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Second Circuit Holds that New York May Subsidize In-State Nuclear Generation

On September 27, 2018, in Coalition for Competitive Electricity v. Zibelman, No. 17-2654-cv, the U.S. Court of Appeals for the Second Circuit held that New York’s zero emission credit (ZEC) program, which subsidizes certain in-state nuclear generators, is not preempted by the Federal Power Act (FPA).  The Court also declined to hear the plaintiffs’ dormant Commerce Clause claims, holding that plaintiffs lacked standing to bring them.  The Court’s decision affirmed the grant of summary judgment by the District Court for the Southern District of New York. Following the recent September 13, 2018 decision in Electric Power Supply Association v. Star, the Court’s decision marks the second time an appellate court has upheld a state ZEC program.

The plaintiffs, a group of generators and trade groups, contended that the ZEC program was preempted by the FPA under the principles of field preemption and conflict preemption.  Relying on the Supreme Court’s recent case of Hughes v. Talen Energy Marketing, LLC, 136 S. Ct. 1288 (2016), the Court determined the ZEC pricing was not impermissibly tethered to wholesale markets over which the Federal Energy Regulatory Commission (FERC) has jurisdiction because a plant’s receipt of ZECs was not tied to wholesale market participation.  The Court also found that, while the ZEC program may incidentally exert downward pressure on wholesale rates, the effect was “insufficient to state a claim for field preemption under the FPA.”  Additionally, the Court found no support for plaintiffs’ assertion that the ZEC program required plants to sell power into the wholesale market.  Though “New York has kept the line in sight, and gone as near as can be,” the Court determined that the ZEC program was not field preempted.

On the issue of conflict preemption, the Court found that the ZEC program did not impermissibly interfere with federal prerogatives.  The Court noted that FERC has “sanctioned state programs that increase capacity or affect wholesale market prices, so long as the states regulate matters within their jurisdiction.”  In this case, the ZEC program may have an incidental effect on auction clearing prices, but the “ZECs do not guarantee a certain wholesale price that displaces” the FERC-regulated auction price.  For these reasons, the ZEC program was not conflict preempted.

The Court rejected plaintiffs’ dormant Commerce Clause claims because it found plaintiffs lacked standing to bring them.  The Court held that “Plaintiffs’ asserted injuries are not traceable to the alleged discrimination against out-of-state entities, but (rather) arises from their production of energy using fuels that New York disfavors.”

A copy of the Court’s decision is available here.