FERC, DOJ back state subsidy for nuclear

Source: Saqib Rahim, E&E News reporter • Posted: Friday, June 1, 2018

Federal lawyers yesterday said they have no legal objection to an Illinois policy to subsidize nuclear power, a development that will stiffen the backbones of other states considering similar action.

In an amicus brief yesterday, the Federal Energy Regulatory Commission and Department of Justice said Illinois’ policy to offer “zero emission credits,” or ZECs, to nuclear generators is safely within the state’s legal authority. ZECs do not infringe on FERC’s jurisdiction in a way that would warrant a pre-emption of the state policy, FERC and DOJ said.

Why? Because Illinois’ policy was targeting the environment, not those wholesale markets, FERC and DOJ said.

“[T]he Illinois ZEC is ‘targeted’ at an attribute of generation resources over which Illinois has regulatory authority,” the agencies said in their brief. “[A]ny spillover, indirect effect on wholesale electricity markets over which the Commission has authority does not warrant preemption.”

The development is an empowering one for those who hope states can set policies to keep nuclear stations open — and that the policies will hold up in court.

And it’s a finely threaded argument coming out of the Trump administration, which has pledged to flex federal muscle to help nuclear power stations, but in this case is supporting them by not exercising it.

Illinois and New York advanced similar “ZEC” programs in 2016, earning plaudits from nuclear companies and environmentalists who feared plant closures, job losses and spikes in carbon pollution.

But both programs were taken to court by independent power producers who said states don’t have the authority to set these policies. They argued that ZECs meddle with wholesale power markets, which are under FERC’s supervision, and so the states’ policies are “preempted.”

The Illinois case rose to the 7th U.S. Circuit Court of Appeals, which heard oral arguments in January. The next month, a court panel asked the federal government to weigh in: Did it see the Illinois policy as stepping on federal turf?

No, the agencies said in their amicus brief: The Illinois policy looks, in intent and effect, like other state policies that FERC hasn’t had a problem with. It doesn’t look, the agencies said, like the Maryland policy that was eventually overturned by the Supreme Court for stepping on federal turf.

Will the analysis strengthen Illinois’ and nuclear operator Exelon Corp.’s case in court? “Indubitably!” Ari Peskoe, director of the Electricity Law Initiative at Harvard Law School, said in an email.

The decision now falls to the three judges hearing the case. A parallel suit, involving similar challenges to New York’s ZEC program, is pending in the U.S. Court of Appeals for the Second Circuit.

A key legal issue in the case: When a state subsidizes a power source, is that inappropriately interfering with wholesale power markets?

In the case of ZECs, competitive generators have argued, it is interfering, because subsidies throw off the market dynamics in which power plants from many states compete.

For example, a subsidized nuclear station in Illinois might be seen as having an unfair advantage on a gas plant in Indiana. And instead of closing, as market logic would dictate, the nuclear station might stay open, depriving consumers of the most efficient market outcome, ZEC opponents argue.

As DOJ and FERC argued, however, states clearly have some statutory authority to set policies on power plants and that may even have “incidental effects” on wholesale power markets.

What DOJ and FERC are looking for, they said, is whether the state’s policy is “targeting” wholesale markets or going after some other public policy goal, such as air pollution.

In the case of Illinois, their brief said, the ZECs were connected to the nuclear plants’ carbon emissions — more precisely, their lack of emissions. ZECs were not tied to Exelon’s actions on wholesale markets; that would have been a “fatal” legal defect, the agencies said.

FERC and DOJ urged the court to side with Illinois and Exelon. But they added that these complex issues are being debated in multiple current FERC cases.

“The Court thus need not, and should not, resort here to the extraordinary and blunt remedy of preemption,” their brief said.