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C.A. No. 20-11120
IN THE UNITED STATES COURT OF APPEALS FOR THE TWELFTH CIRCUIT
_________
STATE OF VANDALIA
Appellant
v.
COMMONWEALTH ENERGY (CE)
Appellee
_________
ON APPEAL FROM THE UNITED STATES DISTRICT COURT OF VANDALIA.
_________
BRIEF FOR APPELLEE
_________
Team No. 22
Counsel for Appellee
Team 22
ii
TABLE OF CONTENTS
TABLE OF CONTENTS………..………..………..………...……………….……....………..…ii
TABLE OF AUTHORITIES………..………..………..…….…..…………………..………..…..ii
JURISDICTIONAL STATEMENT………..…………..……..…………..……..………..………1
ISSUES PRESENTED……..………..………..………….…………………………...………..…1
STATEMENT OF THE CASE………..………..…..……..……..…………………...………..…2
SUMMARY OF ARGUMENT ………..…………..………..……….……..…………..……..…5
ARGUMENT………..………..………..………..………..…………….…………….…..………7
I. CACJA violates the Dormant Commerce Clause of the U.S. Constitution……….….7
A. Standard of Review………..………..………..………..……..………..……….…7
B. CACJA is a facially discriminatory statute, as its objectives could have been
achieved through nondiscriminatory alternatives.…..………..……………….….7
C. CACJA violates the Dormant Commerce Clause under the Extraterritoriality
Doctrine. …..………..………..………..………..………..………..………..……10
II. Vandalia violated the Takings Clause of the Fifth Amendment to the U.S.
Constitution by limiting the rate recovery of the remaining investment for CE Coal
Fired Power Plants.…..………..…………..………..………..………..………..……12
A. Standard of Review………..………..………..………..………..………….…….12
B. CACJA’s failure to meet the “just and reasonable” standard required for
ratesetting results in an unconstitutional taking under the Fifth and Fourteen
Amendments.…..………..………..………..………..………..………..….…..…13
C. In the alternative, it is contrary to the public interest to limit the rate recovery to
no more than fifty percent (50%) of the unamortized investment.…..…….…….15
III. Vandalia violated the Federal Power Act and the Supremacy Clause of the U.S.
Constitution with respect to its net metering program under Title IV of CACJA..…16
A. Standard of Review………..………..………..………..………..………….……17
B. Vandalia’s net metering program in Title IV of CACJA violates the FPA’s grant
of authority to FERC to regulate wholesale transactions in energy marketplaces.
………..………..………..………..………..…………………………..………..17
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C. Because Title IV of CACJA runs afoul of the FPA, it is preempted by federal
law.………..………..………..………..………..………..…………...………..…18
IV. Vandalia’s prohibition on the aggregation of DERs in Title VI, Section 2 of CACJA
runs afoul of the FPA and is thus preempted by federal law……………………..…19
A. Standard of Review………..………..………..………..……...………..….……..19
B. Title VI, Section 2 of CACJA infringes on FERC’s authority over wholesale
markets under the FPA.………..………..………..………..………..…..………..20
i. Order 2222 directly affects wholesale rates.………..……………………21
ii. Order 2222 does not seek to regulate the retail market.………….……...22
iii. Order 2222 does not conflict with the FPA’s core purposes.…...……….23
C. Because Title VI, Section 2 directly conflicts with Order 2222 and FERC’s
authority under the FPA, it should be found unconstitutional under the Supremacy
Clause of the U.S. Constitution.………..………..………………..………..……24
i. Title VI, Section 2 is unconstitutional because it directly conflicts with
federal law under the FPA.………..………..………………..…………..24
ii. Title VI, Section 2 is also unconstitutional because it seeks to regulate a
field occupied exclusively by FERC as intended by Congress in the
FPA.………..………..…………..………..………..……………….....…25
CONCLUSION………..………..………..………..………..………..………..…………………26
Certificate of Service ………..……….……..………..………..…………………………….…..27
TABLE OF AUTHORITIES
Cases
Arizona v. United States, 567 U.S. 387 (2012) ………...………………………………………. 24
Allco Fin. Ltd. v. Klee, 861 F.3d 82, (2d Cir. 2017) ………...…………………………...…… 8, 9
Baldwin v. G.A.F. Seelig, Inc., 294 U.S. 511 (1935) …………...……………………………… 10
Bluefield Waterworks & Imp. Co. v. Pub. Serv. Comm'n of W. Va., 262 U.S. 679 (1923) ………..
………………………………………………………………………………………. 12, 13, 14, 15
Calpine Corp. v. FERC, 702 F.3d 41 (D.C. Cir. 2012) ……………………………………..…..18
Cotto Waxo Co. v. Williams, 46 F.3d 790 (8th Cir. 1995) …………………………………. 10, 11
Duquesne Light Co. v. Barash, 488 U.S. 299 (1989 …………………………………………… 12
Elgin v. Department of Treasury, 567 U.S. 1 (2012) ……………………………………………. 1
Fed. Power Comm'n v. Hope Natural Gas Co., 320 U.S. 591 (1944) ………………. 6, 13, 14, 16
FERC v. Electric Power Supply Ass'n. (EPSA), 136 S.Ct. 760 (2016) ………………………... 20
Florida Lime & Avocado Growers, Inc. v. Paul, 373 U.S. 132 (1963) ……………………. 19, 24
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Granholm v. Heald 544 U.S. 460 (2005) ………………………………………………………. 12
Gade v. National Solid Wastes Management Ass'n, 505 U.S. 88 (1992) ……………………… 18
Healy v. Beer Inst., 491 U.S. 324 (1989) ………………………………………………………. 11
Hines v. Davidowitz, 312 U.S. 52 (1941) …………………………………………………...…. 24
Hughes v. Oklahoma, 441 U.S. 322 (1979) …………………………………………………. 7, 10
In re Permian Basin Area Rate Case, 390 U.S. 757 (1968) …………………………………… 15
Jones v. Rath Packing Co., 430 U.S. 519 (1977) …………………………….………………… 18
Kell v. Benzon, 925 F.3d 448 (10th Cir. 2019) ………………………………………………….. 1
Motor Vehicle Mfrs. Ass'n of U.S., Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29 (1983)….
…………………………….……………………………………………….……………………..20
National Association for Advancement of Colored People v. Fed. Power Comm'n, 425 U.S. 662
(1976) ……………………………………………………………………………………….. 15,16
National Association of Regulatory Utility Commissioners v. FERC (NARUC), 964 F.3d 1177
(D.C. Cir. 2020) ……………………………………………………………………. 20, 21, 22, 23
New Energy Co. of Ind. v. Limbach, 486 U.S. 269, (1988) …………………………………. 8, 12
Northern Natural Gas Co. v. State Corp. Commission of Kan., 372 U.S. 84 (1963) ….………. 24
Oneok, Inc. v. Learjet, Inc., 575 U.S. 373 (2015) ……………………………………...……18, 24
Oregon Waste Sys., Inc. v. Dep't of Envtl. Quality of State of Or., 511 U.S. 93 (1994) ….. 7, 8, 11
Pennsylvania Water & Power Co. v. Federal Power Commission, 343 U.S. 414 (1952) ……... 23
Perry v. Los Angeles Police Dept., 121 F.3d 1365 (9th Cir. 1997) ……………………………. 19
Pike v. Bruce Church, Inc., 387 U.S. 137 (1970) …………………………………...……………9
Rice v. Santa Fe Elevator Corp., 331 U.S. 218 (1947) ………………………………………… 18
Smyth v. Ames, 169 U.S. 466 (1898) …………………………………………………………… 14
Southern Cal. Edison Co. v. FERC, 603 F.3d 996 (D.C. Cir. 2010) ………………………… ...18
Town of Southold v. Town of E. Hampton, 477 F.3d 38 (2d Cir. 2007) ………………………… 8
United Haulers Ass'n, Inc. v. Oneida-Herkimer Solid Waste Mgmt. Auth., 261 F.3d 245 (2d Cir.
2001) ……………………………………………………………………………………….. 6, 7, 8
Wyoming v. Oklahoma, 502 U.S. 437 (1992) …………………………………………………… 8
Statutes:
16 U.S.C. § 791a et seq …………………………………………………………….. 20, 22, 25, 26
28 U.S.C. § 1291…………………………………………………………………………………. 1
66 Vandalia S.A. § 35.01 (2019) ………………………………………………………………… 1
Agency Decisions:
SunEdison LLC, 129 F.E.R.C. ¶ 61,146 (2009) ……………………………………………… 17
MidAmerican Energy, 94 F.E.R.C. ¶ 61,340 (2001) ……….………………………………… 17
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Agency Orders:
Participation of Distributed Energy Resource Aggregations in Markets Operated by Regional
Transmission Organizations and Independent System Operators, Order No. 2222, 172 FERC ¶
61,247 (Sep. 17, 2020) …………………………………………………………………………. 20
Constitutional Provisions:
U.S. Const. Article, VI, Clause 2 ………………………………………………………………... 18
U.S. Const. Article I, Section 8, Clause 3………………………………………………………… 7
U.S. Const. Amend. V ………………………………………………………………………...… 13
U.S. Const. Amend. XIV …………...………………………………………………………...… 13
Other Sources:
Kevin Todd, The Dormant Commerce Clause and State Clean Energy Legislation, 9 Mich. J.
Envtl. & Admin. L. 189 (2020). Available at: https://repository.law.umich.edu/mjeal/vol9/iss1/6.
……………………………………………………………………………………………………10
FERC Order No. 2222 Fact Sheet……….……….……….……….……….……….……………21
1
JURISDICTIONAL STATEMENT
The District Court had subject matter jurisdiction over this action pursuant to 28 U.S.C §
1331. Federal district courts “have original jurisdiction of all civil actions arising under the
Constitution, laws, or treaties of the United States.” See Elgin v. Department of Treasury, 567
U.S. 1, 25 (2012). Appellees raised four constitutional challenges to the provisions of
Appellant’s Clean Air Clean Jobs Act in the U.S. District Court of Vandalia.
This Court has appellate jurisdiction pursuant to 28 U.S.C. § 1291. Federal Courts of
Appeals have “jurisdiction of appeals from all final decisions of the district courts of the United
States.” See Kell v. Benzon, 925 F.3d 448, 471 (10th Cir. 2019). The District Court issued its
final order on November 15, 2020. Vandalia filed its timely appeal to this Court on December
15, 2020.
ISSUES PRESENTED
1. Whether Vandalia violated the dormant Commerce Clause of the U.S. Constitution in
Title III of the Clean Air Clean Jobs Act with respect to the exclusion of solar projects
located outside of the state of Vandalia from being eligible for solar renewable energy
credits under Vandalia’s renewable energy standard.
2. Whether Vandalia violated the Takings Clause of the Fifth and Fourteenth Amendments
to the U.S. Constitution in Title V of the Clean Air Clean Jobs Act by limiting the rate
recovery of the remaining investment in coal fired power plants to no more than fifty
percent (50%) of the unamortized investment as of the date of their retirement.
3. Whether Vandalia violated the Federal Power Act and the Supremacy Clause of the U.S.
Constitution in Title IV of the Clean Air Clean Jobs Act, by setting prices under its net
metering program at retail rates and ignoring the FPA’s express jurisdictional division
between FERC and the states.
4. Whether Vandalia violated the Federal Power Act and thus the Supremacy Clause of the
U.S. Constitution with respect to Title VI of the Clean Air Clean Jobs Act, which
prohibits the aggregation of Distributed Energy Resources in direct conflict with FERC’s
Order No. 2222.
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STATEMENT OF THE CASE
The Federal Power Act and Interstate Energy Markets
The Federal Power Act (FPA) and its related legislation grants the Federal Energy
Regulatory Commission (FERC or Commission) authority over “the transmission of electric
energy in interstate commerce” and the “sale of the electric energy at wholesale in interstate
commerce.” R. at 8. States are given authority over what’s left, i.e., retail sales to end-use
customers, such as residents and local businesses. Id.
Wholesale markets are managed regionally, but are always subject to oversight and
regulation by FERC. Id. Management occurs through regional transmission organizations
(RTOs) or independent system operators (ISOs). Id. The region in which Vandalia sits is served
by PJM Interconnection. Id. PJM ensures a competitive wholesale electricity market in the
region and manages the electric grid for 61 million people. Id. PJM’s market is subject to tariffs
approved by FERC. Id.
FERC Order No. 2222
Under its wholesale authority, FERC issued Order No. 2222 (Order 2222) on September
17, 2020, titled Participation of Distributed Energy Resource Aggregations in Markets Operated
by Regional Transmission of Organizations and Independent System Operators, to address unjust
and unreasonable market rules that presented significant barriers to DERs who wished to
participate in RTO and ISO markets. R. at 8-9. DERs are often too small to meet the minimum
size requirements necessary for participation in these markets on their own. R. at 9. Order 2222
allows DERs to aggregate in order to meet the necessary performance and qualification
requirements for participation that each DER could not meet individually. Id.
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Vandalia’s Clean Air Clean Jobs Act
Vandalia’s Clean Air Clean Jobs Act (CACJA) was signed into law on April 3, 2020 to
incentivize “clean energy” jobs and “usher in a new [energy] era” in Vandalia. R. at 4. CACJA,
as amended, has four titles of particular relevance to the case at hand.
Title III of CACJA establishes renewable energy standards for Vandalia. Id. This section
of the Act first requires retail electric utilities in Vandalia “to purchase fifteen percent (15%) of
their electricity supply from renewable energy sources by 2025, increasing by periodic targets to
fifty percent (50%) by 2040.” Id. Title III also includes separate requirements for energy from
solar photovoltaic (PV) resources. Id. Retail electric utilities operating within Vandalia must
“purchase two-tenths of one percent (0.2%) of their electricity supply from solar PV sources
located within the state of Vandalia by December 31, 2024, increasing to one percent (1.0%) by
December 31, 2040.” Id. Notably, Section 11 of Title III explicitly precludes solar projects
located outside the borders of Vandalia from being eligible for solar renewable energy credits
(SRECs). CACJA, Tit. III, § 11.
In Title IV, Vandalia instituted a net metering program for “Customer-generator[s] that
generate electricity on the Customer-generator side of the meter using Renewable Energy
Resources,” like solar panels.1 When a Customer-generator using these resources produces more
energy than it consumes, its retail meter is “running backwards.” R. at 10. This means the
Customer-generator is delivering energy to the electric utility (EU), rather than receiving energy
from the EU. Id. This excess energy is stored in the EU’s system and later resold to other
customers on the grid. R. at 11-12. The amount of excess energy produced by the customer is
1CACJA defines “net metering” as “measuring the difference between electricity supplied by an Electric Utility and
electricity generated from a Renewable Energy System owned or leased and operated by a Customer Generator
when any portion of the electricity generated by the Renewable Energy System is used to offset part of all of the
Electric Retail Customer’s requirements for electricity. CACJA Tit. I, § 2(j).
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“netted” against the amount of energy the customer consumes. R. at 3, f.1. Under Title IV, the
Customer-generator is credited for the net energy it provides to the grid at “the full retail rate”
typically charged by a utility company. CACJA Tit. IV(2).
Title V of CACJA requires all existing coal plants in Vandalia to be retired by July 1,
2021. CACJA, Tit. V(1)(a). These forcibly retired coal plants will only be able to recover fifty
percent (50%) of the unamortized investment as of the date of their retirement, “unless such rate
treatment is demonstrated to be contrary to the public interest.” R. at 4; CACJA, Tit. V(2).
Lastly, Title VI, Section 2 specifically prohibits distributed energy resources (DERs)
located in Vandalia from being aggregated for purposes of participation in the ISO market
controlling Vandalia, PJM Interconnection. CACJA, Tit. VI, § 2. For purposes of the Act, DERs
“with a nameplate generating capacity of not more than 10,000 kW installed behind the meter on
the premises of a Retail Customer served by an Electric Utility (EU)” are not to be aggregated.
Id. Title VI was added to CACJA on October 1, 2020 in direct response to FERC’s Order No.
2222. R. at 4. The Governor of Vandalia convened a special session of the Vandalia legislature
specifically to address the Order and add the conflicting amendment that is Title VI. Id.
Commonwealth Energy and Its Subsidiaries
CACJA has drastically impacted Commonwealth Energy (CE) and its subsidiaries,
Commonwealth Power & Light Company (CPL) and Commonwealth Energy Solutions (CES).
R. at 5. CPL provides energy to around 750,000 retail customers in Vandalia using electricity
produced from coal, natural gas, and renewable resources. Id. CPL owns three coal-fired
generating plants: (1) the Raven Power Station (Raven), (2) the Hunter Generating Plant
(Hunter), and (3) Fort Duquesne Energy Center (Ft. Duquesne). Id. The net book value of these
three plants taken together, as of July 1, 2021, exceeds $1.5 billion dollars. Id. Title V of CACJA
would force CPL to incur around $780 million in unrecoverable investment costs. R. at 10.
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The Vandalia Public Service Commission (Commission) allowed CPL a return on equity
(ROE) of 9.20%. Stipulation of Facts at 1-2. The Commission approved a capital structure of
fifty percent (50%) equity and fifty percent 50% debt for ratemaking purposes. Id. This resulted
in a weighted average cost of capital of 7.85%. Id. The non-recovery rate under CACJA will also
reduce the ROE for the calendar year beginning July 1, 2021 of 1.80%. Id.
CES develops solar projects for both residential and commercial customers and operates
entirely outside of Vandalia, in the adjacent states of Franklin and West Vandalia. R. at 6. CES
produces solar energy through solar arrays interconnected with the retail electric utilities within
Franklin and West Vandalia. Id. Additionally, CES has three utility-scale solar projects also
located in Franklin and West Vandalia. Id. The output from CES’s solar projects is sold into the
regional wholesale power market operated by PJM. Id. Neither Franklin nor West Vandalia have
enacted standards encouraging the development of renewable energy, or, more specifically,
specific incentives for solar projects. Id. Thus, neither state has a market for solar renewable
energy credits (SRECs). Id.
The District Court Proceeding
On October 12, 2020, CE and its subsidiaries, CPL and CES, filed an action in the U.S.
District Court of Vandalia challenging the constitutionality of CACJA. R. at 9. CE successfully
argued that CACJA violated (1) the dormant Commerce Clause of the U.S. Constitution, (2) the
Takings Clause of the Fifth Amendment to the U.S. Constitution, (3) the Federal Power Act, and
(4) the Supremacy Clause of the U.S. Constitution. R. at 9, 11. The District Court granted
summary judgment for CE on all issues. R. at 11.
SUMMARY OF ARGUMENT
This case is primarily about state overreach. No matter Vandalia’s intentions, CACJA
undoubtedly transcends the boundaries of state authority under the United States Constitution.
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Appellees first urge the court to affirm the District Court’s determination that Title III of
CACJA is an unconstitutional extension of state authority, in violation of Article I, § 8 of the
U.S. Constitution—the dormant Commerce Clause. Title III’s facially discriminatory provisions
place an impermissible burden on interstate commerce and function to control commerce
occurring entirely outside of Vandalia. The state of Vandalia fails to demonstrate that exclusive
provisions in CACJA serve a purpose other than protectionism and that “no nondiscriminatory
alternative exists to effectuate the local goals.” United Haulers Ass'n, Inc. v. Oneida-Herkimer
Solid Waste Mgmt. Auth., 261 F.3d 245, 255–56 (2d Cir. 2001).
Secondly, this Court should affirm the District Court’s finding that CACJA’s forced
retirement of coal-fired power plants and limited rate of recovery under Title V of the Act is
unconstitutional, in violation of the Takings Clause of the Fifth Amendment. The limited rate of
recovery fails to meet the “just and reasonable” standard required. Title V also fails to find the
balance between utilities producer’s right to a return on their investment and consumer
protection. Fed. Power Comm'n v. Hope Natural Gas Co., 320 U.S. 591, 609 (1944)
Thirdly, appellees argue that the District Court did not err in determining that Vandalia
violated the FPA and the Supremacy Clause of the U.S. Constitution in Title IV in implementing
its net metering program. Vandalia’s net metering program necessitates that an EU provide
credits to Customer-generators for their contributions to the grid at retail rates. But the
transactions occurring between Customer-generators and EU’s are wholesale transactions subject
to FERC’s sole jurisdiction under the FPA. Vandalia’s attempt to regulate a field occupied
exclusively by a federal agency is contrary to the Supremacy Clause and must be preempted.
Lastly, this Court should affirm the District Court’s holding that Section 2 of Title VI is
contrary to the FPA and thus unconstitutional under Supremacy Clause jurisprudence. This
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Section is a violation of the FPA because it purposely contravenes FERC’s Order 2222. Section
2 of Title VI is in direct conflict with federal law and impermissibly invades a field subject to
federal control under the FPA. As a result, it should be invalidated under Supremacy Clause
jurisprudence.
ARGUMENT
I. CACJA violates the Dormant Commerce Clause of the U.S. Constitution.
A. Standard of Review
To evaluate a state law that is facially discriminatory against interstate commerce, the
court should use a strict scrutiny standard. Oregon Waste Sys., Inc. v. Dep't of Envtl. Quality of
State of Or., 511 U.S. 93, 93–94 (1994). “[T]he burden shifts to the state or local government to
demonstrate that the local benefits outweigh the discriminatory effects and that no
nondiscriminatory alternative exists to effectuate the local goals.” United Haulers Ass'n, Inc. v.
Oneida-Herkimer Solid Waste Mgmt. Auth., 261 F.3d 245, 255–56 (2d Cir. 2001).
B. CACJA is a facially discriminatory statute, as its objectives could have been
achieved through nondiscriminatory alternatives.
Article I, § 8 of the United States Constitution gives Congress the power to regulate
interstate commerce.2 From this power, courts have established that there is a restriction on state
power under the “dormant Commerce Clause,” which prevents states from “discriminating
against” or unduly “burdening” interstate commerce. Hughes v. Oklahoma, 441 U.S. 322, 325-26
(1979). Title III of CAJCA violates the dormant Commerce Clause because it imposes an
impermissible burden on interstate commerce. Title III of CACJA precluded solar projects
2 “[The Congress shall have Power] To regulate Commerce with foreign Nations, and among the several States, and
with the Indian Tribes.” U.S. Const. Art. I, § 8, Cl. 3.
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located outside of the Vandalia from being eligible for SRECs under Vandalia’s renewable
energy standard. CACJA, Tit. III, § 11.
CACJA places an impermissible burden on interstate commerce and is rooted in
economic protectionism. These restrictions discriminate against solar projects located outside of
Vandalia, including CES’s solar projects located in Franklin and West Vandalia. CACJA, Tit.
III.
To examine a challenged law under the dormant Commerce Clause, it must first be
“determine[d] whether it clearly discriminates against interstate commerce in favor of intrastate
commerce, or whether it regulates evenhandedly with only incidental effects on interstate
commerce.” Town of Southold v. Town of E. Hampton, 477 F.3d 38, 47 (2d Cir. 2007). When a
state law facially discriminates against out-of-state commerce it is per se invalid unless it can be
“demonstrably justified by a valid factor unrelated to economic protectionism.” Wyoming v.
Oklahoma, 502 U.S. 437, 454 (1992).
CACJA is a facially discriminatory law to which the strictest scrutiny should be applied.
Oregon Waste Sys., Inc., 511 U.S. at 93–94. Title III excludes solar energy outside the State of
Vandalia. CACJA will only be found constitutional if Vandalia can “sho[w] that it advances a
legitimate local purpose that cannot be adequately served by reasonable nondiscriminatory
alternatives.” Id. at 101 (quoting New Energy Co. of Ind. v. Limbach, 486 U.S. 269, 278 (1988)).
When a law “is discriminatory, the burden shifts to the state or local government to demonstrate”
the law has non-protectionist purposes and cannot be achieved through alternative means. United
Haulers Ass'n, Inc., 261 F.3d at 255–56. Vandalia has failed to do so.
There is no reason that the energy could not be produced from areas directly outside of
Vandalia, and still meet CACJA’s clean energy objectives. CES recognizes that Vandalia has a
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legitimate interest in reducing greenhouse gases and mitigating climate change. However,
greenhouse gases are pollutants that respect no state boundaries and move trans-nationally and
globally. There is no support for CACJA’s obviously discriminatory provisions, which could be
achieved through less discriminatory alternatives.
In Allco Fin. Ltd. v. Klee, the court found Connecticut's Renewable Portfolio Standard
(RPS) did not violate the Dormant Commerce Clause. 861 F.3d 82, 87 (2d Cir. 2017). Under this
RPS, there were two types of Renewable Energy Credits (RECs). Id. at 93. RECs could be
obtained by renewable energy sources located within the regional transmission grid,
(Connecticut, Massachusetts, Vermont, New Hampshire, Rhode Island, and part of Maine.) Id. or
RECs could be obtained by sources that were on nearby regional transmission grids and were
imported into Connecticut. Id. Here, the court did not find the legislation to be facially
discriminatory and applied the less burdensome “Pike Test,” which considers less restrictive
alternatives if the burdens on interstate commerce outweigh the benefits, and the degree of the
state’s legitimate interest compared to the extent of the burden that will be tolerated. Id. at 107;
Pike v. Bruce Church, Inc., 387 U.S. 137, 147 (1970).
However, unlike Allco, CACJA is facially discriminatory. It requires retail electric
utilities operating within Vandalia to use energy from solar PV sources located within the state
and explicitly precludes solar projects which are located outside of the borders of Vandalia from
being eligible for SRECs. See CACJA, Tit. III. There are no routes for solar PV sources located
outside of Vandalia to meet the requirements of CACJA and receive the benefits of the Act.
Vandalia has made the claim that the purpose of CACJA’s geographic limitation for solar
facilities is not to capture economic benefits, but rather to stimulate clean energy development to
replace coal-fired generation in Vandalia. Opinion at 2. That is not the case. The legislation is
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entitled “Clean Air Clean Jobs Act,” thus emphasis is focused on jobs and economic growth
within the state. CACJA is designed to capture economic benefits by ensuring that the
development of clean energy occurs within the state, rather than outside the state.
The Dormant Commerce Clause functions “to avoid [any] tendencies toward economic
Balkanization.” Hughes, 441 U.S. at 325. However, CACJA is at odds with this theory. The
motivation for this is for in-state solar projects to have an unfair advantage over out of state
energy producers. This legislation unduly discriminates against out-of-state solar projects and is
unconstitutional under the dormant Commerce Clause. Id.
C. CACJA violates the Dormant Commerce Clause under the
Extraterritoriality Doctrine.
CACJA’s regulatory power extends outside of Vandalia’s state borders and regulates
commerce taking place entirely outside the state. Courts have referred to this as the
“extraterritoriality doctrine” of the Dormant Commerce Clause.3 State laws that control
commerce outside the state are unconstitutional. North Dakota v. Heydinger, 825 F.3d 912, 919
(8th Cir. 2016). The dispositive question to ask is whether the statute has the “practical effect” of
controlling conduct “beyond the boundaries of the state.” Id. (citing Cotto Waxo Co. v. Williams,
46 F.3d 790, 793 (8th Cir. 1995)); see also Baldwin v. G.A.F. Seelig, Inc., 294 U.S. 511 (1935).
The Dormant Commerce Clause established “the principle that one state in its dealings with
another may not place itself in a position of economic isolation.” Baldwin, 294 U.S. at 527.
Vandalia cannot regulate intrastate energy by prohibiting the importation of goods in interstate
commerce. See Id. “The Constitution was framed . . . upon the theory that the peoples of the
3 Kevin Todd, The Dormant Commerce Clause and State Clean Energy Legislation, 9 Mich. J. Envtl. & Admin. L.
189 (2020). Available at: https://repository.law.umich.edu/mjeal/vol9/iss1/6.
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several states must sink or swim together, and that in the long run prosperity and salvation are in
union and not division.” Id. at 523.
A “statute that has the practical effect of exerting extraterritorial control over ‘commerce
that takes place wholly outside of the State's borders is likely to be invalid per se.” Heydinger,
825 F.3d at 919 (quoting Healy v. Beer Inst., 491 U.S. 324, 336 (1989)).
In Heydinger, plaintiffs asserted that the provisions of Minnesota's Next Generation
Energy Act (NGEA), which established energy standards related to carbon dioxide emissions,
violated the Commerce Clause of the Constitution. 825 F.3d at 916. Essentially, the NGEA
prohibited the importation or use of electricity which was produced from new fossil fuel driven
power plants. Id. at 915-16. These provisions functioned to regulate activity and transactions
taking place “wholly outside” of Minnesota. Id. at 921. “A state statute has undue extraterritorial
reach and is per se invalid when it requires people or businesses to conduct their out-of-state
commerce in a certain way.” Id. at 919 (internal quotations omitted) (citing Cotto Waxo Co., 46
F.3d at 793). The state was regulating interstate commerce, which they “may not do without the
approval of Congress.” Heydinger, 825 F.3d at 922.
Similarly, CACJA regulates activity that occurs wholly outside of Vandalia. It is
important to note that both Franklin and West Vandalia have enacted renewable portfolio
standards aimed to encourage the development of renewable energy. However, neither has
incentives like SRECs, but rather only less valuable RECs.4 Vandalia is not incentivizing, but,
rather, cajoling companies like CES to develop clean energy within Vandalia, rather than in
neighboring states. CACJA creates economic pressure for CES and other energy producers to
4 The price for SRECs is much higher than for RECs. “In Maryland, for example, an SREC is valued at $79 per
MWh, while a REC is worth only about $8 per MWh.” CES’s solar projects are precluded from CACJA’s SRECs,
they are only eligible for lower-priced RECs in Franklin and West Vandalia.” R. at 6, footnote 5.
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move their operations from West Vandalia and Franklin to Vandalia. Title III of CACJA
“regulat[es] interstate commerce in such a way as to give those who handle domestic articles of
commerce a cost advantage over their competitor,” thus constituting protectionism. Oregon
Waste Sys., Inc., 511 U.S. at 106; Limbach, 486 U.S. at 275.
Similarly, in Granholm v. Heald, the court took particular note of the liquor law in New
York and stated an “out-of-state winery may ship directly to New York consumers only if it
becomes a licensed New York winery, which requires the establishment of a branch factory,
office or storeroom within the state of New York.” 544 U.S. 460, 470 (2005) (internal quotations
omitted). This provision impacted wineries who typically operated fully outside the state by
cajoling them to establish branches of their company within the borders of the state.
CACJA extends far beyond what a state is allowed to enact. It functions to control
commerce that is occurring wholly outside of the state. Vandalia may not do so without the
approval of Congress, thus Title III of CACJA violates the Dormant Commerce Clause.
Heydinger, 825 F.3d at 922.
II. Vandalia violated the Takings Clause of the Fifth Amendment to the U.S.
Constitution by limiting the rate recovery of the remaining investment for CE Coal
Fired Power Plants.
A. Standard of Review
The Supreme Court has emphasized the importance of granting the State or regulatory
commission discretion to “decide what ratesetting methodology best meets their needs in
balancing the interests of the utility and the public.” Duquesne Light Co. v. Barash, 488 U.S.
299, 319 (1989). Valuation of a public utility corporation property and ratesetting are legislative
acts that are not typically subject to judicial review. Bluefield Waterworks & Imp. Co. v. Pub.
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Serv. Comm'n of W. Va., 262 U.S. 679, 688 (1923). However, judicial review may be “necessary
to determine whether such rates are void on constitutional or other grounds.” Id.
B. CACJA’s failure to meet the “just and reasonable” standard required for
ratesetting results in an unconstitutional taking under the Fifth and Fourteen
Amendments.
The Fifth and Fourteenth Amendments of the United States Constitution prevent the
government from taking private property for public use without just compensation, in what is
commonly referred to as a “taking.” U.S. Const. amend. V; U.S. Const. amend. XIV.
Utility providers do not exist in an entirely free market. Rather, there are ratemaking
restrictions through the Natural Gas Act and the Federal Power Act that protect customers. Fed.
Power Comm'n v. Hope Natural Gas Co., 320 U.S. 591, 603 (1944) (explaining “[t]he traditional
regulatory notion of the ‘just and reasonable’ rate was aimed at navigating the straits between
gouging utility customers and confiscating utility property.”) The Supreme Court has established
the “just and reasonable standard” to ensure that investor-owned utilities are able to earn a
reasonable return on the assets which serve the public. Hope Natural Gas Co., 320 U.S. at 603.
The just and reasonable standard works to prevent unconstitutional takings.
The question asked in Bluefield, and that must be asked here, is: what are just and
reasonable rates? See generally Bluefield Waterworks, 262 U.S. 679 (1923). In Vandalia, the
ratemaking statute states that “all rules and regulations affecting or pertaining to such rates or
charges, shall be just and reasonable, and any such rate or charge that is not just and reasonable
is hereby declared to be unlawful.” 66 Vandalia S.A. § 35.01 (2019). Title V of CACJA forces
CPL’s coal fired power plants to prematurely retire, and only recover 50% or less of their
unamortized investment. This does not meet the just and reasonable standard and constitutes an
unconstitutional taking.
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In Bluefield, the court adopted three factors for estimating fair value of utility property:
(1) the original cost of construction, (2) the present cost of construction, and (3) other matters
such as expense of permanent improvements, probable earning capacity, and funds needed to
meet operating expenses. Bluefield Waterworks v. Public Service Comm’n, 262 U.S. 679, 691
(1923) (citing Smyth v. Ames, 169 U.S. 466, 546-548 (1898)). The court deviated from this
standard in Hope Natural Gas, where the “end result test” was established. 320 U.S. at 602-03.
Rather than being “bound to the use of any single formula or combination of formulae in
determining rates,” the end result test requires courts to find a balance between the competing
interests of utility investors and consumers. Id. at 609. Under this standard, a rate is reasonable
when it “enable[s] the company to operate successfully, to maintain its financial integrity, to
attract capital, and to compensate its investors for the risks assumed . . . .” Id. at 605. CACJA
neglects to produce a reasonable rate under this precedent.
Title V fails to find a balance between the competing interests of Vandalia and CPL
because Title V does not consider the probable earning capacity of Raven, Hunter, and Ft.
Duquesne. See Bluefield Waterworks 262 U.S. at 691. In Vandalia’s most recent integrated
resource plan, Raven, Hunter, and Ft. Duquesne were all included in CPL’s portfolio of
resources throughout the 10-year planning period from 2020 through 2029. R. at 2. Essentially,
CPL reasonably relied on the fact Vandalia would use their energy for at least the next 10 years.
Stipulation of Facts at 1. CPL has a reasonably backed investment in Raven, Hunter and Ft.
Duquesne based on Vandalia’s integrated resource plan and CPL’s expected ROE of 9.20%. Not
only has the ROE been decreased to 7.40%, CPL will lose all future years of anticipated returns
form Raven, Hunter and Ft. Duquesne. “[T]he investor interest has a legitimate concern with the
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financial integrity of the company whose rates are being regulated.” Hope Natural Gas Co., 320
U.S. at 603.
In using the “end result” test, the Supreme Court has established that the Commission
must also consider, “whether the order may reasonably be expected to maintain financial
integrity, attract necessary capital, and fairly compensate investors for the risks they have
assumed, and yet provide appropriate protection to the relevant public interests, both existing and
foreseeable.” In re Permian Basin Area Rate Case, 390 U.S. 757, 792 (1968). Therefore, when
setting recovery, Vandalia must consider the “consequences of its orders for the character and
future development of the industry.” Id. Rates do not need to be simply based on cost and rates
of returns, but can be “just and reasonable within the meaning . . . because it results in
satisfactory programs of exploration, development and production.” Id.
Under this precedent, Vandalia should consider the consequences that CACJA’s recovery
rate will have on the character and future development of the energy industry surrounding
Vandalia. CPL will be deprived of $780 million in non-recoverable rates, which will hinder their
ability to transition their energy production into renewables. The objective of CACJA is to
increase clean energy and job growth within the clean energy sector. If CPL can only recover
“[r]ates which are not sufficient to yield a reasonable return on the property used,” they cannot
continue to support public interests through energy production. Bluefield Waterworks, 262 U.S.
at 690. The rates proposed by CACJA “are unjust, unreasonable and confiscatory, and their
enforcement deprives the [CPL] of its property in violation of the Fourteenth Amendment.” Id.
C. In the alternative, it is contrary to the public interest to limit the rate
recovery to no more than fifty percent (50%) of the unamortized investment.
Even if Title V of CACJA does not violate the Fifth and Fourteenth Amendment it is
against the public interest to limit the rate of recovery to fifty percent of the unamortized
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investment of CPL’s properties. CACJA, Tit. V. CACJA limits the rate recovery of Raven,
Hunter and Ft. Duquesne, unless it is demonstrated to be contrary to the public interest. CACJA,
Tit. V. The term “‘public interest’ in the Gas and Power Acts . . . is a charge to promote the
orderly production of plentiful supplies of electric energy . . . at just and reasonable rates.” Nat'l
Ass'n for Advancement of Colored People v. Fed. Power Comm'n, 425 U.S. 662, 670 (1976).
CACJA burdens CE with $780 million in non-recovery, which impacts their ability to supply
energy to Vandalia residents and invest in renewable energy production. This diminished
financial return is undoubtedly contrary to the public interest.
CPL has been a part of Vandalia for more than 40 years. It has contributed to the
economy, development, and social fabric of the community. CPL serves as a place of
employment for thousands of hard working Vandalians, who will soon be out of a job as a result
of CACJA. The limited recovery rate will irreversibly damage CPL’s financial integrity and
prevent their ability to contribute as a supplier of energy. Title V of CACJA jeopardizes CPL’s
ability to develop and expand new clean energy within Vandalia’s borders and thus thwarts the
“public interest” and the objectives of CACJA. See Hope Natural Gas Co., 320 U.S. at 609
(1944).
III. Vandalia violated the Federal Power Act and the Supremacy Clause of the U.S.
Constitution with respect to its net metering program under Title IV of CACJA.
Vandalia’s net metering program in Title IV of CACJA violates the Federal Power Act
and the Supremacy Clause because Vandalia set the rates for energy credits in the program at
retail in violation of federal law. The rates for generation sources located on the customer side of
the retail meter (Customer-generators) are wholesale transactions subject to FERC’s sole
jurisdiction under the FPA and should therefore be priced in accordance with federal law.
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A. Standard of Review
Constitutional challenges under the Supremacy Clause are reviewed de novo. See U.S. v.
Hawkins, 796 F.3d 843 (8th Cir. 2015).
B. Vandalia’s net metering program in Title IV of CACJA violates the FPA’s
grant of authority to FERC to regulate wholesale transactions in energy
marketplaces.
Vandalia’s net metering program in Title IV of CACJA credits Customer-generators
providing net positive energy output to the electric grid “at the [EU’s] full retail rate.” CACJA,
Tit. IV. Vandalia seeks to regulate these transactions as retail rates, subject to state jurisdiction.
But because the Customer-generator provides these “exports” to the EU for resale to other
customers, this is a wholesale transaction subject to FERC’s jurisdiction under the FPA. The EU
purchases the energy from the Customer-generator (through credits) with the intent to later sell it
to consumers. In endeavoring to regulate what are clearly wholesale rates under the exclusive
jurisdiction of FERC, Vandalia has acted contrary to the FPA.
Notably, Vandalia did not dispute below that this exchange is in fact a wholesale
transaction. R. at 11. Rather, Vandalia urged that FERC has disclaimed its jurisdiction over the
kind of net metering implemented by CACJA, citing FERC’s dated decisions in SunEdison LLC
and MidAmerican Energy. 129 F.E.R.C. ¶ 61,146 (2009); 94 F.E.R.C. ¶ 61,340 (2001). These
FERC decisions stand for the proposition that jurisdiction over energy sales is to be determined
based on the net flow over the retail meter aggregated over a full retail billing cycle. R. at 11.
Essentially, “where there is no net sale over the applicable billing period,” (no excess energy
produced for resale) by the Customer-generator to the EU, the EU is “not making a sale at
wholesale, i.e., a sale for resale.” SunEdison LLC, 129 F.E.R.C. ¶ 61,146, at 61,621 (internal
quotations omitted).
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Vandalia is mistaken that these decisions offer any support for the assertion that FERC
has disclaimed its jurisdiction in this regard. The D.C. Circuit has since implicitly rejected the
Commission’s reasoning in SunEdison LLC and MidAmerican Energy by holding that
jurisdiction cannot reasonably be based on the length of a netting period. See Southern Cal.
Edison Co. v. FERC, 603 F.3d 996 (D.C. Cir. 2010); Calpine Corp. v. FERC, 702 F.3d 41 (D.C.
Cir. 2012). The Court denounced any attempt to determine whether a retail sale has occurred
using the length of a netting period as “arbitrary and unprincipled—certainly as a jurisdictional
standard.” Calpine Corp. v. FERC, 702 F.3d at 46 (quoting So Cal. Edison v. FERC, 603 F.3d at
1000.)
Vandalia’s attempt to wield its authority over retail sales in CACJA’s net metering
program is contrary to the FPA’s grant of authority to FERC and, as will be explained below,
cannot be permitted under the Supremacy Clause.
C. Because Title IV of CACJA runs afoul of the FPA, it is preempted by federal
law.
The Supremacy Clause of the United States Constitution expressly provides that federal
law “shall be the supreme law of the land.” U.S. Const. art. VI, cl. 2. This constitutional
provision allows Congress to preempt, “i.e. invalidate, a state law through federal legislation.”
Oneok, Inc. v. Learjet, Inc., 575 U.S. 373, 376 (2015). “The question whether a certain state
action is preempted by federal law is one of congressional intent.” Gade v. National Solid Wastes
Management Ass'n, 505 U.S. 88, 96 (1992). Preemption can be either express or implied, but “is
compelled whether Congress’ command is explicitly stated in the statute’s language or implicitly
contained in its structure and purpose.” Jones v. Rath Packing Co., 430 U.S. 519, 525 (1977).
The U.S. Supreme Court has recognized at least two types of implied preemption for when
express preemptive language is lacking: conflict preemption and field preemption.
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Most relevant to the issue at hand, field preemption occurs when federal regulation “is so
pervasive as to make reasonable the inference that Congress left no room for the States to
supplement it.” Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 230 (1947). There is a
presumption against preemption when Congress legislates in a field in which States have
traditionally occupied. In such a case, courts assume “the historic police powers of the States
were not to be superseded by the Federal Act unless that was the clear and manifest purpose of
Congress.” Id. Here, Vandalia has entered a field reserved solely for federal governance—the
wholesale energy market.
Title IV of CACJA thus runs afoul of the FPA and the Supremacy Clause of the U.S.
Constitution. This Court should affirm the District Court’s identical conclusion on this issue.
IV. Vandalia’s prohibition on the aggregation of DERs in Title VI, Section 2 of CACJA
runs afoul of the FPA and is thus preempted by federal law.
Title VI, Section 2 of CACJA undermines FERC’s authority under the FPA and directly
conflicts with federal law. When “compliance with both federal and state regulations is a
physical impossibility,” state law yields to federal objectives under the Supremacy Clause.
Florida Lime & Avocado Growers, Inc. v. Paul, 373 U.S. 132, 142-143 (1963). CACJA’s
prohibition on DER aggregation in Vandalia cannot be reconciled with Order 2222. FERC has
acted completely within its jurisdictional boundaries in issuing Order 2222, therefore Vandalia’s
blatant attempt to ignore FERC’s Order and further its own agenda is a violation of the FPA and
must be preempted under the Supremacy Clause of the U.S. Constitution.
A. Standard of Review
As stated above, Constitutional challenges under the Supremacy Clause are questions of
law subject to review de novo. See Perry v. Los Angeles Police Dept., 121 F.3d 1365 (9th Cir.
1997).
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FERC’s Order 2222 will be upheld unless its issuance was “arbitrary, capricious, an
abuse of discretion, or otherwise not in accordance with law.” 5 U.S.C. § 706(2)(A). The scope
of review under the “arbitrary and capricious” standard is narrow and a court is not to substitute
its judgment for that of the agency. Motor Vehicle Mfrs. Ass'n of U.S., Inc. v. State Farm Mut.
Auto. Ins. Co., 463 U.S. 29, 43 (1983). The Court should uphold a rule as long as the agency has
“examined the relevant considerations and articulated a satisfactory explanation for its action,
including a rational connection between the facts found and the choice made.” FERC v. Electric
Power Supply Ass'n. (EPSA), 136 S.Ct. 760, 782 (2016).
B. Title VI, Section 2 of CACJA infringes on FERC’s authority over wholesale
markets under the FPA.
FERC issued Order 2222 pursuant to its wholesale authority under the FPA. See
Participation of Distributed Energy Resource Aggregations in Markets Operated by Regional
Transmission Organizations and Independent System Operators, Order No. 2222, 172 FERC ¶
61,247 (Sep. 17, 2020).
The FPA provides FERC with jurisdiction over wholesale energy rates and any “rule,
regulation, [or] practice . . . affecting” such rates. 16 U.S.C. §§ 824(b), 824e(a). FERC also has
“the exclusive authority to determine who may participate in the wholesale markets.” National
Association of Regulatory Utility Commissioners v. FERC (NARUC), 964 F.3d 1177, 1187 (D.C.
Cir. 2020). The Supreme Court has highlighted a three-factor test for determining whether a
particular order falls under FERC’s wholesale jurisdiction or exceeds this jurisdiction. The test is
as follows: (1) whether the practice at issue in the Order “directly affects wholesale rates,” (2)
whether the Commission has regulated retail sales, and (3) whether the practice conflicts with the
“core purposes” of the FPA. EPSA, 136 S.Ct. at 773.
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i. Order 2222 directly affects wholesale rates.
“The FPA delegates responsibility to FERC to regulate the interstate wholesale market
for electricity—both wholesale rates and the panoply of rules and practices affecting them.” Id.
Wholesale rates and “all rules and regulations affecting or pertaining to such rates or charges,”
must be “just and reasonable.” 16 U.S.C. § 824d(a). Under the first factor of the Supreme
Court’s test, FERC’s “affecting” jurisdiction is limited to “rules or practices that directly affect”
wholesale rates. EPSA, 136 S.Ct. at 774 (internal quotations omitted).
Order 2222 directly affects wholesale rates in the manner contemplated by the Supreme
Court. The Order increases competition in wholesale energy markets, which in turn lowers
wholesale rates. The aggregation of DERs under the Order “lower[s] costs for consumers
through enhanced competition, more grid flexibility and resilience, and more innovation within
the electric power industry.”5 The Supreme Court in EPSA found that FERC did not exceed its
jurisdiction under the first factor because the increased participation of demand response
providers would “ratchet down the rates wholesale purchasers pay,” thus affecting wholesale
rates directly. EPSA, 136 S.Ct. at 775. The D.C. Circuit has also accentuated this point in the
context of FERC’s Order No. 841. NARUC, 964 F.3d at 1181. FERC issued Order 841 to
“remove existing barriers to the participation of electric storage resources (ESRs)” in the
RTO/ISO markets, in a similar manner to FERC’s participation goals for DERs in Order 2222.
Id. at 1182. In applying the Supreme Court’s three-factor test, the Court “swiftly concluded” that
FERC did not exceed its authority under the first factor. Id. at 1186. The Order at issue “solely
target[ed] the manner in which an ESR may participate in wholesale markets” and was “designed
5 FERC Order No. 2222: Fact Sheet.
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to increase wholesale competition, thereby reducing wholesale rates.” Id. As such, the
participation of ESR’s in the market directly affected wholesale rates. Id.
Similarly, the aggregation of DERs under Order 2222 directly affects wholesale rates
because the increase in wholesale competition will provide lower prices for consumers.
Therefore, FERC has not exceeded its jurisdictional authority under the first factor of the test.
ii. Order 2222 does not seek to regulate the retail market.
In order to pass muster under the second factor, FERC cannot “unlawfully regulate[]
matters left to the States.” NARUC, 964 F.3d at 1186. The FPA left regulatory authority over
retail sales to the States and FERC “cannot take an action transgressing that limit.” 16 U.S.C. §
824(b); EPSA, 136 S.Ct. at 775.
But of course, “transactions that occur on the wholesale market have natural
consequences at the retail level.” Id. at 776. Effects on the retail market are likely to be a
byproduct of changes in regulation of wholesale rules and practices. When these effects are the
result of FERC exercising its statutory authority over wholesale markets, effects on retail rates
“are of no legal consequence.” NARUC, 964 F.3d at 1187 (quoting EPSA, 136 S.Ct. at 776). The
Court in EPSA held that FERC met the requirements of the second factor as well. The Court
reasoned that “when FERC regulates what takes place on the wholesale market, as part of
carrying out its charge to improve how that market runs, then no matter the effect on retail rates,
§ 824(b) imposes no bar.” EPSA, 136 S.Ct. at 776.
Vandalia argued below that Title VI, Section 2 of CACJA does not violate the FPA
because the participation of DERs in energy markets should be regulated under state law. R. at
11. Vandalia bases its argument on the idea that states have jurisdiction over retail electric
service. R. at 11. Vandalia suggests that because state regulators have authority over the terms
and conditions of interconnection to the distribution system, they also have authority to limit
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DER use of the distribution system. R. at 11. Not so. Granted, states were given some authority
under the FPA. See 16 U.S.C. § 824(b). But Vandalia’s conflicting prohibition in Title VI,
Section 2 of CACJA falls completely outside a state’s regulatory capacity under the FPA.
Incidental effects on the retail market are bound to occur, as wholesale and retail markets “are
not hermetically sealed from each other.” EPSA, 136 S.Ct. at 776. But states cannot dip their
regulatory feet into wholesale markets as Vandalia attempts to do here.
Therefore, there is no support for a conclusion that FERC has exceeded the bounds of its
jurisdiction under the second factor of the test.
iii. Order 2222 does not conflict with the FPA’s core purposes.
Under the final factor, FERC cannot “flout the FPA’s core objects.” EPSA, 136 S.Ct. at
764. The FPA aims to “protect power consumers against excessive prices” and “enhance
reliability in the wholesale electricity market.” Pennsylvania Water & Power Co. v. Federal
Power Commission, 343 U.S. 414, 419 (1952); EPSA, 136 S.Ct. at 773.
FERC did not exceed its authority over the wholesale market by conflicting with the
purposes of the Act. To the contrary, FERC’s issuance of Order 2222 sought to further the
purposes of the FPA by ensuring just and reasonable prices in the marketplace through enhanced
competition. The Court found similarly in EPSA that “bringing down costs” evidences an intent
to further the FPA’s purposes, not conflict with them. 136 S.Ct. at 781. Thus the Court held that
under factor three, “any last flicker of life in EPSA’s argument” was “extinguished.” Id. at 782.
The FPA’s division of authority between FERC and the states clearly binds Vandalia and
all other states to the requirements of Order 2222. Any legislation to the contrary will be
preempted under the Supremacy Clause.
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C. Because Title VI, Section 2 directly conflicts with Order 2222 and FERC’s
authority under the FPA, it should be found unconstitutional under the
Supremacy Clause of the U.S. Constitution.
No matter how legitimate Vandalia’s concerns are regarding DER aggregation, Title VI,
Section 2 of CACJA is undoubtedly preempted by federal law. Vandalia’s prohibition on the
aggregation of DERs in the state is a violation of the Supremacy Clause because (1) there is a
direct conflict with federal law, and (2) the field is reserved solely for federal regulation.
i. Title VI, Section 2 is unconstitutional because it directly conflicts with
federal law under the FPA.
Conflict preemption is found where “compliance with both federal and state regulations
is a physical impossibility,” Florida Lime & Avocado Growers, Inc. v. Paul, 373 U.S. 132, 142-
143 (1963), or where state law is “an obstacle to the accomplishment and execution of the full
purposes and objectives of Congress.” Hines v. Davidowitz, 312 U.S. 52, 67 (1941). As the
District Court aptly put it, the case at hand is “a classic case of ‘conflict preemption’ under
Supremacy Clause jurisprudence.” Opinion at 6. Title VI, Section 2 directly conflicts with Order
2222, making it impossible to comply with both Vandalia law and federal law.
The Vandalia Legislature held a special session specifically to amend CACJA in light of
Order 2222 and add Title VI to the statute. R. at 4. Vandalia was aware of the contents of the
Order and nonetheless added a provision to CACJA prohibiting DERs from aggregating in
Vandalia for participation purposes. Vandalia deliberately ignored federal law and amended
CACJA to further its own goals. When there is a conflict between state law and federal law, as
there is here, federal law preempts state law. Paul, 373 U.S. at 142-143.
As such, Vandalia’s conflicting position on the aggregation of DERs in CACJA cannot
be permitted under the Supremacy Clause of the U.S. Constitution.
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ii. Title VI, Section 2 is also unconstitutional because it seeks to regulate
a field occupied exclusively by FERC as intended by Congress in the
FPA.
Courts have invalidated state law where “Congress may have intended to foreclose any
state regulation in the area” through field preemption. Oneok, Inc., 575 U.S. at 377 (quoting
Arizona v. United States, 567 U.S. 387, 401 (2012) (internal quotations omitted)). The rules
governing field preemption apply here to render Title VI, Section 2 of CACJA invalid. “Any
State effort that aims directly at destroying FERC’s jurisdiction by necessarily deal[ing] with
matters which directly affect the ability of the [Commission] to regulate comprehensively and
effectively over that which it has exclusive jurisdiction invalidly invade[s] the federal agency’s
exclusive domain.” NARUC, 964 F.3d at 1188 (quoting Northern Natural Gas Co. v. State Corp.
Commission of Kan., 372 U.S. 84, 91-92 (1963) (internal quotations omitted)).
Vandalia argued below that states should have authority over DER participation because
states would be best able to decide whether to authorize third-party aggregators to transact with
retail customers. R. at 11. But it does not matter what Vandalia thinks is best, as long as FERC
determines there is a problem affecting “just and reasonable” wholesale rates and acts within its
jurisdiction to fix the problem as it did here. 16 U.S.C. § 824d(a).
FERC made a finding prior to issuing Order 2222 that prohibitions on DER aggregations
were causing unjust and unreasonable rates in the wholesale market. If FERC thought states
would be best able to decide whether third-party aggregators should be participants in the energy
market, then Order 2222 would have included an opt-out provision, allowing states to determine
whether DER aggregation would be permitted in their state. In fact, FERC specifically decided
not to include an opt-out provision because equitable DER participation in the RTO/ISO markets
“is essential to the Commission’s ability to fulfill its statutory responsibility to ensure that
wholesale rates are just and reasonable.” Order No. 2222, 172 FERC ¶ 61,247 at P 46. FERC has
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included such opt-out provisions in other orders previously, but decided not to in Order 2222
because the benefits of allowing DER aggregators broader access outweighed any arguments
favoring an opt-out. See EPSA, 136 S.Ct. at 779; R. at 9.
State intervention in matters subject to federal control “cannot be sustained when they
threaten . . . the achievement of the comprehensive scheme of federal regulation.” N. Nat. Gas
Co., 372 U.S. at 94. Vandalia’s direct attack on Order 2222 “threatens” FERC’s duty to ensure
that rules or practices ‘affecting’ wholesale rates are just and reasonable” EPSA, 136 S.Ct. at 774
(citing 16 U.S.C. § 824d(a)). Title VI, Section 2 cannot stand under the Supremacy Clause for
these reasons.
CONCLUSION
For the foregoing reasons, the Court should affirm the U.S. District Court of Vandalia’s
grant of summary judgment in favor of Commonwealth Energy on all constitutional challenges
under consideration.
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Certificate of Service
Certificate of Service Pursuant to Official Rule IV, Team Members representing
COMMONWEALTH ENERGY, certify that our Team emailed the brief (PDF version) to the
West Virginia University Moot Court Board in accordance with the Official Rules of the
National Energy Moot Court Competition at the West Virginia University College of Law. The
brief was emailed before 1:00 p.m. Eastern time, February 3, 2021.
Respectfully submitted,
Team No. 22