Legal battles over nuclear generator subsidiescould renewable energy - - PowerPoint PPT Presentation

Legal battles over nuclear generator subsidies—could renewable energy programs be collateral damage?

Gordon A. Coffee

Impetus for Zero-Emission Credit programs

• Deregulated nukes in New York and Illinois primarily rely on

dispatch by NYISO, PJM, or MISO

• Nukes’ marginal costs higher than natural gas plants’ or

renewables’

• Tax subsidies give renewables competitive advantage in

day-ahead and real time markets

• Nukes receive insufficient revenues from capacity auctions
• Nuke owners threatening to shut down plants

No help for nukes from FERC, RTOs or ISOs

• FERC only held technical conference on potential market

design changes

• Most RTOs and ISOs not ready to alter their markets to

compensate nukes for zero carbon emissions or reliability

• Dispatch still based on lowest cost units
• NYISO considering integrating carbon adder into pricing

model

• PJM proposing two-part capacity auctions to offset

subsidies

New York and Illinois take action

• Implemented ZEC programs in 2016
• States feared loss of high-paying jobs, reduced grid

reliability, and increased CO2 emissions and air pollution if nukes shut down

• States tried to provide support in a way that did not run afoul
• f Hughes v. Talen Energy Marketing
• ZEC program packaged with enhanced renewable energy

program

Features of ZEC programs

• Plants paid for producing power with no carbon emissions
• ZECs similar to Renewable Energy Credits
• LSEs/utilities must purchase set amount of ZECs
• Nukes sell ZECs
• State agency in the middle in NY, not in Illinois
• Price of ZECs determined by state, not markets
• Price tied to social cost of carbon, less average price of

energy in RTO/ISO

Legal challenges

• Owners of natural gas-powered plants filed suit to block the

ZEC programs in NY and Illinois

• Theories
• ZEC program invades FERC’s exclusive jurisdiction to set wholesale

energy rates (preemption)

• ZECs distort wholesale energy and capacity markets (preemption)
• ZEC program discriminates against out-of-state generators (dormant

Commerce Clause)

Preemption

• Hughes--Supreme Court rejected Maryland subsidy for new

generation

• Program required generator to clear PJM capacity market
• Maryland effectively overrode PJM price by providing price guarantee
• Debate whether ZEC programs require nukes to participate

in wholesale energy markets

• Debate whether ZEC programs interfere with functioning of

wholesale markets

Commerce Clause

• Are ZEC programs intended to discriminate against out-of

state generators or preserve environmental benefits of nukes?

• Are out-of-state nukes eligible for ZECs?
• Do plaintiffs have standing to complain?

Status of suits

• Expect rulings in next few months
• PJM supporting the Illinois plaintiffs
• PJM Market Monitor supporting the New York plaintiffs
• States and some environmental groups defending ZEC

programs

• MISO said Illinois suit premature
• NYISO not participating in New York suit

Could renewable energy programs be at risk?

• Plaintiffs, environmental groups, and wind association claim

ZECs distinct from RECs

• States say otherwise
• Legality of renewable programs not settled
• Sweeping ruling against ZECs could endanger RECs

Are renewable programs preempted?

• Illinois and New York RPS programs not require

participation in RTO or ISO markets

• But generators must sell power to earn RECs
• REC prices not directly tied to RTO or ISO prices
• Yet “RECs markets are, as an economic fact, integrated with

PJM markets including energy and Capacity markets, but are not formally recognized as part of PJM markets.”

Do RPS and REC mandates affect wholesale markets?

• “[R]enewable energy mandates at both the federal and state

levels have a significant impact on the cost of energy and capacity in PJM markets.”

• Renewable energy credits and other subsidies “affect the
• ffer behavior and the operational behavior of these

resources in PJM markets and thus the market prices and the mix of clearing resources.”

• “RECs clearly affect prices in the PJM wholesale power
• market. Some resources are not economic except for the

ability to purchase or sell RECs.”

Do renewable energy programs violate the Commerce Clause?

• 7th Circuit said Michigan RPS’ exclusion of out-of-state

generators unconstitutional

• Participation in Illinois and New York limited for most part to

in-state green generators

• In Illinois, new out-of-state generators can participate only if a state

agency finds it to be in the public interest

• In New York out-of-state generators must continually sell in New York

from an adjacent RTO or ISO

Second Circuit Allco Finance decision

• Upheld Connecticut renewable energy program
• Connecticut does not compel utilities to buy renewable

energy at price set by auctions

• Utilities enter into bilateral contracts outside ISO
• States not required to support renewables solely through

PURPA

• No violation of Commerce Clause
• Generators from adjacent RTOs and ISOs can participate
• Different REC products

Connecticut RPS and REC program distinguishable

• State does not dictate contract terms
• FERC reviews bilateral contracts between utilities and

generators for reasonableness

• Connecticut followed geographic boundaries set by FERC in

deciding which generators could participate

• Generators not required to clear through ISO auction

Fin