On July 14, 2017, a federal district court judge in Illinois granted the state’s motion to dismiss a complaint brought by wholesale generators against the state’s Zero Emission Credit (“ZEC”) nuclear subsidy program. The Illinois Future Energy Jobs Act created the ZEC program and requires utilities to enter into contracts to purchase the zero-carbon environmental attributes from qualifying nuclear generation facilities. The Illinois ZEC program is in response to New York’s original Zero Emission Credit program aimed at preserving the zero-carbon attributes of struggling high-cost nuclear generation in the wholesale market, as well as the preservation of local jobs and property taxes.
In Illinois, the district court dismissed the plaintiff generators’ ZEC complaint for failure to state a claim. The generators’ complaint was largely based on the recent Supreme Court case Hughes v. Talen Energy Marketing, which found a Maryland state regulatory program to violate FERC’s exclusive wholesale jurisdiction by providing subsidies to selected generators that paid the difference between the generator’s costs and the actual market clearing price. The Supreme Court also articulated that “tethering” a subsidy to a generator’s participation in the wholesale market is impermissible.
The district court rejected the plaintiff generators’ arguments predicated on Hughes and reasoned that the “tether” in this case was not to a generator’s participation in the wholesale market, but rather to broad and indirect wholesale market forces. Requiring the Illinois utilities to purchase ZECs based on the environmental characteristics of the social cost of carbon is out of FERC’s jurisdiction because it does not directly affect the wholesale market clearing price. Thus, the court determined that Illinois did not intrude on FERC’s jurisdiction because the ZECs did not change the amount of money exchanged in a wholesale electricity transaction.
In addition, the district court stated that Illinois does not require participation in wholesale auctions in order to receive ZECs; rather it is PJM which requires participation in capacity auctions. Furthermore, generators can also receive ZECs even if they do not clear capacity or participate in an auction. Thus, the district court held there was no “tethering” by directly conditioning the generators clearing the wholesale market with the payment of the ZEC subsidy and; therefore, did not suffer from the “fatal defect” of Maryland’s program in Hughes.
This case will likely have an impact on the challenge to New York’s program in Coalition for Competitive Electricity v. Zibelman. This case is bound to be appealed, likely all the way to the Supreme Court. Please contact Tom Rudebusch for further information.
The complaint can be found here