U.S. Supreme Court Asked to Review Zero Emissions Credit Schemes

February 22, 2019 Alerts and Newsletters

In two related cases, Petitioners are asking the U.S. Supreme Court to strike down state generator subsidies that Petitioners argue distort competitive wholesale power markets that are under the exclusive jurisdiction of the Federal Energy Regulatory Commission (FERC) under the Federal Power Act (FPA). Both cases concern “zero emission credits” (ZEC) schemes, one in Illinois and one in New York, that subsidize nuclear power plants. These ZEC subsidies allow otherwise uncompetitive nuclear plants to stay profitable and continue to operate, even if they fail to receive sufficient compensation in wholesale power auctions. Both the Second and Seventh Circuits have upheld the ZEC nuclear power subsidies.

Should the Supreme Court accept the cases, it would be a follow up to the Court’s 2016 decision in Hughes v. Talen, in which the Court ruled that a Maryland generator subsidy program was preempted by the FPA. Under Maryland’s program, generators would receive a set price for energy, regardless of the outcome of the wholesale auction, but they were nevertheless required to bid into the wholesale auction and be accepted as a winning resource. Because of the specific nature of that program, the subsidized generators’ only incentive was to bid as low as possible in order to clear the auction. Thus, the program had the clear effect of distorting the wholesale power market, as generators were not bidding into the market based on their true costs to deliver power.

The Court’s holding in Hughes is narrow: it only prohibits states from implementing a subsidy program that ties compensation to participation in the wholesale market. The ZEC schemes in New York and Illinois were drafted to avoid the Hughes problem but accomplish the same goal. Petitioners are asking the Court to expand the Hughes holding to include programs that have the necessary effect of distorting wholesale markets, albeit in a way that is not directly tethered to participation in the wholesale market.

According to Petitioners, the ZEC schemes have exactly the same effect as the Maryland program. The nuclear plants will receive a guaranteed rate, regardless of the FERC-approved auction rates. Petitioners further argue that, although not explicitly required to participate in wholesale markets, due to the nature of nuclear power, nuclear plants must run continuously and will inevitably sell all of their output in wholesale markets. Thus, as a practical matter, the subsidy scheme is indistinguishable from the Maryland scheme that the Court struck down in Hughes.

FERC has struggled with the question of to what extent wholesale power markets should accommodate state policy goals. Should the Court accept the ZEC cases, it could clarify the scope of FERC’s authority to preempt state policy goals that interfere with the operation of wholesale markets.

Firm Highlights

Event

7th Annual Natural Gas Conference

Blog

Dynamic Pricing Triggers EV Owners’ Load Shift to Early Morning Hours

Supplying electricity during peak demand, the period of highest customer demand for electricity (typically around 4 – 7 p.m.), increases the costs of supply – both for transmission and distribution utilities and customers. Dynamic...

Blog

Recent Maine Legislation Bolster Solar, Distributed Generation

News

61 Verrill Attorneys Honored as Best Lawyers, 12 as Lawyers of the Year

(September 3, 2019) – More than 60 Verrill attorneys were once again recognized as “Best Lawyers” by Best Lawyers® 2020 . In addition, 12 attorneys from the firm were named “Lawyer of the Year,&rdquo...

Blog

Maine Public Utilities Commission Approves Weaver Wind Power Contract

On July 12, 2019, the Maine Public Utilities Commission unanimously approved a long-term contract for the purchase of power from Weaver Wind, a 72.6 MW wind power project in Hancock County Maine. The expected...

Publication/Podcast

Governor Mills Lifts Wind Power Moratorium

On Thursday, Governor Mills issued an   Executive Order  lifting a moratorium on new wind energy permits. Former Governor Paul LePage issued the moratorium in January 2018 and created a Maine Wind Energy Advisory...

Matter

Bingham Wind Project

Verrill’s environmental team successfully permitted the Bingham Wind project, which at 185 MW is the largest wind power project in New England. The project includes fifty-six 3.3 MW Vestas turbines, a transmission line, an...

Publication/Podcast

An Interview with ME PUC Chair, Commissioners, and Former Chair

Sourced from Steve Mitnick,  Public Utilities Fortnightly , “A Day (Two Actually) at the Maine PUC” (January 2019). In this posting, I summarize a recent series of interviews with the current Maine PUC Chair...

Publication/Podcast

MPUC Approves Term Sheet for Three Rivers Solar Power, LLC’s 100 MW Solar Project

Today, the Maine Public Utilities Commission  approved  a   term sheet   for a long-term contact for Three Rivers Solar Power, LLC’s 100 MW solar project. The Three Rivers Solar project will be located...

Matter

Champion of Wind Energy Projects