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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