## Facts

- Connecticut authorized its energy agency to solicit renewable-energy proposals and to direct electric distribution companies to consider long-term power purchase agreements (PPAs), subject to state regulatory approval.
- The statutes permitted, but did not require, utilities to enter any particular PPA; utility participation and contract terms remained subject to applicable regulatory review.
- In 2015, the state issued a renewable-energy request for proposals; Allco Finance Ltd., a renewable-energy developer, submitted five solar bids but was not selected.
- Separately, Connecticut maintained a Renewable Portfolio Standard (RPS) requiring utilities to procure a specified portion of electricity from renewable sources, in part through renewable energy certificates/credits (RECs).
- The RPS limited qualifying RECs to those generated within, or otherwise associated with, the ISO–New England region or tracked through the New England Power Pool Generation Information System (NEPOOL-GIS).
- Allco alleged the solicitation/contracting framework and the RPS/REC eligibility limits effectively favored in-region or state-preferred renewable generation and disadvantaged Allco’s out-of-state interests.
- Allco filed two related federal suits against Connecticut energy and utility regulators seeking to invalidate the solicitation program as federally preempted and the RPS as unconstitutional under the Dormant Commerce Clause.
- The district court dismissed both complaints for failure to state a claim; Allco appealed.

## Issues

1. Whether Connecticut’s renewable-energy solicitations and resulting bilateral PPAs were preempted by the Federal Power Act (FPA) and federal regulation of wholesale electricity rates.
2. Whether Connecticut’s RPS REC-eligibility limits discriminated against interstate commerce, in purpose or effect, in violation of the Dormant Commerce Clause.

## Decision

- The Second Circuit affirmed dismissal of both complaints.
- The court held Allco failed to plausibly allege that the solicitation/PPA program was field- or conflict-preempted by the FPA.
- The court held Allco failed to plausibly allege that the RPS REC-eligibility limits were facially discriminatory or discriminatory in purpose or effect under the Dormant Commerce Clause.

## Legal Principles

- State renewable-energy procurement programs are not FPA-preempted merely because they influence generation development; preemption concerns arise when a state effectively sets wholesale rates or supplants FERC’s rate-setting authority.
- A key indicator of impermissible state intrusion is “tethering” state payments or guarantees to outcomes of FERC-regulated wholesale-market auctions in a manner that replaces the federally regulated rate.
- Where utilities retain discretion to contract, and contracts remain subject to applicable federal oversight, a state solicitation and contracting framework is less likely to conflict with the FPA’s allocation of authority.
- Dormant Commerce Clause invalidation generally requires plausible allegations of facial discrimination, discriminatory purpose, or discriminatory effect; incidental burdens on interstate commerce may be permissible when justified by legitimate local benefits.
- A state’s definition of what qualifies for compliance with its own renewable mandate, including use of regional tracking systems, is not necessarily discriminatory absent plausible allegations that the criteria function as protectionism.

## Conclusion

The Second Circuit upheld Connecticut’s renewable-energy solicitation and long-term contracting authority against an FPA preemption challenge and rejected a Dormant Commerce Clause challenge to Connecticut’s RPS REC-eligibility limits, concluding the pleadings did not plausibly show federal-rate displacement or interstate discrimination.


Allco Finance Ltd. v. Klee, 861 F.3d 82 (2d Cir. 2017)