ZECs Upheld in Two Courts

  • United States
  • 08/23/2017
  • Duane Morris LLP & Affiliates. © 1998-2017 Duane Morris LLP. Duane Morris is registered service mark

By Phyllis J. Kessler

Two federal district courts, one in Illinois and one in New York, recently upheld the validity of zero emission credits (ZECs) for nuclear generators in each respective state. ZEC programs support nuclear generation and ensure that nuclear plants continue to generate low emissions power. Other independent power producers in both states challenged the constitutionality of ZEC programs.

The Illinois Legislature enacted the Future Energy Jobs Act in 2016, providing $235 million in ZECs annually to two Exelon nuclear plants, Quad Cities and Clinton.

Competing independent generating companies challenged the application of ZECs, stating such payments interfere with wholesale markets regulated by the Federal Energy Regulatory Commission (FERC) and are prohibited by the recent U.S. Supreme Court holding in Hughes v. Talen Energy Marketing, LLC., 136 S. Ct. 993, which struck down an attempt by the Maryland Legislature to provide financial support for gas generation (see Energy, Environment and Resources Update, Issue 12).

In New York, the Public Service Commission (PSC) adopted ZECs in its Order dated August 1, 2016 (see Energy, Environment and Resources Update, Issue 16). Challengers relied on similar arguments to those used in Illinois. The judge in the New York District Court case dismissed challenges to the PSC’s Order, holding that the imposition of ZECs does not violate the Commerce Clause or interfere with federal regulation by FERC.

Supporters of the ZEC programs argued that ZECs were no different from RECs, which recognize carbon abatement whether or not sales are made into the wholesale market. In both states, the District Court judges found that, different from Hughes, ZECs do not subsidize the wholesale sale and only indirectly impact wholesale markets because their availability is not tied to sales in the wholesale markets.

Both cases have been appealed, the Illinois decision to the Seventh Circuit and the New York decision to the Second Circuit. Duane Morris will keep you apprised of further developments.