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


7th Annual Maine Natural Gas Conference

On Thursday, October 3, 2019, Verrill and Pierce Atwood hosted our 7th Annual Maine Natural Gas Conference. Verrill attorney William Harwood and Pierce Atwood attorney John Gulliver led the day as our industry professionals...


Beneficial Electrification and Natural Gas Bans in New Buildings, Affordable Sustainability


The 7th Annual Maine Natural Gas Conference


Verrill Trial Attorneys Again Recognized as “Local Litigation Stars” by Benchmark Litigation

(October 30, 2019) – Eight Verrill attorneys have once again been recognized for their litigation skills in Benchmark Litigation’s 2020 edition . In addition to the firm’s eight individual rankings, both Karen Frink Wolf...


Reclassifying as a FERC-Jurisdictional Transmission Line

In 2010, Madison Electric Works (MEW), an electric utility serving Madison, Maine, explored reclassifying its 115-kV power line as a FERC-jurisdictional transmission line. Reclassification of the line, which serves Madison Paper Industries (MPI), Backyard...


Assist Natural Gas Pipeline Company in Maine PUC Proceeding to Select a Provider of Natural Gas Capacity into New England

Since early 2014, our firm has successfully represented a large interstate pipeline company before the Maine PUC in advancing two significant new interstate pipeline expansion projects. The larger of the two projects was designed...


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 in Hancock...


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 Commission...


Pipeline Expansion, Safety Focus of October 3rd Natural Gas Conference

Keynote Speakers Include Maine Public Utilities Commission Chair Philip L. Bartlett and University of Maine's David Dvorak (October 1, 2019) – Verrill and Pierce Atwood will host the seventh annual full-day Maine Natural Gas...


Recent Maine Legislation Bolsters Solar, Distributed Generation