State Mandates and Incentives

State mandates and incentives

December 15, 2016 | By Keith Martin in Washington, DC

State plans to promote renewable energy and nuclear power are at risk in two widely watched lawsuits in New York and Connecticut.

Five independent generators, the Electric Power Supply Association and the Coalition for Competitive Electricity filed suit in federal district court in New York in October to block the state from awarding “zero emissions credits” worth $17.48 a megawatt hour in 2017 and 2018 to owners of up to four nuclear power plants.

The case tests whether a state can offer such credits as a supplement to wholesale power prices without running afoul of federal law. The Federal Energy Regulatory Commission supervises the wholesale power market.

The value of the credits will be reset after 2018. The program is expected to run 12 years.

At least three of the six New York nuclear plants are expected to receive the credits. 

The credits were approved by the New York Public Service Commission in August as part of a plan to try to keep the nuclear power plants open. Nuclear power accounts for roughly 31% of total New York generating capacity. The state says the nuclear power plants are important to limiting carbon emissions. 

The program is scheduled to take effect in March 2017.

The nuclear owners will sell the credits to the New York Research and Energy Development Authority, NYSERDA, at the price established by the New York Public Service Commission. NYSERDA then will resell them to New York utilities on a pro rata basis in proportion to each utility’s share of total New York electricity load.

Low natural gas prices are forcing nuclear power plants across the country to shut down.

The credits represent a significant subsidy on top of what the nuclear plants are being paid currently for their electricity.

The generators, who compete with the nuclear plants for a share of wholesale power sales, charge the program is illegal state interference with the wholesale power market. Only the Federal Energy Regulatory Commission can set wholesale power rates for electricity sold in interstate markets. States retain the right to regulate retail sales of electricity within their borders.

The generators say the credits will artificially depress wholesale power prices by keeping generators in business who would otherwise have dropped out of the market. The state argues that it has the right to establish a new state credit program just as it has done for renewable energy credits or RECs for solar and wind projects.

The generators also charge the program is an impermissible interference with interstate commerce; and it is an effort to “save jobs at subsidized generators . . . to preserve the local industry from the rigors of interstate competition.”

The “dormant” commerce clause to the US constitution bars state actions that discriminate against or unduly burden interstate commerce. However, not every state action that affects interstate commerce runs afoul of the commerce clause. The action must discriminate against interstate commerce in favor of in-state commerce. A statute that incidentally burdens interstate commerce is still valid unless the burden imposed on interstate commerce is excessive in relation to the local benefit.

Recent court decisions in other states have tested whether renewable portfolio standards and laws to discourage the use of coal to generate electricity impede interstate commerce. (See "Renewable Portfolio Standards" in the September 2015 NewsWire and "Minnesota Carbon Statute Invalidated" in the August 2016 NewsWire.)

The New York case is Coalition for Competitive Electricity v. New York Public Service Commission. 

An environmental group filed a separate suit to block the credits on November 30 in state court. It charges the program also violates the state constitution. The case in state court is Hudson River Sloop Clearwater v. New York Public Service Commission.

In Connecticut, a solar developer, Allco Finance, is challenging an auction the state government ran to buy renewable energy. The state legislature authorized the Connecticut Department of Energy and Environmental Protection in 2013 to solicit proposals to supply renewable energy for up to 4% of the state’s electricity supply and to order the two main utilities - Connecticut Light & Power and United Illuminating - to enter into power purchase agreements with terms of up to 20 years with the winners.

Connecticut selected two winners in the 2013 auction: a large wind project in Maine and a small solar project in Connecticut.

Allco sued to have the results set aside and lost both in a federal district court and on appeal. It lost in part because the courts said it should have gone first to the Federal Energy Regulatory Commission.

The state asked for more bids in 2015 after the Maine wind farm failed to meet milestones in its power contract.

Allco sued again in an effort to prevent Connecticut from accepting bids from any projects that are more than 80 megawatts in size and, therefore, too large to be “qualifying facilities” — or QFs — under the Public Utility Regulatory Policies Act, a 1978 federal law that requires regulated utilities to buy electricity from cogeneration facilities, and other independent power plants of up to 80 megawatts that use waste or renewable energy, at the “avoided cost” the utility would spend to generate the electricity itself.

The lawsuit is, at heart, a challenge to the state’s renewable portfolio standard,  since the state’s solicitation is based on the RPS law.  Allco lost in federal district court in August. A US appeals court issued an injunction in early November blocking Connecticut from awarding any more power contracts under the program until it can hear the case.  However, the appeals court removed the injunction in mid-December and said that a written decision would be issued soon.

The case is called Allco Finance v. Klee.

Allco also argues that Connecticut cannot restrict awards of renewable energy credits to projects in New England and New York. The same federal district court disagreed in August. The state honors RECs from renewable energy projects in and around Connecticut that will have a measurable effect on clean air in the state. The states involved have a unified REC tracking system. The court said the credits are a subsidy funded by state residents, and the state is not required to spread the benefit of the subsidy to generators outside of New England. The appeals court is expected to address this issue at the same time it decides whether Connecticut is exceeding its authority by directing utilities to enter into PPAs.