NRDC: States Have Legal Authority to Lead on Clean Energy

December 10, 2016/ Jackson Morris / Asia, Climate, Conservation, Natural Resources Defense Fund, Resources

Published by the Natural Resources Defense Fund

NRDC filed a “friend of the court” brief on December 9^th to support New York State in defending against a legal challenge that could have an impact on the right of New York and other states to adopt policies to promote clean energy.

Several fossil fuel power companies and related trade associations filed a lawsuit in October challenging a controversial part of the state’s groundbreaking new Clean Energy Standard: the contentious Zero Emissions Credit (ZEC) program to help keep several nuclear plants alive in order to preserve their low-carbon emissions.

They argue that under a federal law called the Federal Power Act, New York State does not have the authority to make decisions about the state’s electricity mix and that such decisions must be made instead by a federal agency – the Federal Energy Regulatory Commission (FERC). NRDC doesn’t support the ZEC program, but we wholeheartedly disagree with this legal claim. Although their lawsuit is aimed only at the ZEC program, the fossil fuel generators’ argument, if successful, could create uncertainty for scores of state renewable energy policies in states across the country. With President-elect Trump considering climate skeptics to head key federal agencies, we need to make sure that states like New York can continue to lead on clean energy and climate.

The background

Thanks to Governor Andrew Cuomo’s leadership, New York has recently made quantum leaps forward on climate and clean energy policy. A key part of this progress is the state’s Clean Energy Standard, adopted by the state’s Public Service Commission in August, which requires that 50 percent of the electricity consumed in the state come from renewable sources like wind and solar by 2030. New Yorkers have expressed resounding support for that “50 by ’30” renewables goal.

The ZEC program, however, is more controversial. It requires utilities and other electricity providers to purchase credits until 2030 from certain nuclear power plants that would otherwise be abruptly retired. While included as a component “tier” of the overall Clean Energy Standard, the ZEC program will be implemented separately from the “50 by ’30” renewables program, and undergo a public biennial review at the Commission to make any necessary adjustments to the mechanism. That means not one megawatt hour of electricity generated from these nuclear facilities will be counted toward the “50 by ’30” renewables target. In addition, the Indian Point nuclear facility in Westchester County, which has a long and troubled history of operational and safety issues, does not qualify for the ZEC program. NRDC and our allies also successfully pushed to ensure that no funding intended for clean energy such as the current Systems Benefit Charge, the Clean Energy Fund, or carbon allowance auction proceeds from the Regional Greenhouse Gas Initiative, will go to support these nuclear facilities.

NRDC played a major role in the regulatory process that led to the Clean Energy Standard and strongly supported its adoption as a whole. But we did not support the policy decision to include the ZEC in the Clean Energy Standard. Simply put, nuclear energy, while low carbon, is neither clean nor renewable and it presents a host of potential risks and impacts. NRDC works to reduce the dangers of nuclear energy in every form, from uranium mines to warheads to waste piles.

NRDC also advocates for policies that will allow the U.S. to meet our urgent climate goals through building energy systems that are clean, safe, affordable and resilient. To get there, we need to focus on scaling up energy efficiency and renewable energy. The U.S. nuclear power fleet is aging, with many plants nearing the end of their license periods. In addition, some reactors are closing because they are uneconomic in today’s electricity markets; others are closing due to environmental problems.

To avoid spikes in carbon emissions as more nuclear plants close, it will be critical that their generation is replaced with clean energy rather than natural gas plants or other polluting resources. While it’s more difficult when plants are poised to close abruptly, we can do that with enough time, as shown by NRDC’s pioneering work to develop plans to replace the Diablo Canyon nuclear reactor in California with zero-carbon clean energy resources by 2025. And sometimes the legislative process rolls many issues together. In Illinois, we recently worked with a large coalition on legislation signed in to law last week that featured major advances for energy efficiency and renewable energy in that state; however, the legislative package also included support for two nuclear reactors that has been slated to close in 2017.

The fossil fuel generators’ lawsuit

The ZEC program has drawn opposition from the owners of fossil fuel power plants who will sell more power, make more money, and emit more pollution if these nuclear plants close down abruptly. They argue that it violates the Federal Power Act, a law that establishes the framework for federal and state jurisdiction over power regulation. Their main argument is that because the ZEC program will provide supplemental revenues to nuclear power plant owners in addition to the revenues they receive from New York’s wholesale power markets, the program “effectively” sets wholesale power rates and thereby intrudes into the role designated solely for FERC– and not the states — by the Federal Power Act.

Yet as NRDC explains in its brief, the ZEC program is well within New York’s authority to regulate its mix of energy resources. The states have traditional and longstanding authority to make energy resource planning decisions—including the authority to direct utilities to purchase renewable electricity or credits from low-carbon sources. The Federal Power Act does not impinge on that authority; if it did, state clean energy standards could be in jeopardy.

The plaintiffs’ lawsuit is based largely on a decision from the U.S. Supreme Court earlier this year called Hughes v. Talen Energy Marketing LLC. In Hughes, the Supreme Court rejected a Maryland policy aimed at helping to finance new in-state natural gas generation through a scheme providing for 20-year contracts between state utilities and a natural gas power plant owner. Unlike the ZEC Program, the Maryland contracts did not involve the purchase or sale of emissions credits or other public policy benefits and instead merely adjusted power prices.

The ZEC program is not preempted by the Federal Power Act

The ZEC program, in contrast to the Maryland program invalidated in Hughes, does not establish a substitute wholesale rate for electricity; it only establishes pricing for attributes (emissions avoidance) completely outside of wholesale markets. This is a critical point – the ZECs are not electricity, but a distinct product, which the Public Service Commission defines as “zero-emissions” benefits or attributes. The nuclear facilities are free to sell the associated electricity in whatever manner they choose.

In this particular way the ZEC program resembles many state renewable energy standard programs that include a credit component – renewable energy credits—that represent environmental attributes related to but distinct from the electricity. That’s the big reason why we are so concerned about the possible impact of the lawsuit.

New York and other states must continue to lead on clean energy

NRDC is filing its “friend of the court” brief in support of New York because of the broader legal issues in play. A decision that strikes down the ZEC program could have negative implications for renewables programs nationwide. That outcome could muddy the legal waters and cause uncertainty for states as they consider strengthening and extending renewable portfolio standards and other similar clean energy policies, or adopting new ones.

Now more than ever, clean energy momentum will happen at the state level. New York and other states must be free to make progress and continue with the energy efficiency and renewable energy revolution.