|7th Circuit Decision Upholds Illinois ZEC Program|
In a decision issued this week, the U.S. Court of Appeals for the Seventh Circuit upheld Illinois law establishing a zero emissions credit (ZEC) system that subsidizes certain nuclear facilities in the State. The law had been challenged as preempted by the Federal Power Act and FERC jurisdiction.
The Court noted that the Supreme Court's recent decision in Hughes "draws a line between state laws whose effect depends on a utility's participation in an interstate auction (forbidden) and state laws that do not so depend but that may affect auctions (allowed)." The Court said the Illinois ZEC program was on the latter side - "To receive a credit, a firm must generate power, but how it sells that power is up to it. It can sell the power in an interstate auction but need not do so. It may choose instead to sell power through bilateral contracts with users (such as industrial plants) or local distribution companies that transmit power to residences. . . . The zero-emissions credit system can influence the auction price only indirectly, by keeping active a generation facility that otherwise might close and by raising the costs that carbon-releasing producers incur to do business. A larger supply of electricity means a lower market clearing price, holding demand constant. But because states retain authority over power generation, a state policy that affects price only by increasing the quantity of power available for sale is not preempted by federal law."
The Court found that, "Illinois has not engaged in any discrimination beyond what is required by the rule that a state must regulate within its borders. All carbon-emitting plants in Illinois need to buy credits. The subsidy's recipients are in Illinois; so are the payors. The price effect of the statute is felt wherever the power is used. All power (from inside and outside Illinois) goes for the same price in an interstate auction. The cross subsidy among producers may injure investors in carbon releasing plants, but only those plants in Illinois (for the state's regulatory power stops at the border). The combination of Section 824(b)(1) and the absence of overt discrimination defeats any constitutional challenge to the state's legislation."
The full text of the Decision is available on the NEM Website.