Appeals Court Backs Illinois’ Nuclear Subsidies

The U.S. Court of Appeals for the Seventh Circuit on September 13 upheld subsidies offered by Illinois to help struggling nuclear power plants. The court rejected arguments from power producers and some Illinois energy consumers that so-called zero-emission credits (ZEC) are preempted by the Federal Power Act. Opponents argued the program violates the Commerce Clause of the U.S. Constitution, saying it usurps the authority of the Federal Energy Regulatory Commission (FERC) and FERC’s jurisdiction over wholesale electricity markets.

The ruling was in the case Electric Power Supply Association et al. v. Star et al.

The Electric Power Supply Association (EPSA), an advocacy group for the electric power industry, along with other independent generators and some Illinois energy consumers had said the state’s ZEC program and the $235 million in yearly subsidies sent to a pair of Exelon Corp. nuclear plants as part of the state’s Future Energy Jobs Act directly impacted wholesale markets.

Exelon in a statement after the ruling said: “We are pleased to see that the 7th Circuit Court upheld the decision, thus supporting the continued operation of Illinois’ ZEC program and the clean, resilient and affordable electricity nuclear power provides.”

The latest appeal in Illinois was filed after a judge in July 2017 dismissed an earlier appeal by EPSA and a group of power generators. An opinion may also soon come from the 2nd Circuit, which is weighing oral arguments it heard on March 12, 2018, in a similar case appealing a July 2017 federal district court ruling. In that case, U.S. District Judge Valerie Caproni in Manhattan dismissed challenges against New York’s Clean Energy Standard—nuclear subsidies that Exelon also strongly lobbied for—and ruled that federal law does not preempt New York and its Public Service Commission from using a ZEC program.

The Seventh Circuit panel said Illinois’ program aligns with the state’s authority to regulate power generation in the state. The court said the program does not directly impact wholesale power prices.

Jennifer Mersing, of counsel at Stoel Rives whose practice focuses on electric regulatory issues, in an email to POWER said the “Seventh Circuit noted that FERC has not treated the state subsidy programs as prohibited, and has instead worked to fashion auction rules that take into account such state programs. With this decision, the Seventh Circuit has left the door open for states to subsidize generation of their choosing as long as the state is not directly setting the wholesale market price.”

The EPSA in a statement Thursday said it expects FERC to intervene and put in place rules in support of competitive electricity markets.

“Today’s decision confirms that state subsidy programs such as nuclear bailout ZECs can harm wholesale markets,” the EPSA said. “FERC told the 7th Circuit the commission can mitigate these negative effects and today’s opinion relies on that representation. EPSA now expects FERC to act promptly in the pending PJM capacity market docket to prevent the acknowledged harms state ZEC programs inflict on federally-regulated wholesale power markets.”

FERC, along with the U.S. Department of Justice, has previously told the court that federal rules do not preempt Illinois’ ZEC program. The judicial panel in its opinion Thursday agreed, saying: “Because states retain authority over power generation, a state policy that affects price only by increasing the quantity of power available for sale is not preempted by federal law.”

The Illinois legislature in December 2016 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, Illinois, and its 1,871-MW Quad Cities Nuclear Generating Station in Cordova, Illinois, unless the state provided financial relief.

Exelon said the plants had lost more than $800 million in a six-year period prior to the legislation. 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.

Miles Farmer, a clean energy attorney at the National Resources Defense Council, in an email to POWER said: “The court’s decision is clear: states have broad authority over energy policy. While the court upheld Illinois’ nuclear support program, the case is also good news for clean technologies like solar and especially offshore wind, because the court’s logic extends to programs advancing these technologies.”

Michael Panfil, senior attorney with the Environmental Defense Fund (EDF), which was part of a coalition that filed an amicus, or “friend of the court,” brief supporting Illinois’ right to establish programs such as the ZEC initiative, said in a statement: “This is a resounding victory for Illinois, and for all states that are working to transition to clean energy in order to reduce unhealthy air pollution and address the growing threat of climate change. The court recognized Illinois’ fundamental authority to craft a strong clean energy policy—an authority that can provide profound benefits for the health and safety of Illinois families.”

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