Second Circuit Upholds Dismissal of Challenge to New York ZECs

Yesterday, in Coalition for Competitive Electricity et al. v. Zibelman et al.,* the Second Circuit upheld New York’s zero-emissions credits (ZECs) program, a component of its Clean Energy Standard and larger energy reform plan to reduce greenhouse gas emissions 40% by 2030.  The decision comes on the heels of a Seventh Circuit decision issued earlier this month that reached similar conclusions, and affirms the July 2017 ruling of the U.S. District Court of the Southern District of New York.

New York’s ZEC program aims to prevent nuclear generators that do not emit carbon dioxide from retiring until renewable sources of energy can meet a greater percentage of the state’s energy needs.  The ZEC price is based on the social cost of carbon, and is set by the Public Service Commission every two years.  Qualifying nuclear generators are awarded a ZEC for each MWh of electricity they generate (subject to a cap), in addition to whatever revenues the facility receives for selling the electricity.  The New York State Energy Resource and Development Authority (NYSERDA) then purchases ZECs from the selected nuclear plants.  Local utilities are required to purchase ZECs from NYSERDA in proportion to their share of the total state electric load.

Plaintiffs, a group of generators and generator trade groups, alleged that the program was preempted by FERC’s authority over wholesale electricity sales, and was in violation of the dormant Commerce Clause.  The Second Circuit rejected the plaintiffs’ claims.  First, citing Hughes v. Talen Energy Marketing, LLC, the court found that New York’s ZEC program was not invalid under a “field preemption” theory because unlike the program at issue in Hughes, New York’s program did not guarantee generators a rate for wholesale sales distinct from the wholesale market clearing price.  Nor, the court observed, does ZEC eligibility require that a qualifying plant sell its output into the wholesale markets. The court also found that the ZEC program was not invalid under a “conflict preemption” theory, concluding that the program did not cause clear damage to FERC’s goals of using auctions to set wholesale prices and to promote efficiency.  The court recognized that FERC’s reliance on wholesale auctions operates against a “background assumption that the [Federal Power Act] establishes a dual regulatory system between the states and federal government and that the states engage in public policies that affect the wholesale markets.”

Finally, the court declined to consider the dormant Commerce Clause arguments, holding that the plaintiffs lacked standing to bring the claim.

 

*Spiegel & McDiarmid LLP attorneys Scott H. Strauss, Peter J. Hopkins, and Jeffrey A. Schwarz represented the Chairman and members of the New York Public Service Commission in this litigation.

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2017 Saw Small Decrease in Energy Related CO2 Emissions

According to recently-released data from the U.S. Energy Information Administration (EIA), energy-related CO2 emissions decreased 0.9% in 2017 compared to 2016 levels.  Real gross domestic product increased 2.3% over the same period.

The increasing use of natural gas in fossil-fuel fired generation has of course contributed to these numbers.  Natural gas CO2 emissions surpassed those of coal for the first time ever in 2015 (and continued in 2016).  2017 did have a 1.5% decrease in natural gas CO2 emissions, although the natural gas share of electric generation has still generally been growing.

Increases in non-carbon generation, particularly wind and solar, also have contributed to the decline in carbon intensity of electricity generation.  Nuclear power is still the dominant source of non-carbon generation, although has been declining since 2001.  (Note, the co-owners of Vogtle Units 3 & 4 recently agreed to continue with the construction of the only new nuclear units currently under construction in the U.S.)

EIA also reported on emissions levels in the four-end use sectors: transportation, industrial, residential, and commercial.  Only the transportation sector had increased CO2 emissions in 2017, although transportation emissions are not back to pre-recession levels despite increasing every year since 2012.  Within the transportation sector, increased CO2 emissions were due to jet and diesel fuel—motor gasoline emissions declined.

On the residential side, 2017 CO2 emissions were the lowest they have been since 1987.  EIA reports that residential sector emissions levels are strongly influenced by weather.

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7th Circuit Upholds Illinois’s Zero Emissions Credit Program

Last week, in Electric Power Supply Association v. Star, Nos. 17-2433 & 17-2445, the Seventh Circuit upheld Illinois’s Zero Emissions Credit (ZEC) program, concluding that it is not preempted by the Federal Power Act and not in violation of the dormant Commerce Clause.

Under the Illinois program, eligible nuclear facilities receive ZECs, and coal- or gas-fired generators must purchase these credits from the recipient nuclear plants at a price set by the state to reflect the social cost of carbon emissions.  The price per credit falls if a “market price index” exceeds $31.40 per MWh, and Illinois derives this index from the annual average energy prices in PJM’s auctions and the prices in two of the state’s regional energy markets.  The plaintiffs, an association of electricity producers and several municipalities, contended that the price adjustment mechanism indirectly regulated the wholesale energy markets.

The Seventh Circuit concluded that the Illinois program was not preempted by the Federal Power Act after comparing it to the Maryland program struck down by the Supreme Court in Hughes v. Talen Energy Marketing, LLC.  The Seventh Circuit observed that Hughes “draws a line between state laws whose effect depends on a utility’s participation in an interstate auction (forbidden) and state laws that do not so depend but that may affect auctions (allowed).”  While the Maryland program was preempted because the subsidy there depended on selling power into the wholesale market, here eligibility to receive ZECs depends on generation of power, and not selling the power into Regional Transmission Organization-operated auctions.  As such, the court concluded that ZECs can “influence the auction price only indirectly,” and “a state policy that affects price only by increasing the quantity of power available for sale is not preempted by federal law.”

The court also concluded that the ZEC program does not violate the dormant Commerce Clause rule that “states may not discriminate against interstate transactions.”  It explained that the Federal Power Act’s reservation of authority over local generation to the states and the absence of any overt discrimination—the subsidy’s recipients and payors are both in Illinois—defeated any constitutional challenge to the ZEC program.  The court explained that “Illinois has not engaged in any discrimination beyond what is required by the rule that a state must regulate within its borders.”

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Seventh Circuit Finds Smart Meter Data Collection is a Reasonable Search, Not in Violation of the Fourth Amendment

Last month, the Seventh Circuit held in Naperville Smart Meter Awareness v. City of Naperville, No. 16-3766, that Naperville, Illinois’ collection of smart meter data from its residents constitutes a reasonable search that is not in violation of the Fourth Amendment or the Illinois Constitution.  In so doing, the court acknowledged Naperville’s legitimate interest in deploying smart meters in order to reduce utility costs, provide cheaper power to consumers, encourage energy efficiency, and increase grid stability.

Naperville received an $11 million grant from DOE to update its grid and used the funds to replace residential, analog energy meters with digital smart meters.  Residents were not given the option to opt-out of the program.  These smart meters collect residents’ energy usage data at 15-minute intervals, and data may be stored by the city for up to three years.  A group of concerned citizens, dubbed Naperville Smart Meter Awareness, brought a Fourth Amendment challenge in federal district court, alleging that the collection of smart meter data permits the city government to surveil citizens in their homes, since the data reveals when people are home, when people are away, when people sleep and eat, what types of appliances are in the house, and when those appliances are used.

The Seventh Circuit took up the question after the district court dismissed the complaint for failure to state a claim and denied leave to amend on futility grounds.  The appellate court agreed that the data collection constitutes a search, but found the search reasonable when balanced against Naperville’s legitimate interest in modernizing its grid.  The court reasoned that Naperville had made clear in a “Smart Grid Customer Bill of Rights” that the city’s public utility would not provide customer data to third parties or law enforcement without a warrant or court order.  And it acknowledged that smart meters play a “crucial role” in grid modernization by allowing utilities to restore service more quickly, offer time-based energy pricing, and reduce labor costs.

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EIA Finds Hydro Most Prevalent Renewable Generation Source in 2017; California Signs 100% Clean Electricity Bill into Law

Hydroelectricity represented the largest share of renewable generation in 19 states in 2017, according to a report published by the Energy Information Administration (EIA) on Tuesday.  Hydroelectricity was also the most prevalent source of renewable electricity in 2017 in the United States as a whole, providing 7% of the national total.  But EIA projects that by 2019, wind generation will surpass hydro as the most prevalent source of renewable generation nationwide—wind was already the most prevalent renewable source in 16 states in 2017.  As more wind turbines are constructed and come online, Kansas and Iowa may become the first states to have a renewable source other than hydroelectricity provide the largest share of their electricity generation.

EIA also reports that solar was the most prevalent renewable generation source in 7 states.  Solar generation’s share was highest in California, where is provided 16% of the state’s 2017 total, behind natural gas (41%) and hydroelectricity (20%).

California is poised to increase its share of renewable generation: on Monday, Governor Jerry Brown signed into law California SB 100, which requires the state to obtain 100% of its energy from renewable resources by 2045, and 60% of its energy from renewable resources by 2030 (up from the state’s previous 50% by 2030 goal).

Governor Brown also signed Executive Order B-55-18, directing the state to achieve carbon neutrality by 2045.  “SB 100 sends a clear signal to markets to expand clean energy generation,” Governor Brown stated in a statement issued Monday.

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