Calling a plan to subsidize struggling nuclear plants in New York an illegal move by the New York Public Service Commission (PSC) into federal regulators’ territory, an industry coalition including competitive electricity producers filed a lawsuit Oct. 19 in federal court in Manhattan.
The Electric Power Supply Association (EPSA) said in a news release that it was joining a legal challenge to the authority of the PSC to raise electric rates across the state by requiring consumers to pay for “zero emission credits” (ZECs) – to save several New York nuclear plants that have trouble competing in the federally-regulated wholesale electric power market.
The plaintiffs argue that the ZECs undermine the authority of the Federal Energy Regulatory Commission (FERC).
Supporters of the New York credit program have compared it to a renewable portfolio standard and those have held up under legal challenges.
“This a bad deal for New Yorkers, who will see their electric bills go up across the state,” said Jonathan Schiller, a managing partner of Boies, Schiller & Flexner, the firm that represents the plaintiffs. “This subsidy will cost New Yorkers as much as $7.6 billion in payments to a single company. This is illegal. It interferes with the Federal Energy Regulatory Commission’s jurisdiction in regulating wholesale electric rates, and also because the measure unlawfully interferes with interstate commerce,” Schiller said.
“If the ZECs go into effect, as they are scheduled to do in April 2017, they will profoundly disrupt the FERC-approved energy market auction structure and result in the transfer of more than $600 million a year of ratepayer funds to Exelon,” according to the complaint.
Exelon (NYSE:EXC) is already majority owner of the Ginna and Nine Mile Point nuclear plants. Exelon is also in the process of buying the Fitzpatrick nuclear plant, which is also in Upstate New York, from Energy (NYSE:ETR).
“At current wholesale prices, for every megawatt hour (MWh) of energy the upstate nuclear plants sell into the FERC-jurisdictional market, the nuclear units will receive a more than 80 percent premium from the ZECs,” according to the suit.
The coalition claims that the three upstate nuclear facilities will receive a price edge of more than $17 per MWh compared to neighboring competing generators.
The U.S. Supreme Court ruled earlier this year that state subsidies to electricity generators are unconstitutional if tied to wholesale electricity prices; in a clear violation of the Court’s Hughes decision, the PSC’s “ZECs” are an attempt to replace the federally-regulated market prices with costs determined by the state instead. The credits are directly tied to the New York nuclear plants’ participation in interstate energy markets, and are unconstitutional as a result, EPSA said.
The lawsuit was filed in the Southern District of New York, and plaintiffs include the Coalition for Competitive Electricity, Dynegy,(NYSE:DYN) Eastern Generation, LLC, EPSA) NRG Energy (NYSE:NRG), Roseton Generating LLC, and Selkirk Cogen Partners, L.P.
Dynegy, NRG, and Eastern Generation are listed on the EPSA website as members of the organization. Interestingly enough, both Exelon and Entergy are also listed as EPSA members.
EPSA viewing credits as threat to wholesale markets
In an email response to questions from GenerationHub, EPSA President and CEO John Shelk said “the vast majority [of EPSA members] who voted to join the litigation did so because they believe that since its founding 20 years ago this January, EPSA’s stated core mission is promoting well-functioning competitive wholesale power markets on a non-discriminatory basis as the Federal Power Act requires.”
Shelk went on to say that ZEC advocates and their allied groups have said that they intend to seek similar credits in states other than New York, calling into question the proper functioning of wholesale markets in PJM, ISO New England (ISO-NE) and Mid-Continent ISO (MISO).
The EPSA chief also argued that only nuclear units and not “improved” natural gas plants are eligible for the ZECs even though both can help in controlling carbon dioxide (CO2) emissions. Shelk also noted that the Entergy Indian Point nuclear units in New York would not be covered by the ZECs, at least initially.
The coalition filed suit against Audrey Zibelman in her official capacity as chair of the New York PSC.
Exelon released a statement in response to the litigation:
“Despite today’s legal challenge, the work of the New York State Public Service Commission to finalize the Clean Energy Standard (CES) and our work to complete the FitzPatrick transaction continues notwithstanding attempts to stop it,” Exelon said.
“The benefits of the CES to New York energy consumers are clear. We commend Governor [Andrew] Cuomo and the New York Public Service Commission for their leadership in recognizing nuclear plants’ environmental contribution to the State. The CES program will help ensure that the eligible nuclear units continue to avoid 16M tons of carbon dioxide and provide more than 25,000 jobs and $144 million in annual tax revenue,” Exelon said.
The lawsuit was filed in the U.S. District Court for the Southern District of New York. It is Case:1:16-cv-08164.