Federal Court Upholds New York’s ZEC Proffers to Nuclear Plants

The U.S. District Court for the Southern District of New York has ruled that no intrusion into the Federal Energy Regulatory Commission's (FERC's) jurisdiction over wholesale markets occurred by virtue of a decision by the New York Public Service Commission to extend zero emission credits (ZECs) to nuclear generating facilities in the same way as ZECs are provided to renewable energy facilities under the state's recently promulgated Clean Energy Standard (CES).

The court's holding came in response to a suit filed by a consortium of merchant generators in which it was alleged that the CES plan, and the ZEC elements in particular, were in violation of the Federal Power Act because they interfere with FERC's policy favoring a marketdriven rate-making paradigm for wholesale power transactions.

In developing its CES strategy, New York said it was specifically focused on transitioning to as many electric supply resources as possible that will reduce greenhouse gas (GHG) emissions. As originally constructed, the CES emphasized renewables, such as solar and wind. To that end, and in an effort to achieve a statewide goal of half of all electricity sales coming from renewable resources by 2030, the CES had incorporated a series of incentives in the form of credits for generation that is sourced from renewables.

Later though, in recognition that nuclear power plants emit no more GHGs than do renewable energy projects, the commission declared nuclear generating stations to be eligible for ZECs as well. Although some parties had questioned that move, alluding to the costs and risks associated with nuclear assets, the commission pressed on, deeming nuclear power plants to be an important "bridge" to the state's clean energy future.

From the perspective of the independent generators, though, the order deeming nuclear facilities eligible for ZECs was tantamount to the provision of an unfair subsidy to certain preferred generating units. As such, they argued, the availability of ZECs could change the ultimate price to be paid for the power generated at the nuclear plants. They contended that because ZEC-related revenue could affect wholesale pricing, and because that is a field that is supposed to be occupied only by the FERC, the ZEC program was impinging on FERC's authority.

The court, however, found that the complainants had conflated the notion of the production of energy with sales of energy. The court clarified that nuclear facilities receive ZECs when they generate power, not when they sell it in the wholesale market. In further support of that distinction, the court pointed out that the ZEC program does not require nuclear power plants to bid all of their output into the auctions conducted by the New York Independent System Operator.

The court explained that the ZECs are earned separate and apart from the monies received in selling the associated power. As such, the court said, ZECs are fundamentally the same as renewable energy credits (RECs), which likewise are applied separate from the energy sold. And, the court noted, the FERC itself had ruled five years ago that RECs fall under state jurisdiction alone when the RECs are sold separately from the underlying energy. Moreover, the court cited the fact that the FERC has taken no steps to oppose New York's ZEC program itself.

The court further related that New York's ZEC plan does not entail any particular wholesale price that would "displace" a market-derived price. The court conveyed that nuclear power plants are eligible for ZECs based not on the sales they actually make, but on the "positive attributes of the generation they produce." The amount of the ZECs is determined separately from the sales price, the court said.

In essence, the court stated, ZEC payments are unbundled from wholesale sales of energy or capacity. As a result, the court concluded that to the extent the availability of ZECs for nuclear facilities distorts associated wholesale prices at all, it is at best an indirect effect and extremely minimal.

The court's opinion was characterized by several not-so-subtle jabs at the Trump administration. Various passages call out the president by name and decry his seeming denial of climate change and the role of GHGs thereto. In particular, the court queried how the president could continue to refer to climate change as a "hoax" when there is "overwhelming scientific" evidence to the contrary.

The court appeared to align itself with New York's proactive stance in fighting global warming, with the court indicating that a state is perfectly within its rights to take action to combat climate change, whether through CES and ZEC endeavors or some other tactic, when the federal government refuses to address the issue itself. Coalition for Competitive Electricity et al. v. Audrey Zibelman et al., 16-CV- 8164 (VEC), July 25, 2017 (S.D.N.Y.).