Round two also goes to nuclear power. On the heels of a July 14 decision by a federal judge in Illinois dismissing complaints attacking the zero emissions credit (ZEC) program enacted by Illinois last year, a federal judge in New York has rejected a challenge to a ZEC program in New York.
The Coalition for Competitive Energy, along with several generators, filed a complaint in the Southern District of New York seeking to invalidate the New York Public Service Commission’s new Clean Energy Standard and associated ZEC program. The complaint charged that the program is preempted by the Federal Power Act because it “intrudes on the exclusive authority of FERC.” The complaint relied on the Supreme Court’s decision in Hughes v. Talen Energy Marketing, where the Court agreed that a Maryland program guaranteeing local generators a minimum price infringed on FERC’s exclusive jurisdiction to set wholesale energy rates. The Court in that case found that making the subsidies contingent on generators clearing the PJM market created an incentive to submit artificially low bids, thereby depressing prices. The complaint also alleged a violation of the dormant Commerce Clause, arguing that the program only benefits the four New York nuclear programs and therefore “disadvantages” out-of-state generators that sell in the interstate electricity market.
The judge disagreed with plaintiffs on all counts. Initially, the court found that it lacked authority under the Federal Power Act to provide equitable relief to private parties that raise preemption claims. This aspect of the decision, if upheld, means that states likely have considerable leeway to craft state policies to support nuclear plants going forward.
More broadly, the court found that New York’s ZEC program was not preempted by the Federal Power Act. The court noted that, unlike in Hughes, ZECs are not dependent on the generator selling energy through wholesale markets. “ZEC sales and the wholesale sales of energy or capacity are entirely separate transactions,” the court explained, “with the ZEC sales occurring independently of the wholesale auction and neither one conditioned on the other.” Citing a recent Second Circuit decision, the court also noted that ZECs have only an incidental effect on wholesale rates and thus do not intrude upon FERC jurisdiction. Finally, the court reasoned that the “death knell” for the preemption argument was the failure to distinguish ZECs from RECs, given FERC’s 2012 declaration that RECs do not interfere with FERC jurisdiction when they are sold separately from their associated energy.
On the dormant commerce clause front, the court held that plaintiffs lacked prudential standing to bring a dormant Commerce Clause claim because they did not allege a nexus between their injury and any discriminatory aspect of the ZEC program. According to the court, plaintiffs failed to allege any injury arising from discrimination against, or an undue burden on, out-of-state economic interests. First, plaintiffs did not claim to they represent an out-of-state nuclear power plant. Second, alleging discrimination against gas-fired or coal generators was not sufficient to make out a constitutional claim, as “the dormant Commerce Clause does not protect the economic interests of non-nuclear power plants, regardless of where they are located or whether they are carbon-free.”
The court went on to explain that, even if plaintiffs had a cause of action, their dormant Commerce Clause claim would fail because New York was acting as a market participant, not as a regulator, when it created ZECs. The ZEC program does not require load serving entities (LSEs) to buy ZECs from nuclear generators; rather, NYSERDA buys credits from the generators and sells them to the LSEs. Under this scheme, New York is the market participant, and thus is free to favor its in-state generators.
Plaintiffs are likely to appeal to the Second Circuit. Although the recent Allco decision provides some cause for optimism among ZEC proponents, there is still some room to distinguish Connecticut’s renewable energy program addressed in that case from New York’s ZEC program. In the meantime, the ZEC decision lends further momentum to States’ efforts to, in the words of the court, “do their part to reduce the emissions that contribute to global warming” by supporting nuclear generation. With federal courts having upheld both the Illinois and New York ZEC programs, more states, such as Ohio, Pennsylvania, New Jersey, and Connecticut, may be inclined to follow suit.