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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 Seventh Circuit Upholds Illinois’ ZEC Program and Leaves the Door Open for State Subsidization of Generation

On July 14, 2017, and several weeks after the Second Circuit rejected challenges to Connecticut’s renewable energy procurement process and renewable energy credit program (see Allco Fin. Ltd. v. Robert J. Klee (Docket Nos. 16-2946, 16-2949)), the U.S. District Court for the Northern District of Illinois dismissed challenges brought by independent power producers and customers against Illinois’ nuclear subsidy program (Village of Old Mill Creek v. Anthony M. Star, Docket Nos. 17 CV 1163, 17 CV 1164). This Illinois decision further support the authority of states to promote generation of their choosing and represents another narrow reading of the Supreme Court’s recent ruling in Hughes v. Talen Energy (136 S. Ct. 1288 (2016)).

In the state program at issue in Old Mill Creek, Illinois created a “zero emission credit” (ZEC), a tradeable credit (modeled after a renewable energy credit) which represents the environmental attributes of one megawatt hour of energy from specified zero emission facilities (in this case, selected nuclear power plants interconnected with the Midcontinent Independent System Operator (MISO) or PJM Interconnection (PJM)). The effective purpose of this program is to subsidize Exelon’s Clinton and Quad Cities nuclear facilities in Illinois, which Exelon had threatened to shut down if it did not receive government support.
Continue Reading Another Court Upholds a State Generation Program and Dismisses Challenges to Illinois’ Nuclear Subsidies