Invenergy Thermal LLC v. Watson

• Court: Court of Appeals for the Ninth Circuit
• Decided: December 24, 2024
• Docket: 23-3857
• Status: Unpublished

Opinion

NOT FOR PUBLICATION FILED UNITED STATES COURT OF APPEALS DEC 24 2024 MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS FOR THE NINTH CIRCUIT

INVENERGY THERMAL LLC; GRAYS No. 23-3857 HARBOR ENERGY, LLC, D.C. No. 3:22-cv-05967-BHS Plaintiffs-Appellants,

v. MEMORANDUM*

LAURA WATSON, in her official capacity as Director of the Washington State Department of Ecology,

Defendant-Appellee.

Appeal from the United States District Court for the Western District of Washington Benjamin H. Settle, District Judge, Presiding

Argued and Submitted November 13, 2024 San Francisco, California

Before: S.R. THOMAS and MILLER, Circuit Judges, and MOLLOY, District Judge.**

* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. ** The Honorable Donald W. Molloy, United States District Judge for the District of Montana, sitting by designation. Plaintiffs-Appellants Invenergy Thermal LLC and Grays Harbor Energy

LLC (collectively “Appellants”) own an electricity-generating natural gas power

plant in Washington State. In 2022, they sued Defendant-Appellee Laura Watson,

in her official capacity as Director of the Washington State Department of Ecology

(the “State”), challenging a provision of Washington’s Climate Commitment Act

that provides no-cost emissions allowances to electric utilities but requires non-

utility owners, like Appellants, to purchase such allowances for their power plants.

See Wash. Rev. Code § 70A.65.120. Appellants allege that the Act’s distribution

of no-cost allowances violates the dormant Commerce Clause and the Fourteenth

Amendment’s Equal Protection Clause. The district court granted the State’s

motion for judgment on the pleadings, Fed. R. Civ. P. 12(c), after sua sponte

finding that Appellants lacked standing. We have jurisdiction under 28 U.S.C.

§ 1291 and review the district court’s decision de novo. See Health Freedom Def.

Fund, Inc. v. Carvalho, 104 F.4th 715, 722 (9th Cir. 2024). We affirm, but not on

standing grounds.

I

While the State does not defend the district court’s standing decision,

standing is jurisdictional and must be addressed. See B.C. v. Plumas Unified Sch.

Dist., 192 F.3d 1260, 1264 (9th Cir. 1999) (“[F]ederal courts are required sua

sponte to examine jurisdictional issues such as standing.”). Appellants have

2 23-3857 standing. The conduct at issue “threatens to cause financial injury” to Invenergy

Thermal LLC, the parent company of Grays Harbor Energy LLC, “by illegally

reducing the return on [its] investments in [Grays Harbor] and by lowering the

value of [its] stockholdings.” Franchise Tax Bd. of Cal. v. Alcan Aluminium Ltd.,

493 U.S. 331, 336 (1990). Grays Harbor Energy LLC also has standing because

even if it qualifies as an in-state entity, “cognizable injury from unconstitutional

discrimination against interstate commerce does not stop at members of the class

against whom a State ultimately discriminates.” Gen. Motors Corp. v. Tracy, 519

U.S. 278, 286 (1997); see Bacchus Imports, Ltd. v. Dias, 468 U.S. 263, 265–67

(1984) (holding that in-state liquor wholesalers had standing to raise a dormant

Commerce Clause challenge to a Hawaii tax regime exempting certain alcoholic

beverages produced in-state from liquor taxes).

Ultimately, while the district court erred by addressing standing without

giving the parties an opportunity to be heard, see Jones v. L.A. Cent. Plaza LLC, 74

F.4th 1053, 1060 (9th Cir. 2023) (“Given the due process and fairness concerns

presented, a district court generally must provide the parties with adequate notice

that it is contemplating invoking a particular procedural device sua sponte.”), and

by proceeding to the merits despite its finding of no standing, see Barke v. Banks,

25 F.4th 714, 721 (9th Cir. 2022) (per curiam) (“[A] court that lacks jurisdiction ‘is

powerless to reach the merits.’” (quoting Fleck & Assocs., Inc. v. Phoenix, City of,

3 23-3857 an Ariz. Mun. Corp., 471 F.3d 1100, 1106–07 (9th Cir. 2006))), standing exists and

we affirm on the merits.

II

Appellants fail to plead a viable dormant Commerce Clause claim because

the Climate Commitment Act’s provision of no-cost allowances to electric utilities

neither discriminates against interstate commerce, see Tracy, 519 U.S. at 310, nor

imposes an impermissible burden on such commerce, see Exxon Corp. v. Governor

of Md., 437 U.S. 117, 127 (1978); Pike v. Bruce Church, Inc., 397 U.S. 137, 142

(1970).

First, the Act does not “discriminate[] against out-of-state entities on its face,

in its purpose, or in its practical effect” because electric utilities and independent

power plant owners like Appellants are not similarly situated. Rocky Mountain

Farmers Union v. Corey, 730 F.3d 1070, 1087 (9th Cir. 2013). “[W]hen the

allegedly competing entities provide different products . . . there is a threshold

question whether the companies are indeed similarly situated for constitutional

purposes.” Tracy, 519 U.S. at 299. If the entities in fact “serve different markets,

and would continue to do so even if the supposedly discriminatory burden were

removed[,] . . . eliminating the . . . regulatory differential would not serve the

dormant Commerce Clause’s fundamental objective of preserving a national

4 23-3857 market for competition undisturbed by preferential advantages conferred by a State

upon its residents or resident competitors.” Id.

Washington utilities are not similarly situated to Appellants because they

primarily serve a separate, captive retail market by distributing power to

consumers, even though they also compete with Appellants in the noncaptive

market of wholesale electricity generation. See id. at 301, 310 (concluding that

utilities and natural gas marketers in Ohio were not similarly situated because the

latter did not serve the core market of captive retail users). While Washington

utilities have the discretion to apply their no-cost allowances to cover the

compliance obligations of their power plants, see Wash. Admin. Code § 173-446-

420(2)(a), the amount of no-cost allowances provided under the Act is tailored to

the amount of electricity that a utility supplies to consumers in the captive retail

market, see Wash. Rev. Code § 70A.65.120(2); Wash. Admin. Code § 173-446-

230(2). Thus, any power generated by a utility-owned plant that exceeds this

amount—power that can then be sold on the wholesale market in which Appellants

operate—does not increase the number of no-cost allowances awarded to that

utility. To modify this scheme “could subject [utilities] to economic pressure that

in turn could threaten the preservation of an adequate customer base to support

continued provision of bundled [electricity] services in the captive market.” Tracy,

519 U.S. at 309. Tracy therefore dictates the outcome here, distinguishing this

5 23-3857 case from NextEra Energy Cap. Holdings, Inc. v. Lake, a Fifth Circuit case relied

on heavily by Appellants that did not involve the separate service provided by

utilities in a captive market. See 48 F.4th 306, 320 (5th Cir. 2022).

Second, Appellants fail to allege a viable dormant Commerce Claim under

Pike. Even assuming that a nondiscriminatory Pike claim remains viable, see Nat’l

Pork Producers Council v. Ross, 598 U.S. 356, 379 (2023), “interstate commerce

is not subjected to an impermissible burden simply because an otherwise valid

regulation causes some business to shift from one interstate supplier to another,”

Exxon, 437 U.S. at 127. Rather, the Supreme Court has noted that it “has only

rarely held that the Commerce Clause itself pre-empts an entire field from state

regulation, and then only when a lack of national uniformity would impede the

flow of interstate goods.” Id. at 128. Indeed, contrary to Appellants’

characterization, the Court has declined to hold that the incidental effect of mere

state regulation on the interstate wholesale energy market is, on its own, a

substantial burden on interstate commerce. See Ark. Elec. Co-op. Corp. v. Ark.

Pub. Serv. Comm’n, 461 U.S. 375, 395 (1983). Because the Commerce Clause

“protects [neither] the particular structure [n]or methods of operation in a retail

market,” the fact that Appellants may have to alter their operations to either pay for

allowances to offset their carbon emissions or reduce their carbon emissions does

not “impermissibly burden[] interstate commerce.” Exxon, 437 U.S. at 127.

6 23-3857 III

Appellants’ final claim arises under the Equal Protection Clause of the

Fourteenth Amendment. As discussed above, Appellants are not similarly situated

to Washington’s electric utilities in this context, which forecloses their equal

protection claim. Additionally, Appellants fail to plausibly negate “any reasonably

conceivable state of facts that could provide a rational basis for the classification.”

Mont. Med. Ass’n v. Knudsen, 119 F.4th 618, 630 (9th Cir. 2024) (quoting Olson v.

California, 104 F.4th 66, 77 (9th Cir. 2024)). The classification and differential

treatment rationally reflect Washington’s interest in balancing the rising cost of

energy against the State’s desire to reduce greenhouse gases. While the State

recognizes that electricity costs will still go up under its no-cost allowance regime,

that does not undermine the State’s effort to mitigate those rising costs or fight

climate change. Even taking as true Appellants’ allegation that the Act neither

reduces costs nor greenhouse gases, the no-cost allowances are explicitly provided

to avoid duplicating the carbon reduction program that separately applies to

utilities under the Clean Energy Transformation Act. See Wash. Rev. Code

§ 70A.65.120(1). Accordingly, the district court correctly concluded that

Appellants’ claim fails as a matter of law because the challenged classification

serves legitimate state interests.

7 23-3857 IV

“Denial of leave to amend is reviewed for an abuse of discretion.” Missouri

ex rel. Koster v. Harris, 847 F.3d 646, 655 (9th Cir. 2017) (quoting Dougherty v.

City of Covina, 654 F.3d 892, 897 (9th Cir. 2011)). “Dismissal without leave to

amend is improper unless it is clear, upon de novo review, that the complaint could

not be saved by any amendment.” Id. (quoting Thinket Ink Info. Res., Inc. v. Sun

Microsystems, Inc., 368 F.3d 1053, 1061 (9th Cir. 2004)). Amendment need not

be permitted when it would be futile—that is, when “no set of facts can be proved

under the amendment to the pleadings that would constitute a valid and sufficient

claim.” Id. (quoting Miller v. Rykoff-Sexton, Inc., 845 F.2d 209, 214 (9th Cir.

1988)). Because additional facts would not undermine the conclusions reached

above, we find no abuse of discretion here.

AFFIRMED.

8 23-3857