Appeal Filed After Judge Dismisses Challenge to Illinois’ ZEC Program

A federal judge has let stand Illinois' zero-emission credit (ZEC) program, dismissing challenges filed by power producers who said the initiative subsidizes nuclear power at the expense of other resources.

Judge Manish S. Shah of the U.S. District Court for the Northern District of Illinois on July 14 ruled in favor of motions by the state and Exelon to dismiss the case. The judge, in a 43-page opinion, wrote that "The ZEC program falls within Illinois' reserved authority over generation facilities. Illinois has sufficiently separated ZECs from wholesale transactions such that the Federal Power Act (FPA) does not pre-empt the state program."

The Electric Power Supply Association, along with Dynegy, Eastern Generation, NRG Energy and Calpine, on July 17 appealed the decision to the 7th U.S. Circuit Court of Appeals in Chicago.

"NRG and the other plaintiffs are disappointed by the decision [of the District Court]," David Gaier, a spokesman for NRG, told POWER on July 17. "We will immediately appeal to the 7th Circuit and we'll ask that court to expedite the appeal.

"If upheld, the Illinois decision would effectively strip FERC [Federal Energy Regulatory Commission] of its authority to regulate wholesale markets, would harm ratepayers, and threaten FERC's ability to drive investment in energy infrastructure," Gaier said. "We call on PJM and FERC to put into place rules supporting competitive electricity markets, protecting ratepayers who risk losing billions of annual savings driven by competition."

The Illinois legislature in December had approved the ZECs as part of the state's Future Energy Jobs Act (FEJA), which took effect June 1, 2017. The move came after Exelon, the nation's largest energy provider with operations in 48 states and the District of Columbia, said it would close its 1,069-MW Clinton Nuclear Generating Station in Clinton, Ill., and its 1,871-MW Quad Cities Nuclear Generating Station in Cordova, Ill., unless the state provided financial relief.

Exelon said the plants had lost more than $800 million over the past six years. After the legislature approved the credits, Exelon said it would keep the plants open at least another 10 years; the utility said that would save 4,200 jobs.

Exelon's Clinton Nuclear Generating Station, shown here, and the company's Quad Cities nuclear plant (pictured on cover) have lost a combined $800 million over the past few years. Courtesy: Wikipedia/By Daniel Schwen

An Exelon spokesperson on July 17 emailed the following statement to POWER regarding the ruling: "The court's decision to dismiss the lawsuit regarding the Zero Emissions Credit program in Illinois' Future Energy Jobs Act (FEJA) is good news for the environment and consumers. The FEJA employs the same legal and appropriate policy mechanisms that states have been using for years to support investment in other sources of clean energy, such as wind and solar.

"These programs internalize the cost of pollution into the market and preserve the most cost-effective source of carbon abatement available to consumers. We are confident that the court's ruling will be respected by regulators and other policymakers in Washington who support the continued operation of the nation's nuclear plants and the clean, resilient and affordable energy they provide."

Exelon said the credits were needed because its nuclear plants could not compete with cheaper natural gas-fired and renewable energy production in the state.

Bills supporting zero-emission credits have passed in Illinois and New York; a group of generators has sued to block the New York program. Legislation is being considered in New Jersey, but a bill introduced in Ohio stalled in the legislature in May.

A different Connecticut proposal, designed to secure power purchase agreements to rescue the 2,111-MW Millstone Nuclear Power Station, the state's only nuclear plant, has faced stiff opposition, and Dominion Energy is weighing its options for the plant absent financial aid.

Challenges to the Legislation

Several groups challenged the Illinois legislation, filing lawsuits in February and in March. The Electric Power Supply Association (EPSA) and members NRG Energy, Eastern Generation, Dynegy, and Calpine said they would lose millions of dollars because subsidized nuclear plants would suppress capacity and energy prices. The district court combined the EPSA suit with one filed by customers of Exelon's ComEd utility. The plaintiffs argued that the law is not consistent with federal regulations that rely on competition in power markets to ensure just and reasonable rates.

Illinois looked at renewable energy credit programs that had passed federal muster when establishing its ZEC plan. The Illinois Power Agency said it will issue ZECs equal to 16% of electricity delivered by each utility in the state to customers during calendar year 2014. Retail power suppliers must purchase ZECs on 10-year contracts that end May 31, 2027.

ZEC pricing is based on the Environmental Protection Agency's (EPA's) social cost of carbon, minus an adjustment based on energy and capacity prices.

2016 Supreme Court Rulings

The U.S. Supreme Court in 2016 ruled on two cases similar to the Illinois suit, involving state-federal jurisdiction regarding power markets. The court in January 2016 rejected EPSA's challenge to FERC Order 745, upholding the FERC's jurisdiction over wholesale market operators' compensation of demand response.

In April 2016 the court said the state of Maryland could not subsidize construction of a natural gas-fired plant because it challenged FERC's jurisdiction under the Federal Power Act.

In the Illinois ruling, Judge Shah said "The alleged harm to out-of-state power generators who will be competing in auctions against subsidized participants is not clearly excessive" when considered against "weighty and traditional areas of permissible state regulation."

The court agreed with Exelon's argument that states have legal authority to determine their fuel mixes for power generation. Exelon noted that FERC already supports credit programs for renewable energy.

The plaintiffs had asked the court for an injunction to block the ZECs, arguing the credit program is pre-empted by FERC's authority under the Federal Power Act. Shah ruled the FPA makes FERC responsible for resolving such issues and generally does not authorize private causes of action.

Shah also said FERC has the authority to respond to "market distortion" that results from subsidies. "So long as FERC can address any problem the ZEC program creates with respect to just and reasonable wholesale rates-and nothing in the complaints suggest that FERC is hobbled in any way by the state statute-there is no conflict," the judge said.

-Darrell Proctor is a POWER associate editor. (@DarrellProctor1, @POWERmagazine)

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