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Trade group asks US Supreme Court to review New York and Illinois nuke subsidies

A trade group of competitive wholesale electricity suppliers and an independent power supplier have asked the U.S. Supreme Court to hear their challenges against New York's and Illinois' "at-risk" nuclear energy subsidies.

In separate Jan. 7 filings, the Electric Power Supply Association, NRG Energy Inc. and Calpine Corp. petitioned the U.S. Supreme Court to review the two states' "zero-emissions credit," or ZEC, initiatives that seek to stave off threatened early closures of financially at-risk nuclear power plants by compensating their carbon-free generation for avoided greenhouse gas emissions. EPSA, NRG, and Calpine argued that the state subsidies intrude on the Federal Energy Regulatory Commission's exclusive authority to regulate interstate electricity markets.

New York and Illinois adopted their ZEC programs in 2016 and, so far, only five nuclear power plants owned — or mostly owned — by Exelon Corp. have been chosen as ZEC recipients in the two states.

In September 2018, the U.S. Court of Appeals for the 7th Circuit ruled against EPSA, NRG and Calpine and upheld Illinois' ZEC program. The same month the U.S. Court of Appeals for the 2nd Circuit also ruled against EPSA and NRG and upheld New York's ZEC program.

In both rulings, the federal appeals courts found that unlike a Maryland subsidy program for new natural gas-fired generation that the Supreme Court invalidated it in the landmark 2016 case Hughes v. Talen Energy Marketing, the plaintiffs failed to show that the Illinois and New York nuclear subsidies are "tethered" to a generator's wholesale market participation. In the New York case, the federal appeals court also said EPSA and NRG "failed to identify any clear damage to federal goals" resulting from the state subsidy and lacked standing to raise a dormant commerce clause claim.

In their petitions to the Supreme Court, EPSA, NRG and Calpine said the debate over the ZEC programs ultimately boils down to whether the Federal Power Act "preempts only state subsidies that explicitly require a wholesale generator to sell its output in FERC-approved auctions, or whether the FPA also preempts state subsidies that lack such an express requirement but that, by design, subsidize only generators that sell their entire output via such auctions, thereby achieving the same effect."

EPSA, NRG, and Calpine argued that the circuit courts misinterpreted Hughes and that New York's and Illinois' ZEC payments directly impact regional wholesale markets. The petitions also warned that the ZEC programs' "guarantee wholesale revenues at state-determined levels" while picking winners on the basis of "public interest" at the expense of market competitiveness.

The petitions also asserted that the subsidy schemes will impose huge costs on consumers and threaten to seriously distort FERC-authorized mechanisms for setting wholesale rates at economically efficient levels and sending appropriate price signals to market participants. Simply put, the subsidy will "by design keep inefficient plants in the market and almost necessarily force efficient plants either to leave or not to enter," said the petitions. EPSA v. Rhodes (Case No. 18A635) and EPSA v. Star (Case No. 18-868).