Federal Court Dismisses Lawsuit Challenging New York Nuclear ZEC Program
July 26,2017
The U.S. District Court for the Southern District of New York dismissed a lawsuit challenging the Zero Emissions Credit (ZEC) program contained in New York’s Clean Energy Standard.
Among other things, the ZEC program requires ESCOs to comply with procurement mandates related to ZECs
In brief, the Court found that ZECs, as they do not directly affect wholesale prices, do not intrude on FERC jurisdiction, and are similar to other unchallenged state support for generators (RECs, tax breaks, etc.)
"A whole host of measures that States might employ to encourage clean energy development -- such as tax incentives or direct subsidies -- involve propping up the operation of a generator that might otherwise be unprofitable. Hughes did not prohibit such state assistance, see Hughes, 136 S. Ct. at 1299, and Plaintiffs have not argued that such state subsidies are per se preempted," the Court said
"Nor does the use of forecast wholesale rates in calculating the ZEC price create an unconstitutional tether," the Court said
The Court stressed that the ZEC order, "itself does not require the nuclear generators to sell into the NYISO auction."
While plaintiffs argued that nuclear owners have no alternative but to sell energy into the wholesale market as a result of the ZEC order, the Court said, "the nuclear generators receive ZECs for their zero-emissions production of energy, and not for the sale of that energy into the wholesale market; the CES Order grants ZECs to eligible nuclear generators, without any mention of whether or where the generators sell their power."
"In summary, the Maryland program at issue in Hughes conditioned the generators’ receipt of a favorable rate (distinct from the auction rate) on the generators’ capacity clearing the auction; there was a direct and concrete tie (or tether) between the contracts-for-difference and the generator’s wholesale market participation. Here, a ZEC is available based on the environmental attributes of the energy production -- specifically, for the generators’ production of zero-emissions energy -- without consideration of the generators’ participation in the auction," the Court said
"Like the challenged Connecticut program in Allco Fin. Ltd. v. Klee, 861 F.3d 82 (2d Cir. 2017), the ZEC program does not suffer from Hughes’s 'fatal defect' because the ZEC program “does not condition capacity transfers on [the wholesale] auction.' 861 F.3d at 99. Rather, the purchase or sale of ZECs, like the contracts at issue in the Connecticut program, reflect transactions that occur “independent of the auction," the Court said
"Even if ZECs have an effect on the wholesale auction -- which Plaintiffs allege and the Court must accept as true -- Plaintiffs have not plausibly alleged that the ZECs directly affect wholesale rates such that they intrude upon federal jurisdiction," the Court said
"ZECs do not directly adjust, alter, or affect the wholesale rate," the Court stressed
"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. 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. Plaintiffs even concede that such measures 'would have some of the same effects' on the market," the Court said
"The death knell for Plaintiffs’ field-preemption argument is their failure to distinguish ZECs from RECs," the Court said
"Like a REC, a ZEC is a certification of an energy attribute that is separate from a wholesale charge or rate. Like a REC, the purchase or sale of a ZEC is the purchase or sale of this attribute, rather than the purchase or sale of wholesale energy," the Court said