Keeping Nuclear Afloat

By: Joel Brand

On August 1, 2016, the State of New York Public Service Commission (hereinafter “Commission”) approved an order adopting a Clean Energy Standard (hereinafter “CES”).[1] With the CES, the Commission adopted the goal, “as part of a strategy to reduce statewide greenhouse gas emissions by 40% by 2030,” “that 50% of New York’s electricity is to be generated by renewable sources by 2030.”[2]

As noted in the Order, New York’s upstate nuclear plants, which made up 31% of the State’s electricity generation mix in 2014:

…avoid the emission of over 15 million tons of carbon dioxide per year. Based on current market conditions, losing the carbonfree attributes of this generation before the development of new renewable resources between now and 2030, would undoubtedly result in significantly increased air emissions due to heavier reliance on existing fossil-fueled plants or the construction of new gas plants to replace the supplanted energy. The added emissions would complicate the State’s compliance with likely federal carbon standards and would result in dangerously higher reliance on natural gas, radically reducing the State’s fuel diversity. Such reduced fuel diversity could affect system reliability and price stability, making consumers more vulnerable to natural gas and concomitant electric price spikes.[3]

Tier 3 of the CES, which was “proposed to maintain existing eligible nuclear facilities,” creates Zero Emissions Credits (hereinafter “ZECs”).[4] Through the CES, owners of selected zero-emissions generating facilities enter into contracts administered by the New York State Energy Research and Development Authority (hereinafter “NYSERDA”) “to produce [] ZECs and sell them to NYSERDA for the duration of the contract.[5] Load Serving Entities (hereinafter “LSEs”) would then be required to purchase an amount of ZECs corresponding “to the proportion of the electric energy load served by the LSE,” resulting in all of the ZECs being purchased by all of the LSEs in the “New York Control Area.”[6] The price of the ZECs, set by the Commission, is equal to the “social cost of carbon,” less a so-called “Baseline RGGI Effect” (which is outside the scope of this post), and further adjusted downward “by the amount that future forecasts predict that NYISO Zone A energy prices combined with the Rest of State (ROS) capacity prices will exceed $39/MWh.”[7]

The last price adjustment is key because it brings the FERC-approved auction price (that is, “ROS capacity prices”) into the contract price. Opponents have challenged the constitutionality of the ZEC program, arguing that “[t]he actual dollar amount of the ZECs is tethered to the price of electricity in the FERC-regulated wholesale market.”[8] This language mirrors the language used in the seminal case, Hughes v. Talen Energy Mktg., LLC,[9] which rejected such a tethering as an infringement of FERC’s authority as established by the Federal Power Act.[10]

The program survived district court, and is now being challenged at the appellate level. Likewise with legislation in The ultimate outcome of these cases should decide the constitutionality of such programs aimed at creating economic incentives ample enough to keep already existing, zero-carbon-emitting – that is, nuclear – generators in the market. Such extra-market incentives may be necessary if nuclear generation is to remain competitive. According to a June 2017 report from Bloomberg New Energy Finance, thirty-four of sixty-one nuclear plants nationwide are losing money, while the nuclear sector as a whole is losing $2.9 billion annually.[13] Friends of the environment, many of whom disagree as to whether nuclear energy is a net positive for the environment, should be very interested in the outcome.

[1] State of New York Pub. Serv. Comm’n, Order Adopting a Clean Energy Standard (Issued and Effective: August 1, 2016), https://www.nyserda.ny.gov/All-Programs/Programs/Clean-Energy-Standard (follow “The Clean Energy Standard Order (8/1/2016)” hyperlink).

[2] Id. at 2.

[3] Id. at 19.

[4] Id. at 32.

[5] Order Adopting a Clean Energy Standard, supra note 1, at 50.

[6] Id. at 51.

[7] Id. at 138.

[8] Complaint n.2, Coalition For Competitive Electricity et al v. Zibelman, et al., No. 1:16-cv-08164 (S.D.N.Y. argued Mar. 29, 2017).

[9] Hughes v. Talen Energy Mktg., LLC, 136 S. Ct. 1288 (2016).

[10] 41 Stat. 1063, as amended, 16 U.S.C. § 791a et seq.

[11] Vill. of Old Mill Creek v. Star, Nos. 17 CV 1163, 17 CV 1164, 2017 U.S. Dist. LEXIS 109368, at *12 (N.D. Ill. July 14, 2017).

[12] Paul Ciampoli, Generators appeal judge’s ruling on Illinois nuclear support, Public Power Daily (July 20, 2017), http://www.publicpower.org/Media/daily/ArticleDetail.cfm?ItemNumber=48548.

[13] Robert Walton, BNEF: More than half of US nuclear plants losing money, Utility Dive (June 19, 2017), http://www.utilitydive.com/news/bnef-more-than-half-of-us-nuclear-plants-losing-money/445195/.

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