In July 2017, District Court Judge Manish Shah, U.S. District Court of Northern Illinois, handed a decisive victory to nuclear energy supporters and plant owners in a case that challenged Illinois’s right to choose the mix of fuels used to produce power inside its borders.
The plaintiffs opposed the “Future Energy Jobs Act” recently passed by the Illinois legislature and signed into law by the governor. That statute awards Zero Emission Credits (ZEC) to three specific nuclear generating units (two at the Quad Cities station and one at Clinton).
The ZECs could be worth as much as $235 M each year. That additional revenue is designed to be sufficient to allow the owner – currently Exelon – to continue effectively operating the units despite unprofitably low prices at their respective power delivery points. A provision in the law requires the computation of a “Price Adjustment” based on realized wholesale prices over the course of each year.
The price adjustment can reduce or eliminate the value of the ZEC if electricity market prices rise to a level at which the plants are profitable without the subsidy payment.
This provision was inserted to keep the program from charging ratepayers to provide unnecessary levels of support that would only serve to provide a more lucrative return to stockholders.
The plaintiffs in the case were the Electric Power Supply Association–a national industry association for competitive electric power producers–and Calpine Corporation, Dynegy Inc., Eastern Generation, LLC, and NRG Energy, Inc.–all of which are independent power producers.
Their filing sought to invalidate the ZEC program, claiming that it is preempted by the Federal Power Act and that it violates the dormant commerce clause. They also claimed that the program denied them the equal protection of federal laws governing the wholesale electricity markets, in violation of the Fourteenth Amendment.
Part of the case made by the challengers to support their claim that Illinois was improperly interfering in auctions governed by federal rules was the fact that the “Price Adjustment” clause made the value of the ZEC dependent on the market price. Exelon lawyers argued that a fixed ZEC that was independent of the market price wouldn’t help the plaintiffs. It would only harm customers who would be paying higher market prices and still pay extra for clean energy.
Judge Shah ruled that the plaintiffs had no standing to challenge the ZEC simply because its value was linked to the market prices determined in auctions government by rules established by the Federal Energy Regulatory Commission (FERC). In addition, there is no direct link to daily auction prices; the adjustment looks back and is computed by averaging prices over a lengthy period of time.
He also ruled that claims relating to the commerce clause prohibiting states from discriminating against out of state suppliers wasn’t valid since the ZECs would be available to suppliers outside of the state if there were any entities that qualified. He ruled that the state’s law does not attempt to preempt federal law since states have a long recognized right to control retail electricity rates and the fuel mixes used to generate electricity in their state for environmental or other reasons.
He recognized that ZECs are similar in structure and goals as renewable energy credits (RECs) which have withstood previous legal challenges, have been accepted by FERC and are in widespread use in a number of states.
Using Judge Shah’s words (page 33):
I conclude, however, that the ZEC program falls within Illinois’s reserved authority over generation facilities; Illinois has sufficiently separated ZECs from wholesale transactions such that the Federal Power Act does not preempt the state program under principles of field preemption.
He dismissed the case with the following conclusion.
Defendants’ and Exelon’s motions to dismiss are granted. The plaintiffs’ claims are dismissed in part for lack of subject-matter jurisdiction and in part for failure to state a claim. The plaintiffs’ motions for a preliminary injunction are denied.
A similar challenge to a state ZEC program is pending in New York.