Update – March 13, 2018 – 2nd Circuit Hears Arguments on Nuclear ZECs

Yesterday, Second Circuit Judges Jacobs, Livingston, and Chen heard approximately forty minutes of oral argument about New York’s Zero Emission Credit (ZEC) program that compensates three in-state nuclear plants. The parties discussed whether the state’s program is preempted under the Federal Power Act (FPA), with a particular focus on the Supreme Court’s 2016 decision in Hughes v. Talen, and ignored the dormant Commerce Clause claim and procedural issues that the district court found prevented the plaintiffs from bringing their complaint to federal court.

Plaintiffs asserted that four features of the ZEC program, taken together, render the state’s subsidy an exercise in wholesale ratemaking that is indistinguishable from the Maryland program that the Supreme Court preempted in Hughes:

  1. Eligibility for ZECs is premised on the state’s determination that the plant cannot operate profitably receiving only FERC’s just and reasonable wholesale rate;
  2. The state guarantees a rate for each unit of electricity sold that is different from FERC’s rate;
  3. To receive the ZEC payment, the plant must sell its output in wholesale markets; and
  4. The subsidy amount is “tethered” to FERC’s rate.

Exelon responded that the first three features are common to all subsidy programs and therefore provide no basis to limit a preemption holding from ensnaring other state clean energy program. As for the alleged “tether,” defendants argued that preempting ZECs due to the state’s pricing formula rewrites Hughes. There, the Supreme Court held that the “fatal defect” was the state’s requirement that the subsidized plant participate in the FERC-regulated auction. Here, the state has tied the amount of the subsidy to a forecast of FERC-regulated rates and has not made the subsidy conditional on the completion of a sale in any particular wholesale market.

The panel suggested that it would not solicit FERC’s views but would read the US government’s response to the Seventh Circuit’s invitation.

A recording of the oral argument and the filed briefs are available on the New York page.