Both sides in nuke subsidy battles see Allco decision bolstering their case
Both sides in court battles over nuclear subsidies in Illinois and New York have filed briefs arguing that a recent decision by the United States Court of Appeals for the Second Circuit upholds their arguments regarding state nuclear subsidies.
In Allco v Klee, the Second Circuit Court found that two of Connecticut’s renewable energy programs did not violate the dormant commerce clause or preempt the jurisdiction of the Federal Power Act over wholesale power markets.
- The move by both sides to bring the Second Circuit decision to bear on their New York and Illinois cases is notable because Allco was the first federal court decision to discuss the scope of the Supreme Court’s 2016 Hughes v. Talen Energy Marketing decision.
The Allco case has been seen as a victory, or at least a guide, for a state’s right to determine its own energy policies.
The Second Circuit upheld Connecticut’s right to issue a renewable energy solicitation against a challenge by Allco Renewable Energy that claimed the state’s program violated the Federal Power Act by compelling a wholesale power transaction. Allco also argued that Connecticut’s renewable portfolio standard violated the U.S. Constitution’s dormant Commerce Clause’s prohibition on geographic discrimination because it benefits in-state businesses at the expense of out-of-state competitors.
But the Second Circuit found that Connecticut’s bilateral contracts, which are subject to federal review, are “precisely what the Hughes court placed outside its limited holding.”
In Hughes v Talen, the Supreme Court struck down a Maryland program seeking to encourage the building of in-state power generation because the state had linked its program to a generators wholesale market participation, which is under federal jurisdiction.
In the recent filing, the defendants in both New York and Illinois filed briefs with the U.S District Court for the Southern District of New York and with the U.S. District Court for the Northern District of Illinois Eastern Division, respectively, arguing that Allco supports dismissing both plaintiffs’ preemption and Commerce Clause arguments.
Plaintiffs, of course, in both New York and Illinois had a different reading of Allco. Their challenge was to distinguish their arguments from those argued in Allco, says Ari Peskoe, senior fellow in electricity law at Harvard Law School's Environmental Policy Initiative and manager of the State Power Project website.
The plaintiffs did that by arguing that, unlike Connecticut’s program, in Illinois and New York utilities are compelled to purchase nuclear subsidies in the form of Zero Emission Credits (ZECs). And, unlike Connecticut, there would be no federal review of ZECs in Illinois and New York. The ZEC plaintiffs also argue that the ZEC price is tethered to wholesale market participation in contradiction of Hughes.
The defendants, the states and Exelon, argue that their cases are “even easier” to dismiss than Allco. They argue that Hughes is inapplicable to ZECs because, as the Allco court concluded, Hughes establishes a “bright line” that prohibits states from conditioning payment on a generator clearing a federally regulated power auction.
On the Commerce Clause issue, the plaintiffs argue that ZECs are environmental attributes that Allco confirmed are wholly within a state’s jurisdiction.
The plaintiffs argue that the states acted with “protectionist intent to favor selected in-state nuclear plants to the exclusion of similarly situated out-of-state facilities.”
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