Federal court throws out challenge to New York nuclear subsidies

Dive Brief:

A federal court in New York on Tuesday threw out a challenge to New York's nuclear energy subsidies, the second this month to rule in favor of the so-called zero-emission credits (ZECs).
The U.S. District Court for the Southern District of New York dismissed a case against the subsidies brought by independent generators, who argued the ZECs intrude on federal jurisdiction over power markets and violate the Constitution by disadvantaging out-of-state power plants.
The decision came less than two weeks after a federal court in Illinois rejected a nearly identical challenge to that state's ZEC policy. Generators in that case immediately appealed, as they are expected to do in New York.

Dive Insight:

As in the Illinois decision, New York Southern District Judge Valerie Caproni dismissed all challenges brought against the state's nuclear generation subsidies, writing that the supports do not intrude on the Federal Energy Commission's jurisdiction over wholesale power markets and do not violate the dormant Commerce Clause of the Constitution.

In the decision, Caproni compared the New York ZECs to a Maryland generation support program thrown out by the Supreme Court in Hughes v. Talen Energy.

In that case, the Maryland program was vacated because it required generators to participate in PJM power market auctions to receive the subsidy, but guaranteed the plants "a rate distinct from the market-clearing price," Caproni wrote.

This, the Supreme Court ruled, "adjust[ed] an interstate wholesale rate," marking a clear intrusion into FERC's jurisdiction.

The New York program does not tether the receipt of a subsidy to participation in the wholesale market, but to the production of zero-emissions energy, Caproni wrote. This makes it "critically different" from the program in the Hughes case, which "specifically conditioned subsidy payments on the generator’s sale of capacity into the auction."

Generators argued that the ZEC payments would, in effect, set the prices in wholesale power markets at a lower level. But Caproni wrote that the ZEC sales and market auctions are "entirely separate transactions," and the nuclear subsidies do no more to set market prices than other common clean energy supports, such as mandates or tax credits.

"Fatal to Plaintiffs’ argument is their failure to offer any cogent explanation why ZECs are preempted but other state incentives to generate clean energy—such as tax exemptions, land grants, or direct financial subsidies—are not," Caproni wrote. "Such incentives also allow clean energy generators to be more competitive than they would otherwise be, and they therefore also affect price signals in the wholesale auction."

In Illinois, generators immediately appealed a similar ruling to the U.S. Court of Appeals for the Seventh Circuit.

"If upheld, the Illinois decision would effectively strip FERC of its authority to regulate wholesale markets, would harm ratepayers, and threaten FERC’s ability to drive investment in energy infrastructure," said David Gaier, spokesperson for NRG Energy, one of the plaintiffs in the case. The company could not be reached for comment immediately after the New York decision.