators.
- The district court dismissed under Rule 12(b)(6); the Second Circuit affirmed, holding plaintiffs failed to state plausible field- or conflict-preemption claims and lacked Article III standing for the Commerce Clause claim.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Field preemption under the FPA (Hughes tether theory) | ZECs are effectively tethered to NYISO wholesale prices and thus invade FERC's turf like the Maryland contract-for-differences in Hughes | ZECs are unbundled, fixed (initially tied to social cost of carbon), not conditioned on clearing auctions, and do not guarantee wholesale prices | Held: No field preemption — ZECs are untethered to wholesale-market participation and analogous to permissible state measures (affirmed) |
| Conflict preemption under the FPA | ZECs distort wholesale price signals, depressing clearing prices and obstructing FERC's wholesale-market objectives | States may subsidize or otherwise regulate generation (a traditional state function) even if that incidentally affects wholesale prices; no clear damage to federal goals shown | Held: No conflict preemption — incidental effects on wholesale prices do not create clear obstruction of FERC goals |
| Dormant Commerce Clause (discrimination / undue burden) | ZECs discriminate against out-of-state generators by favoring in-state nuclear plants and burden interstate commerce | The alleged injury is market-wide and not traceable specifically to discriminatory allotment; states retain local regulatory authority | Held: Plaintiffs lack Article III standing to bring the Commerce Clause claim because their asserted injuries are not traceable to the alleged anti‑out‑of‑state discrimination |
| Availability of equitable private FPA relief | Plaintiffs sought equitable relief to enjoin the CES as preempted; defendants argued FPA implicitly forecloses private equity jurisdiction | The panel noted subject-matter jurisdiction exists but found it unnecessary to resolve the equitable‑jurisdiction question because the preemption and standing defects are dispositive | Held: Court did not decide whether FPA forecloses private equity suits; disposition rests on merits/standing failures |
Key Cases Cited
- Hughes v. Talen Energy Mktg., LLC, 136 S. Ct. 1288 (2016) (invalidated state contract-for‑differences that conditioned payment on wholesale auction clearing)
- Northwest Cent. Pipeline Corp. v. State Corp. Comm'n of Kan., 489 U.S. 493 (1989) (upheld state regulation of production even if it indirectly affects interstate rates)
- Northern Natural Gas Co. v. State Corp. Comm'n of Kan., 372 U.S. 84 (1963) (state purchasing requirements that directly regulated interstate pipelines were preempted)
- Oneok, Inc. v. Learjet, Inc., 135 S. Ct. 1591 (2015) (framework for conflict preemption analysis)
- Wyeth v. Levine, 555 U.S. 555 (2009) (clear-and-manifest purpose required to overcome presumption against preemption)
- Pac. Gas & Elec. Co. v. State Energy Res. Conservation & Dev. Comm'n, 461 U.S. 190 (1983) (states retain authority over generation and need for new facilities)
- Allco Finance Ltd. v. Klee, 861 F.3d 82 (2d Cir. 2017) (state procurement of renewable contracts did not amount to regulation of wholesale markets when contracts were bilateral and parties elected to execute them)
- Rochester Gas & Elec. Corp. v. PSC of N.Y., 754 F.2d 99 (2d Cir. 1985) (state retail ratemaking may reflect estimates of wholesale revenues without intruding on FERC jurisdiction)