The New York State Public Service Commission in a Dec. 9 brief filed at the U.S. District Court for the Southern District of New York said that an Oct. 19 lawsuit filed by industry entities like the Electric Power Supply Association over the state’s market protection program for three nuclear power plants should be thrown out.
The PSC pointed out that New York has concluded that it must reduce greenhouse gas (GHG) emissions and other environmental harms of producing electricity to serve New Yorkers. To that end, the commission adopted a Clean Energy Standard (CES) with two main, interrelated goals:
- promoting the development of substantial quantities of new electric generation facilities that rely on renewable resources; and
- maintaining, while the renewable build out occurs, a large base of zero-emission generation that is provided by certain nuclear plants at risk of retiring.
To accomplish these goals, the CES order compensates non GHG-emitting energy resources for the beneficial environmental attributes of the energy they produce. Renewable resources are compensated at market-based prices. The nuclear plants are compensated at prices calculated by the commission based on the federal estimate of the social cost of carbon. The commission found both steps to be in the public interest and essential to achieving the state’s overall objective of transforming the state’s energy supply to include significantly more environmentally-friendly resources.
The plaintiffs in this case, including NRG Energy (NYSE: NRG) and Dynegy Inc. (NYSE: DYN), own fossil fueled electric generation facilities that emit significant quantities of GHG and other harmful air pollutants. While they do not challenge the renewable-energy portion of the CES order, plaintiffs claim the Federal Power Act (FPA) and U.S. Constitution require New York to let the nuclear plants shut down—and let GHG and other emissions surge—because the plaintiffs would benefit from higher wholesale electricity prices that might result from the retirements, the PSC claimed.
“Plaintiffs allege that New York’s plan to pay certain nuclear plants for the zero-emission attributes of the energy they produce is field-preempted (Count I) and conflict-preempted (Count II) and violates the dormant Commerce Clause (Count III),” the PSC added. “They seek declaratory and injunctive relief. The Complaint should be dismissed under Rule 12(b)(6). Counts I and II should be dismissed because neither the Constitution’s Supremacy Clause nor the FPA affords plaintiffs a private right of action to pursue those claims in court, and the FPA forecloses resort to this Court’s equitable power in lieu of a cause of action. The FPA creates an interlocking, collaborative federalism framework in which States regulate the physical and environmental aspects of electricity generation, as well as electricity sales to end users, while the Federal Energy Regulatory Commission (FERC) exercises exclusive authority over sales for resale (i.e., wholesale sales).
“The FPA establishes a comprehensive administrative scheme enabling potential plaintiffs to pursue FPA-based claims (including preemption claims) before the agency, and gives FERC alone the power and the discretion to go to court to enforce the FPA when necessary. This regime precludes private parties from pursuing FPA-based preemption claims in federal district courts.
“Questions about whether a state program usurps or interferes with FERC’s wholesale market regulation must be addressed to FERC, as their resolution entails the exercise of FERC’s discretionary, policy-making powers, which are not judicially administrable.
“The Court also should dismiss Plaintiffs’ preemption claims (Counts I and II) and dormant Commerce Clause claim (Count III) because the facts alleged in the Complaint, even if true, would not show a violation of the FPA or the dormant Commerce Clause. As both courts and FERC recognize, the FPA preserves state authority to regulate electric generation facilities and to create and regulate commerce in the environmental benefits of those facilities. That is exactly what the CES Order does. The CES Order neither intrudes upon (Count I) nor interferes with (Count II) FERC’s regulation of wholesale electric sales, and neither discriminates against nor burdens out-of-state commerce (Count III).”
The plants covered by the CES order are the James A. FitzPatrick Nuclear Generating Facility, the R.E. Ginna Nuclear Power Plant, and one of the two Nine Mile Point Nuclear Station units. The commission found that the Indian Point nuclear generation facility in the New York City area also had made verifiable historic contributions of clean energy consumed in New York, but would not be eligible to sell Zero-Emissions Credits because its zero-emissions attributes were not at risk.
Said the PSC: “The retirement of even one at-risk nuclear unit would cause the loss of more carbon-free electricity (approximately 7,000 gigawatt-hours annually) than is expected to be produced by all of the renewable resources in the New York Renewable Portfolio Standard program (6,241 gigawatt-hours annually) for which the New York State Energy Research and Development Authority (NYSERDA) has either contracted or encumbered funds. The Commission determined that there were no feasible alternatives that could replace the nuclear plants’ zero-emission attributes in the short run if the at-risk nuclear plants were to retire.”
Exelon sides with PSC over effort to get the lawsuit dismissed
Constellation Energy Nuclear Group LLC, Exelon Corp. (NYSE: EXC), R.E. Ginna Nuclear Power Plant LLC and Nine Mile Point Nuclear Station LLC said in a Dec. 9 joint filing in favor of the CES: “The Clean Energy Standard recently adopted by the New York Public Service Commission (‘PSC’) is the Nation’s most ambitious effort to curb greenhouse gases, aiming to reduce New York’s emissions 40 percent by 2030. The PSC recognized that preserving existing nuclear power plants—which generate large amounts of electricity, without emitting carbon—was essential to that goal. Yet two nuclear facilities that serve New York had announced their intention to retire, and a third was also in danger of retiring. These retirements would cause a large increase in emissions, overwhelming progress on renewable technologies.
“In response, the PSC chose a tested tool whose legality is well-established. Since 1999, dozens of states have adopted ‘renewable portfolio standards’ (“RPS”) based on ‘renewable energy credits’ (or “RECs”). RECs are given to renewable generators to certify that a quantity of electricity was produced without the air pollution that results from burning fossil fuels. Utilities and other retail sellers of electricity must buy RECs in proportion to their share of a State’s electricity consumption (or ‘load’). REC programs have been essential in promoting renewable generation that would not be cost-competitive absent recognition of its environmental value.
“The PSC’s Zero Emission Credit (‘ZEC’) Program…applies this model to value the environmental benefits of nuclear generation: Like RECs, ZECs are credits certifying that electricity was created using emission-free technology. Retail sellers—e.g., utilities—are required to buy a certain quantity, and the credits’ value is tied to the ‘social cost of carbon,’ which is the federal government’s measure of the social value of avoiding carbon emissions. The ZEC Program respects the same jurisdictional line that has established REC programs’ legality.
“While the Federal Energy Regulatory Commission (‘FERC’) has jurisdiction over wholesale electricity sales (i.e., sales by generators for resale), states regulate generation facilities and retail electricity sales (i.e., sales to end-use consumers). FERC has recognized states’ authority to adopt programs for the sale and purchase of credits certifying that electricity was generated using environmentally friendly technologies. And the Supreme Court recently reaffirmed states’ authority to ‘encourag[e] production of new or clean generation through measures ‘untethered to a generator’s wholesale market participation.”
“Plaintiffs—competitor generators who burn fossil fuels and believe New York’s climate-change efforts will cost them money—claim that the PSC acted illegally in applying the REC model to nuclear generation.”