A federal appeals court last week upheld the Illinois plan to subsidize two of Exelon’s nuclear plants in order for them to bid competitively into the PJM Interconnection. The unanimous three-judge opinion gave a thumbs up to the state’s “zero emissions credits” program and rejected a challenge by the Electric Power Supply Association, the Washington lobbying group for non-utility generators.
The Court of Appeals for the Seventh Circuit upheld a lower federal district court ruling in favor of the Illinois Power Agency.
The opponents of the program argued that the state plan usurped the authority of the Federal Energy Regulatory Commission. Writing for the appeals court, Judge Frank Easterbrook, a Reagan appointee, wrote, “But because states retain authority over power generation, a state policy that affects price only by increasing the quantity of power available for sale is not preempted by federal law.” George W. Bush appointee Diane Sykes and Clinton appointee Michael Reagan agreed.
An amicus brief filed by FERC and the U.S. Department of Justice undercut EPSA’s arguments. Easterbrook noted that the joint brief concluded “that Illinois’ program does not interfere with interstate auctions and is not otherwise preempted.” FERC said it has the tools necessary to deal with the impact of the ZECs on wholesale markets it regulates.
EPSA argued that the Supreme Court in the Hughes case, which struck down a Maryland plan to force FERC to allow state-subsidized power production into the PJM capacity auctions for new generation, guaranteeing that the power would be dispatched, should apply. Easterbrook said that “the Maryland system effectively allocated to new entrants a long-term right of first sale in the auction and in the process depressed the price that other producers would receive. This feature – that the subsidy depended on selling power in the interstate auction – is what led the Justices to conclude that Maryland had transgressed a domain reserved to the FERC.”
In the Illinois case, the 7th circuit concluded, “The zero-emissions credits can influence the auction price only indirectly, by keeping active a generation facility that otherwise might close and by raising the costs that carbon-releasing producers incur to do business. A larger supply of electricity means a lower market-clearing price, holding demand constant.”
The independent generators also raised a Constitutional “dormant” commerce clause claim, that subsidizing Illinois generation shuts out generation from other states in the wholesale market. The court treated that claim skeptically. “On this view,” the opinion said, whenever Illinois, or any other state, takes some step that will increase or reduce the state’s aggregate generation capacity, or affect the price of energy, then the state policy is invalid. That can’t be right; it would be the end of federalism.”
The line between state and federal authority over energy has long been an underlying tension at FERC. Glen Boshart, the perceptive veteran FERC report for S&P Global, commented that the court in the Illinois case “attempted to further define that state/federal jurisdictional boundary regarding power procure and state subsidies….”
The Environmental Defense Fund supported Illinois plan because it upholds state authority to push “clean” energy policies, which include renewables as well as nuclear. EDF attorney Michael Panfil said, “The court recognized Illinois’ fundamental authority to craft a strong clean energy policy – an authority that can provide profound benefits for the health and safety of Illinois families.”
Chicago-based Exelon, in a press release, said, “We are pleased to see that the Seventh Circuit Court affirmed dismissal of the ZEC complaint, thus supporting the continued operation of Illinois’ ZEC program and the clean, resilient and affordable electricity nuclear power provides.” The ZEC plan applies to two of Exelon’s nukes, 1,065-MW Clinton and 1,8700-MW Quad Cities.
In a bit of irony, Exelon announced on Monday that its 49-year-old Oyster Creek nuclear power plant in New Jersey went out of service for the final time. Exelon announced in February that the 636-MW boiling water reactor, which went into service in 1969, would shut down at the end of its current operating cycle.
— Kennedy Maize