Federal Court Upholds Illinois Nuclear Subsidy Mechanism
The United States Court of Appeals For the Seventh Circuit has upheld Illinois' nuclear subsidy program (ZECs), finding that the program does not intrude on FERC's jurisdiction over interstate sales.
While the Illinois law did not affect the competitive retail market, as it was implemented via nonbypassable charge, the Court's reasoning is applicable in similar situations (present or future) in which the subsidy is placed on the generation side of the bill and imposed on retail suppliers (New York)
The Court distinguished the Illinois nuclear law from an earlier Maryland law providing subsidies to new capacity noting that the Illinois law does not require the nuclear plants to clear the capacity market.
"So long as a State does not condition payment of funds on capacity clearing the [inter- state] auction, the State’s program [does] not suffer from the fatal defect that renders Maryland’s program unacceptable," the Court said
Regarding commerce clause arguments, the Court said, "Illinois has not engaged in any discrimination beyond what is required by the rule that a state must regulate within its borders. All carbon-emitting plants in Illinois need to buy credits. The subsidy’s recipients are in Illinois; so are the payors. The price effect of the statute is felt wherever the power is used. All power (from inside and outside Illinois) goes for the same price in an interstate auction. The cross-subsidy among producers may injure investors in carbon-releasing plants, but only those plants in Illinois (for the state’s regulatory power stops at the border). The combination of §824(b)(1) and the absence of overt discrimination defeats any constitutional challenge to the state’s legislation."