Alliance for Clean Coal, a Virginia Not-For-Profit Corporation v. Dan Miller, Richard Kolhauser, William M. Dickson

44 F.3d 591, 39 ERC (BNA) 2025, 1995 U.S. App. LEXIS 460, 1995 WL 7488

• Court: Court of Appeals for the Seventh Circuit
• Decided: January 9, 1995
• Docket: 94-1369
• Status: Published

Opinions

CUMMINGS, Circuit Judge.

Plaintiff Alliance for Clean Coal (“Alliance”) is a Virginia trade association whose members include Colorado and Oregon coal companies and three railroads that transport coal. The defendants are the chairman and six commissioners of the Illinois Commerce Commission in charge of the administration and enforcement of the Illinois Public Utilities Act.

BACKGROUND

Coal has long been and continues to be the most important source of fuel for the generation of electric power in this country, accounting for 56% of all electricity generated in 1992. Electric utilities, the primary consumers of domestic coal, burned 78% of the 998 million tons of coal produced in the United States in 1992. Coal is produced in over half the states and is sold in a highly competitive national market. See Alliance Ex. 10.

Coal’s sulfur content varies greatly depending on its geographical origin. Western coal, mined west of the Rocky Mountains, generally has the lowest sulfur content of any coal produced in the country. Coal mined in the “Illinois Basin,” which includes most of Illinois and parts of Indiana and western Kentucky, is relatively high in sulfur. Burning coal emits sulfur dioxide in an amount proportional to the coal’s sulfur content. See generally Bruce A. Ackerman & William T. Hassler, Clean Coal/Dirty Air (1981).

In the 1970 Amendment to the Clean Air Act, Congress authorized the Environmental Protection Agency (“EPA”) to set new standards to regulate various emissions, including sulfur dioxide. See 42 U.S.C. § 7411 (1970) (amended 1977). The EPA provided for two methods to control sulfur dioxide emissions: (1) the use of low sulfur coal; and (2) the use of pollution control devices (“scrubbers”).

In 1977 Congress again amended the Clean Air Act, requiring new electric plants to build scrubbers. By requiring scrubbers regardless of the sulfur content of the coal burned, Congress essentially eliminated for new facilities the low-sulfur coal compliance option that had been available under the 1970 Amendment.

In 1990 Congress once again amended the Act, this time requiring a drastic two-stage reduction in industrial sulfur dioxide emissions in an attempt to combat acid rain. The 1990 Act implements a market-driven approach to emissions regulation, allowing for the free transfer of emission “allowances.” The Act is aimed at reducing sulfur dioxide emissions in the most efficient manner and, like the 1970 Act, allows electric generating plants to meet the emission standards in the cheapest way possible. The principal methods of compliance now include installing new scrubbers, using low-sulfur coal, switching to another fuel source, or buying additional emission allowances.

The 1990 amendments meant the end of the salad days for high-sulfur coal-producing states such as Illinois. Low-sulfur western coal once again offered a viable alternative to the continued burning of high-sulfur coal combined with the installation of expensive new scrubbers. Faced with potentially damaging competition for the local coal industry, in 1991 the Illinois General Assembly passed the Coal Act, an addition to the Utilities Act, concerning implementation and compliance with the 1990 Clean Air Act amendments. See 220 ILCS 5/8-402.1. Under the Coal Act, utilities must formulate Clean Air Act compliance plans which must be approved by the Illinois Commerce Commission. In preparing and approving these compliance plans, the utilities and the Commerce Commission are required to:

take into account the need for utilities to comply in a manner which minimizes to the extent consistent with the other goals and objectives of this Section the impact of compliance on rates for service, the need to use coal mined in Illinois in an environmentally responsible manner in the production of electricity and the need to maintain and preserve as a valuable State resource the mining of coal in Illinois.

220 ILCS 5/8-402.1(a). The Act encourages the installation of scrubbers to allow the - continued burning of Illinois coal, stating that the combination

can be an environmentally responsible and cost effective means of compliance when the impact on personal income in this State of changing the fuel used at such generating plants so as to displace coal mined in Illinois is taken into account.

Id. The four largest generating plants in Illinois currently burning Illinois coal are required to include the installation of scrubbers in their compliance plans so that they will be able to continue their use of Illinois coal. The cost of these scrubbers will be deemed “used and useful” when placed in operation and the utilities are guaranteed that they will be able to include the costs in their rate base. The Act further provides that the Commerce Commission must approve any 10% or greater decrease in the use of Illinois coal by a utility.

Plaintiff asked the district court to declare the Illinois Coal Act repugnant to the Commerce Clause of the federal Constitution and to enjoin its enforcement. In December 1993, District Judge Conlon handed down a memorandum opinion and order granting such relief. Alliance for Clean Coal v. Craig, 840 F.Supp. 554 (N.D.Ill.1993). The court enjoined the Illinois Commerce Commission from enforcing the Illinois Coal Act and voided federal Clean Air Act compliance plans approved in reliance on the Illinois Coal Act.

On appeal, the defendant commissioners request that we dismiss the ease for want of jurisdiction or, if we reach the merits, reverse the judgment below.

Jurisdiction

The Illinois commissioners assert that the federal courts lack jurisdiction to resolve this dispute. They claim that there exists no “case or controversy” because plaintiff Alliance has no standing to seek the requested relief having suffered no “injury in fact.” The district court did not discuss this question since it was not raised below. Because jurisdiction is a sine qua non, we will discuss this argument.

While admitting that Alliance members “have done or are doing some degree of business with Illinois utilities,” Illinois argues that Alliance has not established that it has suffered an “injury in fact” because “they do not identify any business overtures that were made and rebuffed on the basis of [the Coal Act].” But the showing of specific “lost opportunities” is neither required to establish standing nor reasonably expected under the circumstances of this case. An “injury in fact” is “an invasion of a legally protected interest which is (a) concrete and particularized and (b) actual or imminent, not ‘conjectural’ or ‘hypothetical’.” Lujan v. Defenders of Wildlife, — U.S. -, -, 112 S.Ct. 2130, 2136, 119 L.Ed.2d 351. The Illinois Coal Act allegedly impinges on Alliance’s members’ rights to compete on an equal footing in interstate commerce. This injury is particular to suppliers and others who deal or are attempting to sell western coal to Illinois utilities. Despite the absence of evidence of specific lost deals, this competitive injury is neither “conjectural” nor “hypothetical” — the injury is not a particular lost sale but the “inability to compete on an equal footing.” Northeastern Florida Contractors v. Jacksonville, — U.S. -, -, 113 S.Ct. 2297, 2303, 124 L.Ed.2d 586; Government Suppliers Consolidating Services v. Bayh, 975 F.2d 1267, 1274-75 (7th Cir.1992), certiorari denied, — U.S. -, 113 S.Ct. 977, 122 L.Ed.2d 131; Mapco, Inc. v. Grunder, 470 F.Supp. 401, 403-06 (N.D.Ohio 1979) (Article III standing exists under similar allegations).

Moreover, because the alleged discrimination against western coal occurs at the very early stage in the utilities’ drafting of compliance plans and the Commerce Commission’s actions with respect to those plans, it is unreasonable to expect Alliance to point to specific orders canceled or deals reneged on. Any specific supply arrangements would occur much farther down the road after a compliance plan had been adopted and approved. Plaintiffs alleged injury is that because of the challenged legislation, such plans will be less likely to include the use of western coal.

As further “evidence” that Alliance has not suffered an injury in fact, Illinois asserts that the sale of western coal to Illinois utilities has actually increased since the 1991 passing of the Coal Act. The 1990 Clean Air Act opened up the Illinois market for western coal by once again allowing the use of low-sulfur coal as a compliance option. It is therefore not surprising that the sale of western coal has increased despite the best efforts of the Illinois legislature. The alleged injury stems from the fact that sales have not increased as much or as rapidly as they would have on a level playing field without the Coal Act. Finally, it is difficult to imagine more appropriate plaintiffs to challenge the constitutionality of the Illinois Act. Sellers of out-of-state coal were the ideal plaintiffs missing in Wyoming v. Oklahoma. See Wyoming v. Oklahoma, 502 U.S. 437, 461-62, 112 S.Ct. 789, 804, 117 L.Ed.2d 1 (Justice Sealia, joined in dissent by Chief Justice Rehnquist and Justice Thomas, implied that Wyoming does not have standing but that sellers of coal from Wyoming would).

Constitutionality of Illinois Coal Act

Alliance attacks the constitutionality of the Illinois Coal Act under the Commerce Clause of the Constitution. That clause provides that “the Congress shall have power ... to regulate commerce ... among the several states.” Article I, Section 8, Clause 3. It has long been interpreted to have a “negative” aspect that denies the states the power to discriminate against or burden the interstate flow of articles of commerce. E.g., Welton v. Missouri, 91 U.S. (1 Otto) 275, 23 L.Ed. 347; Wyoming v. Oklahoma, 502 U.S. 437, 454-55, 112 S.Ct. 789, 800, 117 L.Ed.2d 1. “[I]f a statute discriminates against interstate commerce either on its face or in its practical effect, it is subject to the strictest scrutiny ... ‘[Wjhere simple economic protectionism is effected by state legislation, a virtual per se rule of invalidity has been erected.’ ” DeHart v. Town of Austin, 39 F.3d 718, 723 (7th Cir.1994), quoting Philadelphia v. New Jersey, 437 U.S. 617, 624, 98 S.Ct. 2531, 2535, 57 L.Ed.2d 475.

Two recent Supreme Court eases interpreting the negative Commerce Clause are controlling here. In Oregon Waste Systems v. Department of Environmental Quality, — U.S. -, 114 S.Ct. 1345, 128 L.Ed.2d 13, the Court held that the negative Commerce Clause prohibited a state surcharge on the disposal of solid waste generated out of state. In West Lynn Creamery, Inc. v. Healy, — U.S. -, 114 S.Ct. 2205, 129 L.Ed.2d 157, the Court struck down a Massachusetts milk-pricing order which employed a tax on all milk sold to fund a subsidy to instate producers.¹ Because the Illinois Coal Act, like the milk-pricing order in West Lynn, has the same effect as a “tariff or customs duty — neutralizing ' the advantage possessed by lower cost out of state producers,” it too is repugnant to the Commerce Clause and the principle of a unitary national economy which that clause was intended to establish. West Lynn, — U.S. at -, 114 S.Ct. at 2212.

The Illinois Coal Act is a none-too-subtle attempt to prevent Illinois electric utilities from switching to low-sulfur western coal as a Clean Air Act compliance option. Indeed, the statute itself states that the Illinois General Assembly determined that there was “the need to use coal mined in Illinois” and “the need to maintain- and preserve as a valuable State resource the mining of coal in Illinois.” 220 ILCS '5/8-402.1(a). The Act implements this protectionist policy in four ways. First, it tilts the overall playing field by requiring that commissioners take account of the effect on the local coal industry when considering compliance plans. Id. Second, the Act requires that certain large generating units install scrubbers “to enable them to continue to burn Illinois coal.” 220 ILCS 5/8-402.1(e). Third, the Act guarantees that the cost of these scrubbers can be included in the utility’s rate base and passed through to consumers, even where the use of low-sulfur western coal would be a cheaper compliance option. 220 ILCS 5/8-402.1(e) and 220 ILCS 5/9-212. Finally, the Act requires Commerce Commission approval before a utility can make a change in fuel that would result in a 10% or greater decrease in the utility’s use of Illinois coal. In determining whether to grant approval, the Commerce Commission “shall consider the impact on employment related to the production of coal in Illinois.” 220 ILCS 5/8-508. The intended effect of these provisions is to foreclose the use of low-sulfur western coal by Illinois utilities as a means of complying with the Clean Air Act. This of course amounts to discriminatory state action forbidden by the Commerce Clause.

Illinois seeks to save the Act by claiming that it merely “encourages” the local coal industry and does not in fact discriminate. This argument rings hollow. The Illinois Coal Act cannot continue to exist merely because it does not facially compel the use of Illinois coal or forbid the use of out-of-state coal. As recognized in West Lynn Creamery, even ingenious discrimination is forbidden by the Commerce Clause. — U.S. at -, 114 S.Ct. at 2215. By “encouraging” the use of Illinois coal, the Act discriminates against western coal by making it a less viable compliance option for Illinois generating plants. Moreover, the requirement that certain generators be equipped with scrubbers essentially mandates that these generators burn Illinois coal: that is the purpose of the scrubber requirement, and the Commerce Commission would likely not allow the pass-through of the then-unnecessary additional cost of low-sulfur western coal. Such a mandate runs directly afoul of Wyoming v. Oklahoma, 502 U.S. 437, 112 S.Ct. 789, 117 L.Ed.2d 1 (requirement that Oklahoma generating plants bum 10% Oklahoma coal held to violate the Commerce Clause). Similarly, the guaranteed pass-through of the scrubber cost to rate-payers is equivalent to the minimum price fixing for the benefit of local producers held unconstitutional in Baldwin v. G.A.F. Seelig, Inc., 294 U.S. 511, 55 S.Ct. 497, 79 L.Ed. 1032.

Illinois argues that it has merely “agreed to ‘subsidize’ the cost of generating electricity through the use of Illinois coal by requiring its own citizens to bear the cost of pollution control devices.” First, the fact that Illinois rate-payers are footing the bill does not cure the discriminatory impact on western coal producers. As the Supreme Court noted in rejecting an identical argument in West Lynn, “[t]he cost of a tariff is also borne primarily by local consumers yet a tariff is the paradigmatic Commerce Clause violation.” West Lynn, — U.S. at —— - -, 114 S.Ct. at 2216-2217. Second, Illinois’ characterization of the Act as an “agreement to subsidize” does not suffice to fit this case into the “market participant” exception to the negative Commerce Clause created in Hughes v. Alexandria Scrap Corp., 426 U.S. 794, 96 S.Ct. 2488, 49 L.Ed.2d 220. Illinois is not acting as a purchaser of either coal or electricity but as a regulator of utilities. The fact that its regulatory action “has the purpose and effect of subsidizing a particular industry ... does not transform it into a form of state participation in the free market.” New Energy Co. of Indiana v. Limbach, 486 U.S. 269, 277, 108 S.Ct. 1803, 1809, 100 L.Ed.2d 302 (state tax credit for the use of Ohio-produced ethanol violated the Commerce Clause).

Finally, defendants champion the Illinois Coal Act as a means of protecting Illinois and its citizens from economic harm that would result from a decline in the local coal industry. Such concerns do not justify discrimination against out-of-state producers. “Preservation of local industry by protecting it from the rigors of interstate competition is the hallmark of economic protection that the Commerce Clause prohibits.” West Lynn, — U.S. at -, 114 S.Ct. at 2217.

The purpose of the Illinois Coal Act was “to maintain and preserve ... the mining of coal in Illinois” and to continue “to use Illinois coal as a fuel source.” 220 ILCS 5/8-402.1(a). The Illinois Commerce Commission was required to take into account “the need to use coal mined in Illinois.” Id. The obvious intent was to eliminate western coal use by Illinois generating plants, thus effectively discriminating against western coal. The Commerce Clause compels us to invalidate this statute, and consequently the compliance plans thereunder.

Judgment affirmed.²

1 . The history of the Commerce Clause is thoroughly covered in the West Lynn Creamery opinion and need not be repeated here, nor is it necessary to cite the litany of supporting cases cited there as well as in Oregon Waste Systems.

2 . Montana and Wyoming have submitted an ami-cus brief in support of affirmance while the ami-cus brief of Indiana favors reversal,