With New York aiming to keep nuclear units operating, state/federal role in market design is debated

As New York regulators contemplate ordering all load-serving entities in the state to purchase zero emission credits (ZECs) from existing nuclear facilities to meet clean energy goals and retain nuclear units operating in the state, the authority of federal and state regulators in resource decisions and market design was discussed Feb. 16 during the National Association of Regulatory Utility Commissioners (NARUC) winter committee meetings held in Washington, D.C.

Market designs such as renewable portfolio standards, generation resource decisions and retail competition have clearly been under state jurisdiction for decades, but a pending court case involving Maryland and New Jersey slated for oral argument at the Supreme Court looms large in possibly shaping future decisions, said John Moore, senior attorney for the Sustainable FERC Project at the Natural Resources Defense Council.

Depending on how the Supreme Court rules, it could have a big effect on state generation procurement decisions, Moore said as part of a panel discussion on the NARUC electricity committee.

The matter before the Supreme Court centers on decisions in Maryland and New Jersey calling for new power plants to be built in those states and whether those decisions usurped FERC’s authority over wholesale power markets, related Lawrence Brenner, a former commissioner at the Maryland Public Service Commission (PSC) and a former administrative law judge at FERC, who moderated the panel.

The Supreme Court agreed to review the rulings by the U.S. Court of Appeals for the Third Circuit and the U.S. Court of Appeals for the Fourth Circuit, which held that the state programs offering electricity pricing incentives for developers to build new plants in Maryland and New Jersey were a violation of FERC’s authority, and oral argument is scheduled for Feb. 24, Brenner noted.

A Supreme Court decision overturning the lower court rulings would have “huge implications” for power market design, according to Paul Roberti, commissioner at the Rhode Island Public Utilities Commission.

A high court ruling upholding the lower court rulings and the authority of FERC could provide some clarity for state regulators if the court spells out how the state activities were designed to affect wholesale market capacity prices, Roberti told TransmissionHub Feb. 16 after the panel discussion.

Such a decision could constrain state authority, Moore said during the panel debate.

“Nobody wants to get in the way of states” using their jurisdiction as they see fit, but “cherry picking” certain resources can lead to market interference, said Gordon van Welie, president and CEO of ISO-New England.

The federal and state authority debate in power markets has been around a long time, van Welie said, adding that he does not think a decision from the Supreme Court will solve the problem.

If each state in an ISO region were to follow the lead of New Jersey and Maryland “the impact on the rest of the generation fleet would be devastating,” said William Berg, vice president of wholesale market development at Exelon (NYSE:EXC).

States can choose what resources they want to support, but they need to be careful because those decisions can be costly for consumers, said Sue Kelly, CEO of the American Public Power Association.

Berg said he sees a “growing tension” between the desire of some states to move toward cleaner energy resources and the difficulty of melding that desire into a wholesale market without affecting other states.

Questions of resource adequacy and generation fuel mix are to be addressed by states, and New York is working out the details on its Clean Energy Standard (CES) so that 50% of all electricity used in the state by 2030 would come from renewable energy sources, said New York State PSC Chair Audrey Zibelman.

New York PSC staff issued a CES white paper in late January that lays out some of the state’s priorities and possible mechanisms for achieving the CES goals, Zibelman told the NARUC electricity committee after the wholesale market panel discussion.

She highlighted a plan to try and keep two existing nuclear plants in the state – the R.E. Ginna facility owned by Exelon and the James A. FitzPatrick plant owned by Entergy (NYSE:ETR) – from being retired by their owners, following a directive from New York Gov. Andrew Cuomo. Cuomo in December 2015 called on state regulators to develop a process to prevent the premature retirement of upstate nuclear plants, noting their clean emissions and economic benefits to the state, Zibelman told the committee.

As a restructured state that has retail competition and relies on a competitive wholesale market, New York is confronting the fact that nuclear units are no longer able to maintain their financial viability in an era of low natural gas prices that affect the wholesale power market, she said. With Entergy and Exelon announcing plans to close the FitzPatrick and Ginna facilities in the coming year or so, even though the plants are licensed to operate to 2029 or later, New York officials are concerned that all the gains made in reducing emissions from power plants “would be lost if we lose those plants,” Zibelman said.

The Jan. 25 staff white paper calls for a transition period for reaching renewable targets during which New York’s market would put a price on the value of zero emission nuclear facilities in the state, separate from the market mechanisms to foster renewable resources, she said. All load-serving entities would be required to have a percentage of ZECs in their portfolio to help maintain the existing nuclear fleet in the state during the transition period, Zibelman said.

Those ZECs could be obtained through an auction process, as part of a bundled power purchase agreement with New York nuclear facilities or through an alternative compliance payment, similar to renewable power markets in other states, she told the committee.

The purposes of the ZECs is to put a price on the zero emission attributes of the nuclear units, promote fuel diversity in the state and assign a value that the current wholesale market does not account for, Zibelman said.

The staff white paper said ZECs would be created and tracked through a newly designed New York Generation Attribute Tracking System. Eligible nuclear facilities must have an in-service date of Jan. 1, 2015, or earlier, be facing financial difficulty as determined by a staff examination of the books and records of the facility, and be operating under a renewed license from the U.S. Nuclear Regulatory Commission until 2029 or later, the white paper explained.

ZECs “are an opportunity to provide qualifying nuclear plants with support payments, reflective of their going forward costs of operation, to ensure they continue to operate, to assist the state in maintaining low GHG emissions and to continue to provide fuel diversity and price stability,” staff said in the white paper.

The mandate to purchase ZECs would begin on April 1, 2017, which is when a contract with the Ginna facility is due to expire and when Entergy has said the FitzPatrick plant would close, according to the white paper.

The document said staff would provide an estimate of costs for the CES program at a later date.