Why Court Victories for New York, Illinois Nuclear Subsidies Are a Big Win for Renewables
A federal judge in New York ruled last week that the Empire State’s plan to subsidize nuclear power plants “is constitutional” and “of legitimate state concern.”
It’s a significant win for the nation’s largest nuclear fleet owner Exelon, which has been struggling to keep its money-losing power plants operational amid weak electricity demand and low energy prices. But the ramifications of last Tuesday’s decision go well beyond the legality of New York’s nuclear program.
The ruling marks the third time in less than a month that a federal court has affirmed states’ authority to favor certain clean energy resources in their supply mix — which could influence how states across the nation set renewable energy targets and credit programs in the years to come.
The New York case was brought by a coalition of competitive power producers that predominantly generate power from coal and gas, including Dynegy and NRG Energy. Plaintiffs argued that subsidies for the state’s nuclear power plants violate federal market rules and put out-of-state generators at a disadvantage.
District Judge Valerie Caproni dismissed all challenges, however. She ruled that New York’s zero-emissions credit (ZEC) program does not intrude on the Federal Energy Regulatory Commission’s jurisdiction over wholesale electricity markets and that it is constitutional for states to take action on climate change.
“The ZEC program is plainly related to a matter of legitimate state concern: the production of clean energy and the reduction of carbon emissions from the production of other energy,” Caproni wrote in her decision.
Caproni’s ruling comes shortly after a federal judge in Illinois threw out a nearly identical challenge to the Prairie State’s ZEC program. A couple of weeks prior, the Second Circuit Court of Appeals upheld a Connecticut district court decision to dismiss arguments against the state’s renewable energy procurement program and renewable portfolio standard.
“Courts have upheld three programs in one month, all confirming that states have authority to favor certain types of generation and use financial incentives to effectuate those preferences,” said Ari Peskoe, senior fellow in electricity law at the Harvard Law School Environmental Law Program Policy Initiative.
So while the New York and Illinois cases were centered on subsidies for nuclear power plants, the cases have significant implications for all types of state-led clean energy programs, he said.
The bond between nuclear and renewable credits
“Both the Illinois and the New York court talked about how they were not able to legally distinguish between ZECs for nuclear plants and renewable energy credits under state programs,” said Peskoe. “I think that was an important point. Courts were aware that if ZECs were impermissible, it was going to lead to challenges to all other state programs, and I don’t think they wanted to go down that path.”
The Federal Energy Regulatory Commission (FERC) previously examined whether renewable energy credits (RECs) used to meet state-level renewable energy targets are an infringement on federal authority and determined they were beyond FERC jurisdiction. Putting ZECs on equal footing helps to reaffirm states’ rights to support various types of energy resources — which could prove useful as new legal challenges arise.
“The fact that two separate federal courts have now determined ZECs are effectively a new type of REC seems to indicate we’re on an inevitable course, potentially as high as the Supreme Court, of determining how much state support for specific generating assets is lawful,” said Rob Rains, energy analyst at Washington Analysis.
New legal challenges are already on their way. Power producers in Illinois have already filed an appeal in the nuclear subsidy case, and plaintiffs in New York are expected to do the same.
A spokesperson for New Yorkers for Fair Energy, speaking on behalf of competitive power producers, said this week that the ZEC ruling would be appealed. The state’s public service commission “failed ratepayers last year when it instituted a $7.6 billion bailout for uneconomic nuclear plants with almost no public input,” he said. The group’s website calls the ZEC program “a backroom deal” that offers a single out-of-state corporation (nuclear plant owner Exelon) “more money than any handout in New York’s history.”
In Illinois, NRG spokesperson David Gaier said, “If upheld, the Illinois decision would effectively strip FERC of its authority to regulate wholesale markets, would harm ratepayers, and threaten FERC’s ability to put in place rules protecting competitive electricity markets.”
The debate over the sanctity of state-level policies is far from over.
Why a win for nuclear credits is a big deal for renewables
Nuclear and renewables, while both low-carbon energy resources, haven’t always been on friendly terms. In Ohio, an ongoing debate over nuclear subsidies has pitted renewable energy advocates against utility FirstEnergy. And there’s a broader energy-sector debate taking place over the need to shore up aging coal and nuclear plants versus pivoting to intermittent renewables and fast-reacting natural-gas turbines.
However, recent events in New York and Illinois highlight that nuclear and renewables have common interests when it comes to certain legal and political challenges. That’s partly because of President Trump and partly because of a 2016 Supreme Court case entitled Hughes v. Talen Energy Marketing.
“We see [the New York] case and the Illinois case and other cases challenging state policies right now in the wake of the Hughes decision as very important, because they will determine the ability and tools available to states to advance renewable energy and energy storage and cleantech policies across the board … [including] renewable energy credit programs, policies to facilitate long-term contracts, new policies that credit renewable energy based on their environmental benefits,” said Miles Farmer, clean energy attorney at the Natural Resources Defense Council.
