On September 13, 2018, in Electric Power Supply Association v. Star (Case No. 17-2433 and 17-2445), the Seventh Circuit upheld a district court decision finding that Illinois’ zero emissions credit (ZEC) program (i.e., its nuclear subsidy) was not preempted by the Federal Power Act. With this decision, the Seventh Circuit adopted a narrow reading of the Supreme Court’s decision in Hughes v. Talen Energy Marketing, LLC (136 S. Ct. 1288 (2016)) (Hughes) (which struck down a Maryland generation subsidy program that required participation in the PJM capacity auction) and left the door open for states to subsidize generation of their choosing (as long as the state is not directly setting the wholesale market price). Thus, in subsidizing generation, states may achieve indirectly what they are prevented from ordering directly.
Under the Illinois program, certain nuclear generators in Illinois (i.e., Exelon’s Quad Cities and Clinton nuclear facilities) receive ZECs (initially priced at $16.50 per MWh) for each MWh of electric energy they produce. The price of a ZEC will drop if an Illinois-set market-price index (based on the annual average energy prices in the PJM auction and two of the state’s regional energy markets) exceeds $31.40 per MWh. The Illinois program does not require that the nuclear facilities participate in the PJM capacity auction (although it is acknowledged that the nuclear generators will very likely be participating in the PJM capacity auction). Illinois’ nuclear subsidy program was challenged by an association representing electricity producers and several municipalities.
Jurisdiction over the power sector is divided between the federal government and the states. The Federal Energy Regulatory Commission (FERC) has jurisdiction over wholesale power sales in interstate commerce, while the states have jurisdiction over retail power sales and generation facilities. State regulation of whole power sales would be preempted by the Federal Power Act, but the courts are still deciding where exactly the line between federal and state jurisdiction lies. Continue Reading