Supremacy Clause and Commerce Clause Challenge to Clean Energy Standard
Coalition For Competitive Electricity et al v. Zibelman, et al.
Recent Developments: Complaint filed in October 2016 in federal district court. Oral argument on motions to dismiss will be held on March 29, 2017.
Supremacy Clause and Commerce Clause Challenge to PSC Approval of Contract Between Utility and Generator
Entergy v. Zibelman, et al.
Recent Developments: Entergy filed its complaint in federal district court in February 2015. After the New York PSC approved the sale of Entergy’s New York plant to Exelon, the parties agreed to a voluntary dismissal in November 2016.
Commerce Clause Challenge to RPS In-State Requirement
Cases 03-E-0188 and 08-E-0188 before the New York State Public Service Commission
Recent Developments: The Public Service Commission affirmed the in-state requirement on December 23, 2013.
In October 2016, A group of generators and generation trade associations filed a complaint in federal district court that argues the New York Public Service Commission’s (PSC) new Clean Energy Standard (CES) is preempted by the Federal Power Act because it “intrudes on the exclusive authority of FERC.” The generators also allege that because the CES benefits only four nuclear plants in New York it “disadvantages” out-of-state generators selling in the interstate electricity market in violation of the dormant Commerce Clause.
The CES, issued August 1 and currently on rehearing before the PSC, mandates that the state’s load-serving entities procure Zero-Emission Credits (ZECs) that are generated by in-state nuclear power plants. According to the PSC, ZEC revenue is necessary to avoid the closure of four upstate plants that are needed to meet the state’s carbon emission goals. The ZEC price is set by the PSC, and is equal to the social cost of carbon less the amount generators already pay for RGGI allowances, and further reduced to account for the amount by which future NYISO energy and capacity prices are forecast to exceed $39 per MWh. Eligible nuclear generators selected by the PSC will enter into contracts with NYSERDA, a state agency, which in turn will enter into contracts for ZECs with state-regulated utilities and competitive retail suppliers in proportion to the load they serve.
The complaint argues that the CES is both field and conflict preempted. Invoking the Supreme Court’s recent decision in Hughes, the generators claim that the ZEC mandate “invades FERC’s exclusive regulatory field by directly altering the revenue to be paid to nuclear generators.” Unlike the market-based price of renewable energy credits (REC), the ZEC price is set administratively and is “tethered” to the FERC-regulated NYISO price. The complaining generators assert that this additional ZEC revenue will have a price-suppressive effect in the capacity market, which will “frustrate FERC’s market design.” This “disruption” of market signals “interferes with FERC’s decision to structure the wholesale markets . . . on market-based principles.” According to the complaint, the ZEC mandate is thus a textbook case of conflict preemption because it “stands as an obstacle to FERC’s regulatory regime, which depends upon fair competition.”
Alleging that the ZEC mandate “is purely protectionist in nature” because it benefits only in-state plants, the generators also argue that the CES violates the dormant Commerce Clause. While noting that emission reductions are “important,” they claim that emission goals could be achieved “more effectively by means that would neither discriminate against interstate or international commerce nor frustrate the progress of competitive markets.” Even if the order is not directly discriminatory, they further allege that the CES “imposes market distorting burdens on interstate and international commerce that far outweigh the purported local benefits.”
Complaint (Oct. 19, 2016)
Joint Letter Outlining the Case (Dec. 8, 2016)
New York Public Service Commission’s Motion to Dismiss (Dec. 9, 2016)
Exelon’s Motion to Dismiss (Dec. 9, 2016)
Exelon’s Answer to the Complaint (Dec. 9, 2016)
Environmental Defense Fund’s (EDF) Motion to Dismiss (Dec. 9, 2016) (later re-filed as amicus in support of motion to dismiss)
Natural Resources Defense Council’s Brief in Support of Motion to Dismiss (Dec. 9, 2016)
Plaintiffs’ Opposition to Motions to Dismiss (Jan. 6, 2017)
Monitoring Analytics’ Amicus Brief in Support of Complainants (Jan. 6, 2017) (Monitoring Analytics is the PJM market monitor)
Public Service Commission’s Reply in Support of Motions to Dismiss (Jan. 27, 2017)
Exelon’s Reply in Support of the Motions to Dismiss (Jan. 27, 2017)
Environmental Defense Fund’s Reply (Jan. 27, 2017)
New York Environmental Groups’ Amicus Brief in Support of Plaintiffs (Mar. 17, 2017)
NY Public Service Commission’s Supplementary Brief on Allco v. Klee (2d Cir.) (Jul. 10, 2017)
Exelon’s Supplementary Brief (Jul. 10, 2017)
Plaintiffs’ Supplementary Brief (Jul. 10 2017)
(On June 28, the Second Circuit held that a Connecticut procurement program was not preempted and the state’s renewable portfolio standard did not violate the dormant commerce clause.)
Oral Argument Transcript (Mar. 29, 2017)
FERC Proceeding on Sale of Fitzpatrick Nuclear Plant
Protest of Public Citizen to section 203 Application (Oct 8, 2016)
Response of Entergy and Exelon (Oct. 19, 2016) (arguing that consideration of ZECs is beyond the scope of a proceeding to evaluate the sale of a nuclear power plant)
FERC Order (Dec. 7, 2016) (approving sale and dismissing ZEC claims as irrelevant to approval)
FERC Complaint Proceeding about NYISO Capacity Market Rules
EPSA’s amended complaint (Jan. 9, 2017)
Exelon’s Answer (Jan. 24, 2017)
Nuclear Energy Institute’s Comments
NRDC and Sustainable FERC’s Answer (Jan. 24, 2017)
NY PSC’s Answer (Jan. 30, 2017)
Complaint of Hudson River Sloop Clearwater and Goshen Green Farms (Nov. 30, 2016)
Entergy v. Zibelman, et al.
NOTE: After the New York PSC approved the sale of Entergy’s New York plant to Exelon, the parties agreed to a voluntary dismissal in November 2016.
In 2012, the owner of the Dunkirk generating station, a 625 megawatt coal-fired generator in New York, announced it was mothballing the facility due to unfavorable economic conditions. In January 2013, the New York Public Service Commission (PSC) cited reliability concerns and ordered National Grid, a New York distribution utility, to evaluate alternatives to retirement. In June 2014, the PSC approved a ten-year contract between Dunkirk and National Grid that provides for annual payments from the utility to the generator and requires the generator to continue operating and add 435 megawatts of natural gas-fired capacity.
In February 2015, Entergy, the owner of a nuclear power plant in New York, filed suit in federal district court claiming that the PSC’s approval of the contract is preempted by the Federal Power Act and is discriminatory in violation of the dormant Commerce Clause.
The plaintiffs argue that the Dunkirk contract effectively sets a wholesale energy price and is therefore field preempted by FERC’s exclusive jurisdiction over wholesale power sales. Dunkirk sells energy and capacity through FERC-regulated markets. Plaintiffs allege that the out-of-market payments to Dunkirk under the contract replace the FERC-approved clearing price with a price preferred by the PSC. Plaintiffs also argue that the PSC’s approval is conflict preempted because FERC relies on markets to provide price signals to market participants. The out-of-market payments to Dunkirk will suppress the market price and therefore conflict with FERC’s regulatory approach. Plaintiffs further argue that Dunkirk’s ten-year contract conflicts with FERC’s policy, which is that out-of-market payments for reliability reasons should be short-term so as not to undermine market prices.
With regard to the dormant Commerce Clause, the plaintiffs claim that the PSC discriminated against out-of-state and Canadian generators because it was seeking in-state economic benefits. In addition, the approval burdens interstate commerce by suppressing market prices.
In the underlying PSC proceeding, the Commission concluded in its June 13, 2014 order that its approval was not preempted because the contract does not set wholesale rates. Instead, the contract is for the addition of natural-gas fired capacity to enhance reliability. The effect of the PSC’s order is to provide cost recovery for the utility from retail customers, not to require any wholesale sales or set any wholesale prices. At most, the PSC argued, the contract has an indirect effect on wholesale rates, which is insufficient to preempt the PSC’s approval.
In a related matter, on February 19, 2015, FERC issued an order directing the NYISO to file tariff provisions that provide for out-of-market payments to generators needed for reliability reasons. In response, the PSC filed a request for rehearing, noting that the existing NYISO tariff explicitly relies on the PSC’s approval of reliability agreements, therefore obviating the need for amendments to the NYISO tariff to address reliability. The PSC asked FERC to “preserv[e] the respective jurisdictional boundaries of each regulatory commission” by revising the order so it does not overreach into the PSC’s jurisdiction over generation facilities in New York. That request for rehearing is still pending before FERC.
Order Denying Motion to Dismiss (Mar. 7, 2016)
Amended Complaint (Aug. 17, 2015; original complaint was filed Feb. 27, 2015 and a first amended complaint was filed Jul. 17, 2015)
State’s Motion to Dismiss (Jul. 27, 2015)
Dunkirk’s Memorandum of Law in Support of NYPSC Motion to Dismiss (Sep. 14, 2015)
Entergy’s Response to NYPSC’s Motion to Dismiss (Sep. 14, 2015)
Entergy’s Letter Brief on the Supreme Court’s Hughes Opinion (May 6, 2016)
State’s Letter Brief on the Supreme Court’s Hughes Opinion (May 6, 2016)
Dunkirk’s Letter Brief on the Supreme Court’s Hughes Opinion (May 6, 2016)
State’s Motion to Dismiss for Lack of Jurisdiction (Aug. 2, 2016)
Entergy’s Motion in Opposition to State’s Motion to Dismiss (Aug. 23, 2016)
State’s Reply in Support of its Motion to Dismiss (Aug. 29, 2016)
PSC and FERC Proceedings
FERC Order Approving NYISO Market Rule (Oct. 9, 2015)
FERC Order Denying Rehearing and Clarification (Feb. 5, 2016) (The proceeding in federal court is being held in abeyance pending final resolution of this FERC docket)
NY PSC Order Addressing Repowering, Cost Allocation and Recovery (June 13, 2014)
FERC Order Denying Complaint about NYISO Market Rules (Mar. 19, 2015) (complainants alleged that reliability contracts, such as the one at issue in this case, suppress market prices and requested amendments to NYISO rules)
FERC Order Instituting Proceeding to Establish Reliability Must Run NY ISO Tariff Provision (Feb. 19, 2015)
NY PSC Request for Rehearing of FERC Order (Mar. 23, 2015)
FERC Order on Rehearing about Ginna Nuclear Power Plant (Jul. 13 2015) (This is a separate proceeding about substantially similar issues. FERC addresses the NY PSC’s jurisdictional arguments in PP 16-22.)
FERC Order on Ginna Settlement (Mar. 1, 2016) (See PP 28-31 for discussion of jurisdiction issues.)
FERC Order on ISO NY Tariff Provisions (Apr. 21, 2016) (This order is about the ISO’s Reliability-Must-Run agreements and related process. See PP 155-161 for discussion of jurisdictional issues.)
NY PSC Notice Soliciting Comments (May 17, 2016)
Cases 03-E-0188 and 08-E-0188 before the New York State Public Service Commission
In 2004, the New York State Public Service Commission (PSC) established a Renewable Portfolio Standard (RPS) and tasked NYSERDA, a state agency, with procuring sufficient renewable energy to meet the PSC’s goals. In 2012, NYSERDA petitioned the PSC to require that the RPS be met with in-state generation only. The Agency claimed that limiting the program to in-state sources would better promote the three principal objectives of the RPS: environmental improvement, energy security, and economic benefits to New York.
In adopting NYSERDA’s petition, the PSC found that the in-state requirement will not impose a burden on interstate commerce. According to the PSC, an RPS contract is a state subsidy, administered by NYSERDA, and is therefore outside the scope of Commerce Clause scrutiny.
HQ Energy Services, a subsidiary of Hydro Quebec, petitioned for rehearing, arguing that the renewable energy credits (RECs) generated in New York or elsewhere are marketable commodities, not state subsidies. Developers sell RECs to NYSERDA and other buyers in interstate commerce, and the Commerce Clause applies to the state’s RPS. The PSC’s in-state requirement is therefore unconstitutional.
The PSC issued an order affirming the in-state requirement but changing its reasoning about the Commerce Clause. The PSC agreed with HQ that RECs are commodities sold in interstate commerce, not subsidies. However, these sales are exempt from Commerce Clause scrutiny because NYSERDA, a state agency, is the purchaser. Under the “Market Participant” exception to the Commerce Clause, a state may validly discriminate in favor of its own citizens.
Order Modifying Renewable Portfolio Standard Program Eligibility Requirements (May 22, 2013)
Order Granting in Part and Denying in Part a Petition for Rehearing (Dec. 22, 2013)
Filed Briefs and Petitions
NYSERDA Petition for Modification of the RPS Program (Dec. 14, 2012)
HQ Energy Services Petition for Rehearing (June 21, 2013)