ZECs appeal: Illinois, New York nuclear cases could shape power market jurisdiction
enerators challenging zero emission credits (ZEC) for nuclear generators in Illinois and New York suffered two setbacks in short order, but they are pressing forward with appeals that could determine the fate of plans for subsidies in as many as three other states.
At least one of the appellants sees this turn of events as an opportunity as much as a setback. “The judge did us a bit of a favor” in the Illinois case, said Abraham Silverman, in-house counsel at NRG Energy, which is a plaintiff in both cases.
On July 14, Judge Manish Shah of the U.S. District Court for the Northern District of Illinois, Eastern Division, rejected all five of the generators’ claims. That leaves the door open for an omnibus appeal that can address each of those claims on its merits, said Silverman. “It puts us in a good place.”
NRG has already filed an appeal, as has the Electric Power Supply Association, a generator trade group. And Monitoring Analytics, the independent market monitor for the PJM Interconnection, plans to file a friend of the court brief with the appeals court supporting the generators’ position, said Joe Bowring, the firm’s president. Monitoring Analytics previously filed an amicus brief supporting the generators’ position in the Illinois case.
In New York, Judge Valerie Caproni of the District Court for the Southern District of New York dismissed all challenges against the New York’s Clean Energy Standard (CES) nuclear subsidy. The July 25 ruling found that it the payments do not intrude on the Federal Energy Commission’s jurisdiction over wholesale power markets and do not violate the dormant Commerce Clause of the U.S. Constitution.
NRG is “disappointed in the [New York] decision” and plans to file an appeal, said spokesman David Gaier. “We’ll continue to fight these nuclear bailouts, which cost ratepayers billions, crowd out investments in true renewables, and distort and could eventually destroy the established energy markets.”
EPSA also plans to file an appeal in New York, and New Yorkers for Fair Energy, an umbrella group that is the lead plaintiff in the suit, plans to appeal as well.
“We note that similar programs to subsidize favored electrical generators were struck down in Maryland and New Jersey, including by a unanimous U.S. Supreme Court decision in 2016,” New Yorkers for Fair Energy said in a statement.
The appeals process will not only determine the future of the nuclear subsides in question, but could set important legal precedents that would shape future decisions on state versus federal jurisdiction in electricity policy.
Constitutional grounds
The line of attack in both the New York and Illinois cases was similar. The plaintiffs argued that the Illinois ZEC and the New York CES interfere with the operation of wholesale power markets, which are governed by the Federal Power Act and fall under the jurisdiction of FERC.
But in Illinois, Judge Shah ruled that the ZECs do not infringe on federal turf because nuclear generators receive the credits whether or not they sell energy into the wholesale market. Shah also cited a 2012 FERC order holding that states have jurisdiction over unbundled renewable energy credits (RECs).
Silverman says those arguments are both flawed, and NRG intends to highlight the flaws on appeal. The only way to create a ZEC is by producing electricity and that requires selling power into the wholesale market. By default, that makes ZECs dependent on wholesale market participation, he said.
The REC question also comes up in another line of attack raised by plaintiffs, that ZECs violate the dormant Commerce Clause of the U.S. Constitution by favoring in-state resources in interstate commerce.
Shah ruled that is not the case because Illinois is not precluding out-of-state generators from submitting bids for ZECs. The plaintiffs allege that bidding process is a “sham.”
Silverman said that the court’s ruling confuses ZECs and RECs, which he holds as fundamentally different. The distinction is that RECs are competitive and open to all bidders, he said, as long as they can deliver their energy into the state. ZECs, by contrast, are only open to nuclear generators.
The New York court also dismissed the dormant Commerce Clause argument on the grounds that none of the plaintiffs own an out-of-state nuclear plant that might have been able to generate ZECs but-for the state’s alleged discrimination. They are, therefore, outside the “zone of interests protected by the dormant Commerce Clause.”
Exelon, one of the architects of the Future Energy Jobs Act (FEJA) that created Illinois’ ZEC program, points to the established right of states to direct their own energy policies.
“The court found that the FEJA employs the same legal and policy mechanisms that states have been using for years to support investment in other sources of clean energy, such as wind and solar. These programs internalize the cost of pollution into the market and preserve the most cost-effective source of carbon abatement available to consumers,” Exelon spokesman Paul Adams said in an email.
Exelon also applauded the New York decision, saying, “The CES employs the same legal policy mechanisms that states have been using for years to support investment in other sources of clean energy, such as wind and solar.”
The main fact, though, is one that he says should be obvious, said Silverman. Nuclear generators would not be seeking ZECs if they were not seeking payments in excess of what is available in the wholesale market.
