The parties to a lawsuit challenging New York State's participation in, and its rules to implement, the Regional Greenhouse Gas Initiative (RGGI) have reached a settlement. On December 23 2009 a proposed consent decree in Indeck Corinth LP v Paterson (5280-09) was filed with the Supreme Court of the State of New York in Albany. The litigation, which commenced on January 29 2009, was brought against Governor Paterson, various state entities and Consolidated Edison by Indeck Corinth, the operator of a gas-fired energy co-generation facility that had held a long-term contract with ConEd. Two other gas-fired energy co-generation facilities with long-term ConEd contracts later intervened in support of Indeck. As described in the proposed consent decree, Indeck alleged that New York's participation in the RGGI fell outside the scope of the state's lawful authority and was unconstitutional, and that the rules implementing the RGGI were arbitrary, capricious and not supported by a proper record. Indeck contended that, unlike other generators with no such contracts, its long-term contract prevented it from passing on to ratepayers the costs of complying with New York's rules implementing the RGGI.

The RGGI is an agreement between 10 northeastern and mid-Atlantic states, including New York, to limit greenhouse gas emissions through a cap-and-trade system. As summarized by the New York State Energy Research and Development Authority (NYSERDA), the agreement:

"calls for states to cap power sector carbon emissions through 2014 and then reduce emissions by 2.5 per year for the next four years, resulting in a 10 percent reduction by 2018."

The rules were promulgated by the New York State Department of Environmental Conservation (DEC)(1) and NYSERDA.(2) As summarized by the DEC, the rules "require power plant owners in New York to obtain sufficient allowances to cover their annual CO2 emissions" primarily by purchasing them at auctions or through a secondary market, but "a limited number of allowances" are allocated free to power generators with long-term contracts that prevent them from passing on the cost of such allowances to ratepayers.

The settlement requires that ConEd pay Indeck and the interveners for the cost of allowances in excess of those allocated to them under DEC rules, and that NYSERDA allot a portion of the RGGI's proceeds to offset ConEd's costs. According to NYSERDA, the settlement "maintains the number of set-aside allowances and the size of the emissions cap" and is "designed to be ratepayer neutral", with provisions for NYSERDA partially to fund efficiency and infrastructure improvements for ConEd, which should offset consumer costs.

The court has not yet entered the proposed consent decree as an order. Although not required by law to do so, the state has invited public comment on the settlement agreement, which will be considered in the court's approval process. The 30-day period commenced on December 30 2009 and comments were collected by the New York Attorney General's Office.

For further information on this topic please contact Victoria Shiah at Sive Paget & Riesel PC by telephone (+1 212 421 2150), fax (+1 212 421 2035) or email (vshiah@sprlaw.com).

Endnotes

(1) Codified at 6 NYCRR Part 242.

(2) Codified at 12 NYCRR Part 507.

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