On August 1, the New York State PSC approved a program to support in-state nuclear power in the form of a zero emission credit (ZEC). Starting next year, New York’s investor-owned utilities and other energy suppliers must pay for the intrinsic value of carbon-free emissions from nuclear power plants by purchasing ZECs. This is the first state policy initiative to recognize the benefits of nuclear generation and thereby provide financial support to keep nuclear plants in operation. As a result, the program is likely to draw legal challenges from a number of corners, including non-nuclear generators and anti-nuclear groups.
The first challenge came on August 31, 2016, when Castleton Commodities International LLC filed an Application for Rehearing of the New York Public Service Commission’s Order Adopting a Clean Energy Standard. Among other arguments, CCI asserts that, in adopting the ZEC Program, the Commission acted in an area preempted by the Federal Power Act, which gives FERC exclusive jurisdiction over wholesale energy markets. Citing a recent Supreme Court decision in Hughes v. Talen Energy Marketing, which found that a Maryland program guaranteeing local generators a minimum price infringed on FERC’s exclusive jurisdiction to set wholesale energy rates, CCI alleges that the ZEC program “adds an administratively determined premium to the competitively set price to overcome the Commission’s dissatisfaction with the natural operation of the wholesale marketplace.” In attempting to show that the program interferes with wholesale markets, CCI notes that the amount of the ZEC is reduced by the amount that wholesale electricity and capacity prices are projected to exceed $39 and that the ZECs are paid on the actual output of the nuclear plants.
But, this ignores a critical distinction between the program in Hughes and the ZEC program. The ZEC is initially calculated by reference to the social cost of carbon. While establishing a defensible “cost” for carbon emissions may have once seem farfetched, there have been substantial efforts in recent years to develop a quantitative models of the damage caused by climate change, including changes in agricultural productivity, human health, property damages from increased flood risk, and changes in energy system costs. In fact, the Seventh Circuit in Zero Zone v. Department of Energy recently upheld the use of the social cost of carbon in promulgating energy efficiency regulations. This undermines CCI’s claim that the ZEC is merely a way to “disguise” efforts to set wholesale rates for nuclear generation.
The long-term prospects for the U.S. nuclear industry in unregulated markets may hinge on the success of New York’s ZEC program or others like it. A number of recently-announced closures of nuclear plants have been blamed on insufficient recognition of the value the environmental benefits of carbon-free nuclear generation. In the absence of federal initiatives to address the issue, states could play a vital role. New York’s ZEC program aims to remedy a collective failure and could serve as a model for other states. Better late than never.