In an effort to maintain nuclear generation, some States resorted to zero emission credits (ZECS), providing subsidies on the basis that such were necessary for “reliability” and energy mix.[i] Lacking an overall energy plan (either nationally or locally), the issue has become whether the wholesale electric generation market is competitive (as envisioned by the Energy Policy Act (“EPA”) and Federal Energy Regulatory Commission (“FERC”))[ii] or remains subject to parochial regulation. The Electric Power Supply Association requested the United States Supreme Court to review these subsidy programs from Illinois and New York, contending such programs were, in essence, pre-empted by the FERC‘s role under the EPA in regulating wholesale electricity power markets.[iii]

The question posited for the Supreme Court’s consideration is whether the Second and Seventh Circuits decisions, permitting ZECS, directly impact wholesale markets that were outside each state’s regulatory authority.[iv] That is, was the wholesale generation and transmission markets intended to be competitive or subject to such parochialism? If the subsidies are upheld, does that mean that states have the authority to incentivize whatever industry might be locally important (e.g., coal facilities in coal producing states).

“Unless this court intervenes, these subsidy schemes will impose huge costs and threaten serious distortion of the FERC-authorized mechanisms for setting wholesale rates at economically efficient levels and sending appropriate price signals to wholesale market participants,” the Supreme Court petition in the Illinois case said. “Although FERC’s market-based price signal could have caused the favored inefficient plants to retire and efficient plants to enter the market in their place, the Illinois-dictated price signal will, by design keep inefficient plants in the market and almost necessarily force efficient plants either to leave or not to enter.”

According to the Seventh Circuit, “The zero-emissions credit system can influence that auction proceed only indirectly, by keeping active a generation facility that otherwise might close by raising the costs that carbon-releasing producers incur to do business.” According to the Supreme Court petition, “The structure of the ZEC program confirms that Illinois is doing exactly what Hughes forbids: attempting to ‘second-guess the reasonableness of interstate wholesale rates,'” the petition said.[v] “Illinois will select eligible plants based on ‘public interest criteria’ that effectively require selection of plants that cannot operate profitably based on anticipated revenues from wholesale auctions.”

The first question, of course, is whether the United States Supreme Court even grants the petition, which, at this point, is an improbable result. If not, the wholesale energy markets, both at the federal and state levels, will likely continue to be buffeted with parochial considerations that, arguably, disrupt a competitive market from efficiently running. In the words of William Shakespeare, “To be or not to be, that is the question!”[vi]

About the Author:

Mark Lansing focuses his practice on property tax & condemnation matters with respect to energy, industrial and commercial properties. He achieves significant property tax savings and assessment reductions for his clients through litigation, negotiations (settlements), due diligence reviews and alternative agreements (e.g., PILOTs). Mark assists clients with their valuation of complex property, and through real property tax management. Mr. Lansing also works with energy, industrial and commercial companies in buying, building and operating facilities to effectively manage their property taxes, including due diligence review in the purchase or development phase, and representation before administrative agencies. As an experienced trial lawyer, Mark has successfully represented clients in settlement negotiations, motions, trials and appeals at all levels of state and Federal Courts (including, Circuit Courts of Appeal). Mark is also well published in property tax and condemnation valuation matters. Mark may be reached in our Washington, D.C. office at 202.466.5964, or via email at mlansing@dickinsonwright.com and you may visit his bio here.

[i] Regarding energy mix, and notably, at least one state is pursuing an energy policy that puts its “eggs in one basket” so to speak, pushing for primary reliance on renewables.

[ii] See, e.g., FERC Orders 888 and 889.

[iii] Arguably, this issue is not limited to ZECs, but also wholesale electric transmission and a renewable energy incentives. See, e.g., ALLCO Finance Limited V. Klee, 861 F.3d 82 (2nd Cir. 2017); LSP Transmission Holdings, LLC v. Lange, Civil No. 17-4490 (DWF/HB) (USDC D Minn 2017).

[iv] Electric Power Supply Association v. Starr, No. 17-2433, 2018 WL 4356683 (7th Cir. 2018); Coalition For Competitive Electricity V. Zibelman, 906 F. 3d 41 (2nd Cir. 2018).

[v] Hughes v. Talen Energy Mktg., LLC, 136 S. Ct. 1288, 1292 (2016).

[vi] The Tragedy of Hamlet, Prince of Denmark, Shakespeare (1599-1602).