Generators Sue to Block Lifeline for New York Nuclear Plants

A group of generators including Dynegy and NRG Energy filed suit in federal court on October 19 seeking to block an incentive program that would help three New York nuclear power plants remain economic over the next decade.

An August decision by the New York Public Service Commission (PSC) approving New York's Clean Energy Standard included a provision requiring the state's investor-owned utilities and other energy suppliers to pay for the intrinsic value of carbon-free emissions from nuclear power plants by purchasing "Zero-Emission Credits" (ZEC). Those credits are added to the wholesale price each plant receives for its power, and the costs are passed on to ratepayers.

Subsidies for New York Nuclear Plants Unlawful, Suit Says

The plaintiffs argue that the plan interferes with wholesale power prices in violation of the Federal Energy Regulatory Commission's (FERC's) authority over interstate power sales. In particular, they point to a case the U.S. Supreme Court decided earlier this year, Hughes v. Talen Energy Marketing, which struck down a subsidy program in Maryland on the same grounds.

In Hughes, the Supreme Court held that power plant subsidies that reward a plant with a better wholesale price for its power than it would have received otherwise intrude on FERC jurisdiction. But it also conditioned that holding on a direct connection to auction prices.

"Nothing in this opinion should be read to foreclose Maryland and other States from encouraging production of new or clean generation through measures untethered to a generator's wholesale market participation," the court said. "So long as a State does not condition payment of funds on capacity clearing the auction, the State's program would not suffer from the fatal defect that renders Maryland's program unacceptable."

New York's upstate nuclear plants- R.E. Ginna in Ontario, Nine Mile Point in Oswego, and FitzPatrick in Scriba (Figure)-have been struggling economically for years, losing millions of dollars as a result of power prices that are below their operating costs. FitzPatrick was slated for retirement until the PSC decision; afterward, owner Entergy agreed to sell it to Exelon, which announced plans to continue operations. Keeping all three plants operating has been a major priority of the state government, in particular Gov. Andrew Cuomo, because of the jobs at stake and the affect on area power prices were they to close.

The James A. FitzPatrick Nuclear Power Plant in upstate New York was slated for retirement by owner Entergy in 2015. The plant was sold to Exelon this year, which announced plans to keep it open after the state passed a subsidy program that would provide credits for the plant's zero-carbon generation. Source: Nuclear Regulatory Commission

New York's program, drafted after the June decision in Hughes, appeared to be designed to avoid the problems in that case. Rather than being conditioned on auction prices, the subsidies are based on carbon prices. According to the PSC staff report on the plan, "Payments for zero-emissions attributes would be based upon the U.S. Interagency Working Group's projected social cost of carbon."

The plaintiffs, however, argue that this is a distinction without a difference.

"[F]or each MWh sold, [the nuclear plants] will receive the current locational price of energy . . . plus a $17.48 ZEC payment subsidy, funded entirely by New York consumers," the suit says. "In other words, the FitzPatrick and Nine Mile plants will both receive $38.11 per MWh of energy produced, while a competing energy generator, located next door, would receive just $20.63 per MWh. If the wholesale price of electricity decreases over the next two years, the bonus payments to the subsidized nuclear plants will increase above the current $17.48 per MWh level."

Because the payments affect the wholesale prices the plants receive, the program violates the rule laid down in Hughes, the plaintiffs said.

Mixed Reactions

The suit is not the first opposition the plan has encountered. Though praised by the state's labor groups, anti-nuclear groups have blasted the scheme as a bailout for plants that are no longer competitive or necessary. A group of New York lawmakers also expressed concern with the program in September.

The chair of the PSC released a statement saying the suit was "frivolous" and that the PSC would vigorously defend the program.

The case is Coalition for Competitive Electricity et al. v. Zibelman. In addition to NRG and Dynegy, the plaintiffs include the Coalition for Competitive Electricity, Eastern Generation, the Electric Power Supply Association, Roseton Generating, and Selkirk Cogen Partners.

-Thomas W. Overton, JD is a POWER associate editor (@thomas_overton, @POWERmagazine).

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