On September 13, 2018, the Seventh Circuit Court of Appeals upheld an Illinois law, 20 ILSC 3855/1-75(d-5), who provides subsidies to some of the state’s struggling nuclear generation facilities, against a challenge by the Electric Power Supply Association (EPSA), an advocacy group for the electric power industry.
Under the Federal Power Act, the Federal Energy Regulatory Commission (FERC) is authorized to regulate the sale of electricity in interstate commerce while states regulate local distribution of electricity, as well as the facilities used to generate it. In this case, EPSA argued that the Illinois law was preempted by the Federal Power Act because the subsidies indirectly regulated the price of power, which only FERC has the authority to regulate.
The Seventh Circuit explained that the states’ and FERC’s powers under the Federal Power Act often overlap; it would be impossible for states to regulate the local distribution of electricity without at least affecting the price of power within its borders. If a state were to offer subsidies that depended on selling power in interstate auction, then the legislation would be preempted. However, the Illinois law in this case only regulates local generation of power. Thus, the court found no preemption and the law was upheld.
According to a public statement, EPSA appears confident that FERC will intervene and establish rules in support of competitive electricity markets: “Today’s decision confirms that state subsidy programs such as nuclear bailout ZECs can harm wholesale markets . . . FERC told the 7th Circuit the commission can mitigate these negative effects and today’s opinion relies on that representation. EPSA now expects FERC to act promptly . . . to prevent the acknowledged harms state ZEC programs inflict on federally-regulated wholesale power markets.”
Energy providers, on the other hand, found the court’s decision encouraging. Exelon Corporation, which provides power to the largest number of utility customers in the country, issued the following statement in response to the ruling: “We are pleased to see that the 7th Circuit Court upheld the decision, thus supporting the continued operation of Illinois’ ZEC program and the clean, resilient and affordable electricity nuclear power provides.”
Jeremy Fetty is a partner in the law firm of Parr Richey with offices in Indianapolis and Lebanon. Mr. Fetty is current Chair of the Firm Utility and Business Section and often advises businesses and utilities (for profit, non-profit and cooperative) on regulatory, compliance, and transactional matters.
The statements contained herein are matters of opinion and general information only and are not to be considered legal advice and should not be construed to form an attorney-client relationship. If you have any questions regarding this article, please contact an attorney.