The New(Clear?) Electricity Federalism: Federal Preemption of States' 'Zero Emissions Credit' Programs
his Article proposes and applies a “conscious disregard” test for resolving the upcoming appellate litigation that involves the conflict between federal authority over the electric grid and state laws providing subsidies to nuclear power plants in the form of “zero emissions credits” (ZECs). This test draws upon principles of conflict preemption, as elaborated in three recent Supreme Court decisions on the intersection of state and federal jurisdiction over the electric grid under the Federal Power Act. It provides that if a state law explicitly aims to directly affect wholesale electricity market prices, terms or conditions, its subsidy program is impermissible as conflicting with the regulatory jurisdiction of the Federal Energy Regulatory Commission (FERC). Applying this “conscious disregard” test, the Article concludes that federal law preempts the state laws and that lower courts’ decisions to the contrary were in error.
The Article explains that the Court has ushered in a new era of jurisprudence under the Federal Power Act in which the states and FERC have significant and concurrent responsibilities for regulating the electric grid. It then contends that this dynamic, concurrent federalism environment of policy innovation is an essential backdrop to decision-making in the nuclear subsidies cases, as there is considerable unease about the interaction between state energy policies and the wholesale electricity markets overseen by FERC. Many commentators have called into question how the two can coexist going forward, and as a result, the Article explains how states’ “around-market” policies such as the nuclear subsidies involve overlaps between state and federal laws.
The Article’s conscious disregard test for addressing these overlaps brings together three distinct concepts. A state cannot “aim” its subsidy law at the wholesale markets, as the Court held in ONEOK v. Learjet. FERC, not the states, has authority over the terms, conditions, and results on wholesale markets, under FERC v. EPSA’s “directness” standard. Hughes v. Talen Energy Marketing found unlawful state programs that disregard wholesale rates or are closely linked (or “tethered”) to the wholesale markets. The Article contends that the ZEC programs violated this test. Finally, the Article contends that only a test that is based on conscious disregard for wholesale market results can harmonize the three recent Supreme Court decisions, preserve valuable state policy experimentation, and set a narrowly defined preemption standard that avoids unintended consequences in future litigation.