Court Opinion

ID: 9487681
Source: CourtListenerOpinion
Date Created: 2023-08-05 12:23:41.116455+00
Date Added: 2024-06-11T17:52:25.629695
License: Public Domain

CUDAHY, Circuit Judge,
concurring.
Although the framework provided by the majority opinion is supportable, I believe that it is incomplete and, at the same time, may overstate the case. When all the conflicting considerations are weighed, there is some basis for concluding that Illinois has crossed the constitutional line, but its actions are probably only the first in a series of efforts to accommodate conflicting but important and legitimate public policies.
On the issue of standing, this is also a close case. Use of Western coal in Illinois is on the rise, Appellant Reply Br. at 3, and the requisite showing of injury here is elusive. The best argument for standing is that there will be no other plaintiffs with a basis for challenging the Coal Act if the plaintiffs presently before us are denied a right to proceed. But for that reason alone, if for no other, I am prepared to address the merits since early determination will preclude equities from vesting in reliance on the Coal Act when its constitutionality remains in doubt.
The parties take issue starkly on the-question whether a state may “encourage” local industry by indirect means. What is in part at issue is a form of state subsidy for the installation of “scrubbers” — a pollution abatement technology for dealing with the sulfur contained in coal. The Coal Act guarantees that the ratepayers will pay in their rates for the capital and operating costs of scrubbers, which the Act in effect mandates in certain cases. The ratepayers are substantially coterminous with the taxpayers and a mandate to place a charge on the ratepayers is in economic effect functionally equivalent to a subsidy financed from general revenues.
But does every form of “subsidy” to local industry violate the Commerce Clause? The State cites Hughes v. Alexandria Scrap Corp., 426 U.S. 794, 96 S.Ct. 2488, 49 L.Ed.2d 220 (1976) (Stevens, J. concurring) as supporting such an approach in appropriate circumstances. See also Reeves Inc. v. Stake, 447 U.S. 429, 100 S.Ct. 2271, 65 L.Ed.2d 244 (1980); W.C.M. Window Co. v. Bernardi, 730 F.2d 486, 494 (7th Cir.1934) (if “the State of Illinois subsidized the electrical generating plants in Illinois that buy coal, it could, without violating the commerce clause, forbid them to buy coal produced out of state.”) In Hughes, the Supreme Court upheld a Maryland cash subsidy program which discriminated in favor of in-state auto hulk processors because the Court found the State’s action to be analogous to that of a private purchaser of auto hulks, and therefore characterized the State as engaging in proprietary rather than regulatory activity. However, this exception to the dormant Commerce Clause, the market participant doctrine, restricts permissible subsidies to situations where a state is “acting in the more general capacity of a market participant” rather than “in its distinctive governmental capacity.” New Energy Co. of Indiana v. Limbach, 486 U.S. 269, 277, 108 S.Ct. 1803, 1809, 100 L.Ed.2d 302 (1988). Further, since first enunciated in Hughes, the market participant doctrine has been narrowed to exclude many state actions that appear to be “subsidy equivalents.” See, e.g., Wyoming v. Oklahoma, 502 U.S. 437, 112 S.Ct. 789, 117 L.Ed.2d 1 (1992) (requiring ten percent use of in-state coal is unconstitutional under the Commerce Clause); New Energy, 486 U.S. at 277, 108 S.Ct. at 1809 (state tax credit for ethanol produced in-state violates the Commerce Clause because State’s action in assessing and computing fuel sales tax does not make State into private purchaser, even if it does produce a subsidy); Bacchus Imports Ltd. v. Dias, 468 U.S. 263, 104 S.Ct. 3049, 82 L.Ed.2d 200 (1984) (Hawaii tax-exemption for special wines produced only in Hawaii constituted violation of the Commerce Clause); South-Central Timber Dev. v. Wunnicke, 467 U.S. 82, 104 S.Ct. 2237, 81 L.Ed.2d 71 (1984) (State requirement that purchasers of Alaskan timber have the timber processed in Alaska violates the *598Commerce Clause, even though the State was the seller of the timber). Therefore, even assuming that the mandated rate base treatment of the scrubbers is the functional equivalent to a subsidy, its constitutionality remains in question.
But this attempt to analyze the matter as a subsidy takes place in a factual vacuum since there has been no showing that Western coal (which has lower B.T.U. (caloric) content and carries heavy transportation charges) is cheaper than Illinois coal including the cost of processing by scrubbers. One might surmise that the price of Western coal is limited by the price of Eastern coal plus scrubbers, but there is nothing in this record on the subject. Therefore, it is impossible to know with certainty whether a guarantee of rate base treatment for scrubbers confers a real benefit or not. After all, if there were no reason in any event to exclude scrubbers from rate base, a prior legislative guarantee of rate base treatment would be of slight value. For present purposes, however, we may treat the guarantee as a benefit in the abstract, possibly useful in some cases but not at all in others. It is not helpful to the analysis, though, that there are no actual price, relationships before us.
The State’s most effective argument is that we are dealing with a local (retail) ratemak-ing and electric operations problem over which the states have plenary authority. Appellants Br. at 33; see Arkansas Elec. Coop. v. Arkansas Public Serv. Comm’n, 461 U.S. 375, 395, 103 S.Ct. 1905, 1918, 76 L.Ed.2d 1 (1983) (replacing the bright line distinction between state regulation of retail versus wholesale electricity sales with the balancing test of modern Commerce Clause jurisprudence, but reaffirming the general premise of “leaving regulation of retail utility rates largely to the States.”) The basic principle under the Coal Act (as elsewhere) for the conduct of electric operations is to arrive at the “least cost” solution. The State argues, in accordance with unimpeachable economic theory, that “cost” means “social cost” and should include the cost of providing compensation for the sectors of society suffering injury from the lost Illinois coal business (such as the cost of unemployment compensation and loss of tax revenue). This is an “externality” not incorporated in ordinary commercial calculations but is a real cost to society nonetheless.
The answer to this argument seems to be that this is an externality that the states may not recognize since the Commerce Clause effectively precludes consideration of local economic damage as a legitimate reason to handicap interstate commerce. Wyoming, 502 U.S. at 454-55, 112 S.Ct. at 800 (“When the state statute amounts to simple economic protectionism, a virtually per se rule of invalidity has applied.”). Another way of handling this problem would be to offset the externality of damage to the Illinois coal industry with the additional externality of the long-term benefit accruing to Illinois from the free trade bias of the Constitution. In any event, the external cost of damage to the Illinois coal industry is something that presumably may not be recognized in computation of “least cost” for present purposes.
Nonetheless, the assurance of rate base treatment for scrubbers (which provide a capability for using Illinois coal) seems a tenuous basis for finding a violation of the Commerce Clause. I believe no Supreme Court case goes so far as clearly to support the conclusion that this is a violation although the trend of the Court’s decisions may point this far. (See discussion above of Wyoming, 502 U.S. 437, 112 S.Ct. 789; New Energy, 486 U.S. 269, 108 S.Ct. 1803; Bacchus Imports, 468 U.S. 263, 82 L.Ed.2d 200). It is difficult to perceive the realities here since, as discussed above, we do not know the price and cost relationships involved and, in addition, it is hard to know how far this statute takes us beyond the already existing commercial and regulatory biases.
In this connection, I assume that both the utilities and the I.C.C. may have reason to favor Illinois coal even without this legislation. The utilities are pervasively state-regulated and simply as a matter of political prudence one would expect them to be more sensitive to major Illinois political and economic interests — like the coal industry and the labor it employs — than to the needs of the same interests in Wyoming or Montana. Similarly, the members of the I.C.C. are appointed by a Governor dependent for votes on Illinois’ coal-producing areas. One would *599not expect them to be hard at work furthering the aims of out-of-state mines or railroads. The mandates of the Coal Act may bring a local bias into more focus, but I doubt that they bring about a fundamental shift in preference.
With respect to constitutional vulnerability it seems to me that the requirement that utilities get permission from the I.C.C. for any change that causes their use of Illinois coal to drop by ten percent or more is much more questionable than the rate base treatment of scrubbers or the injunction to consider the local coal industry as part of a determination of least cost. Cf. Wyoming, 502 U.S. 437, 112 S.Ct. 789.
I am also inclined to consider this legislation as possibly vulnerable under the Supremacy Clause. In contrast to the 1978 law, when Congress ordered scrubbers for all new coal plants, in 1990 it presumably adopted a “market-driven” view.1 This approach is much in vogue currently,2 and it is at least plausible that Congress in 1990 would have accepted this characterization. Over the years, the scrubber problem has been hotly debated and in 1978 the Eastern coal interests and coal mine labor succeeded in seeming a mandate for scrubbers. As indicated, in 1990 there seems to have been a disposition to leave the matter to the markets. It might be argued that Congress intended to “occupy the field” with a market-based approach, eschewing any mandatory measures. If this were the case, any “putting of thumbs on the scale” by the states might be preempted by the prescribed market-oriented methodology. The relevant Court cases, however, seem to make much easier the striking down of state legislation on Commerce Clause grounds, where relatively little burden or interstate commerce need be shown, than on grounds of preemption, where the requirements seem quite exacting. See English v. General Electric Co., 496 U.S. 72, 110 S.Ct. 2270, 110 L.Ed.2d 65 (1990); Pacific Gas and Electric, 461 U.S. 190, 103 S.Ct. 1713, 75 L.Ed.2d 752.
These somewhat inconsistent considerations seem to create a conundrum in the case before us, whatever the standard for striking down state “encouragement” to local industry. In the end, I join, but with significant reservations, in the result reached by the majority opinion.

. See, e.g., Alexander F. Skirpan, Plus Ca Change, Plus C’Est La Meme Chose: 1990 Amendments to the Clean Air Act and Their Impact on Utility Regulation, 55 U.Pitt.L.Rev. 171, 202, 204 (1993) (discussing, in part, the least-cost, free-market approach of the Clean Air Act Amendments).

. Perhaps the most well known example is the deregulation of the airline industry, see Stephen G. Breyer, Regulation and Its Reform, chs. 11, 16 (1982), but public utiliiy and environmental regulation are two other areas that have also seen important changes in thinking. See, e.g., George R. Hall, The Emerging Standard for Market-Based Wholesale Electric Rates, 128 No. 6 Pub.Util.Fort. 19 (Sept. 15, 1991) (in recent years Federal Energy Regulatory Commission has moved to determining just and reasonable rates by "market-based” system); Jerold S. Kayden, Market-Based Regulatory Approaches: A Comparative Discussion of Environmental and Land Use Techniques in the United States, 19 B.C.Envtl.Aff.L.Rev. 565 (1992) (United States national and state environmental policy is moving to market-based regulatory strategies); G. William Stafford, Electric Wholesale Power Sales at Market-Based Rates, 12 Energy L.J. 291 (1991) ("The growing influence of market-based pricing is evidenced by the increasing number of proposals that have come before the [Federal Energy Regulatory] Commission for the sale of power where market-based pricing considerations are reflected and by the Commission’s efforts to examine significant issues ... [of] market-based rates and ... services.”). Cf. Richard D. Cudahy, Retail Wheeling: Is this Revolution Necessary?, 15 Energy L.J. 351 (1994).