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NY regulators, joined by Exelon, move to dismiss generators' subsidy lawsuit

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NY regulators, joined by Exelon, move to dismiss generators' subsidy lawsuit

Counsel to the New York Public Service Commission moved to dismiss a lawsuit lodged by a group of New York power generators in federal court against the state’s recently approved nuclear subsidies.

With support from Exelon Corp. and the Environmental Defense Fund, NYPSC counsel shot back at the lawsuit filed in October by a coalition of power generators that includes NRG Energy Inc. and Dynegy Inc., suggesting that the suit overlooks statute under the Federal Power Act and case law that supports state-determined compensation for environmental attributes in certain instances, when the attribute is treated as an unbundled from the wholesale power price.

The motion to dismiss leans on language in the Federal Power Act, which the defendants argue gives the state the right to determine environmental attributes of certain generation resources on an unbundled, equating a zero emission credit, or ZEC, to a renewable energy credit, or REC, and suggesting that such treatment does not necessarily interfere with wholesale market prices.

"Both ZECs and RECs are creatures of state law, and may be tailored as the state deems appropriate," the motion said. "No federal law requires New York's ZEC and REC programs to be structured identically, or prohibits New York from focusing its ZEC program on nuclear facilities at risk of retiring but essential to retain."

The motion also suggested that the coalition may have improperly filed suit in federal court, rather than alternatively appealing to FERC for legal recourse, where such enforcement issues are set to be litigated.

"There is no constitutional, statutory, or equitable basis for private parties to pursue [Federal Power Act] preemption claims in federal district court," the motion said. "Plaintiffs' recourse is to FERC."

"Without acknowledging it, Plaintiffs effectively ask this Court to exercise rate-making judgments and to answer a question that Congress meant for FERC: whether auction prices affected by the participation of generators receiving ZECs would be unjust and unreasonable," the motion stated.

The motion also sought to contrast the ZEC program with the decision made in Hughes v. Talen Energy Marketing LLC, and the claims made against the ZEC program as a violation of the Dormant Commerce Clause, suggesting that revenues tied to the ZECs do not depend on "sales directly into the NYISO auctions." In Hughes, the U.S. Supreme Court found that a Maryland program providing long-term rate guarantees to an entity that agrees to build a new power plant in the state intrudes on FERC's jurisdiction.

"New York can permissibly favor zero-emission nuclear plants, with all the environmental benefits they bring, without running afoul of the dormant Commerce Clause," Exelon said in their support of the PSC motion. (Case 1:16-cv-08164 in the U.S. District Court for the Southern District of New York)