Courts Cement States’ Authority to Advance Clean Energy

The courts have now spoken decisively: States have broad authority over energy policy. The U.S. Court of Appeals for the Second Circuit upheld New York’s Zero Emission Credit, which supports the state’s nuclear generators. But the bigger story is the decision’s broad ramifications. It clears the way for states to more aggressively and confidently pursue programs to advance renewable energy technologies like offshore wind and solar. Already, New York has announced a competition for developers to deliver 800 megawatts of offshore wind to the state’s customers using a structure very similar to that of the ZEC program.

Today’s decision is the second important court decision in two weeks to reject a challenge to state energy policy authority by fossil fuel power plant owners. It comes on the heels of a decision by the U.S. Court of Appeals for the Seventh Circuit rejecting a challenge to Illinois’ authority over energy policy. While each case concerned a state’s program to support nuclear generators, the importance of the ruling is far broader, cementing states’ ability to advance a wide range of clean energy technologies like solar, wind, and energy storage. States have been leaders in advancing renewable energy: More than half the states have Renewable Portfolio Standards to expand the market for wind, solar and other renewable energy sources. That’s why NRDC filed amicus briefs in each case together with other organizations supporting the states’ authority (available here and here).

Fossil fuel-fired power plant owners who oppose state clean energy policies had sought to sow doubt about state authority in the wake of a U.S. Supreme Court decision. That case, Hughes v. Talen Energy Marketing, invalidated a Maryland program designed to support the construction of a new natural gas-fired power plant. It did so because the state had encroached on the authority of the Federal Energy Regulatory Commission over capacity markets, due to a very specific design problem with that program. (FERC regulates wholesale electricity markets, where power plants and other suppliers sell electric energy and power supply availability, known as “capacity,” to utilities, who then resell those services to homes and businesses subject to regulation by state utility commissions.) The Court invalidated the Maryland program only because that program compensated the power plant for its capacity, not for its environmental value, and did so at a compensation rate different from the rate that FERC had already set. At the time the Hughes case was decided, we emphasized the extremely narrow nature of this conclusion, noting that the Court explicitly noted that the decision did not impede a broader range of state efforts to advance clean energy.

But the fossil-fuel plant owners attempted to use the case as a basis to invalidate New York and Illinois’ nuclear support programs, using legal arguments that, if accepted, could have called into question the validity of a wide range of state support for wind, solar, and other technologies. For example, they argued that the support for nuclear resources intruded on federal energy authority because the programs’ credit payments were tied to the generation of electricity by the eligible power plants and affected the prices in energy markets overseen by FERC. State renewables programs often share these features. The fossil fuel owners’ challenges to the state nuclear programs thereby muddied the waters of state authority, raising questions for states as they designed programs to support new technologies like offshore wind.

Today’s court decision clears up that ambiguity.

Combined with previous decisions rejecting challenges to state authority, this decision slams the door shut on the fossil fuel-fired power plant owners’ arguments and clarifies states’ broad authority to advance clean energy. The court’s decision was particularly well-reasoned, detailing point by point why New York’s program did not intrude on or conflict with FERC’s authority. The decision explained that the Federal Power Act “establishes a dual regulatory system between the states and federal government” where states are free to adopt clean energy policies that affect prices in the markets regulated by FERC.

The decision, like others before it, also rejected a claim by fossil fuel owners that the state had violated the Commerce Clause of the U.S. Constitution by favoring in-state power generation over out-of-state power plants. Today’s decision is almost certainly final because the fossil fuel power plant owners’ only recourse is to appeal to the U.S. Supreme Court or to request reconsideration of the case. The U.S. Supreme Court is very unlikely to take the case because this decision is in line with that of the Seventh Circuit on the Illinois program. Reconsideration is extremely rare and will not be granted for this well-reasoned decision. 

Today’s decision also follows a decision the Second Circuit issued last year rejecting a challenge to Connecticut’s program to advance large-scale wind and solar, making it the third recent circuit court decision rejecting a challenge to a state program. The Connecticut challenge (discussed here) was also based on a faulty interpretation of the Hughes case. Each decision affirmed a district court decision also rejecting the challenge and upholding state authority, meaning that the record in these cases is now 6-0 in favor of states. Together, these decisions are incredibly important because they preserve the ability of states to lead in the fight against climate change and to eliminate pollution from the power sector.