Electricity Markets
Bills and Rates

Generators sue New York PSC over financial support for nuclear plants

A coalition of generators has filed a lawsuit against the New York Public Service Commission over the PSC's plan to provide financial support, in the form of "zero-emission credits," or ZECs, to nuclear power plants in the state as part of New York's new clean energy standard.

In their suit, filed Oct. 19 in the U.S. District Court for the Southern District of New York, the coalition members argue that the PSC's regulations are illegal because they "intrude on the exclusive authority of the Federal Energy Regulatory Commission." The generators also say that the PSC's plan for the zero-emission credits would be a bad deal for New York electricity ratepayers, as well as for themselves.

Under the Federal Power Act, FERC oversees wholesale power markets — including the big regional markets run by regional transmission organizations and independent system operators such as the New York ISO — while the states oversee retail electricity markets.

"If the ZECs go into effect, New York's retail ratepayers will be forced to fund an effort by the PSC to artificially depress wholesale market prices, which disrupts the FERC-approved auctions and market processes," said the group of generators in their lawsuit.

"This would harm other generators, including the plaintiffs, because the lower auction prices will result in lower revenues. In the long term, with non-subsidized generators forced to exit the market, lower prices will deter potential new generators — including generators of renewable sources of energy — from entering the market. The result will be reduced supply and increased prices for local utilities, and thus for the homeowners and businesses that they serve."

The lawsuit was filed by the Coalition for Competitive Electricity, Dynegy Inc., Eastern Generation LLC, the Electric Power Supply Association, NRG Energy, Roseton Generating LLC, and Selkirk Cogen Partners.

Zero-emission credits are part of new ‘clean energy standard'

On. Aug. 1, New York Gov. Andrew Cuomo announced that the state's PSC had approved a clean energy standard that requires half of the state's electricity to come from renewable energy sources by 2030. Starting next April, the clean energy standard will require all six New York 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," the governor's office said. "This will allow financially-struggling upstate nuclear power plants to remain in operation during New York's transition to 50 percent renewables by 2030."

In the New York region, as well as in other regions across the country, FERC "has determined that competitive market forces best set wholesale energy prices and thus has mandated and approved auction-based markets for wholesale electric energy," the coalition told the court.

Under FERC's system, "as the PSC has acknowledged, the forces of competition ‘have benefitted consumers but have impaired the financial viability of upstate nuclear plants, to the point where plant owners have announced the intention to close plants that are otherwise fully licensed and operational,'" said the coalition.

"Seeking to change the results of FERC's market-based auction system, the PSC issued the ZEC order to bail out four uneconomic upstate nuclear power plants and keep them in the market for at least 12 more years" via the ZECs, the coalition continued. "Unless enjoined or eliminated, these credits will result in New York's captive ratepayers paying the owners an estimated $7.6 billion over 12 years."

"Indeed, it appears that 100 percent of the ratepayer subsidies will go to a single company, which will own all of the subsidized plants," the generators added. They noted that Exelon, which owns the Ginna and Nine Mile Point nuclear plants, has offered to buy the FitzPatrick nuclear plant from the current owner, Entergy, but only if the state provides a bailout subsidy.

If the ZECs go into effect as they are scheduled to do in April 2017, "they will profoundly disrupt the FERC-approved energy-market auction structure and result in the transfer of more than $600 million a year of ratepayer funds to Exelon," the coalition said. In the case of the FitzPatrick nuclear plant, this would result in Exelon receiving the current locational price of energy ($20.63 per megawatt-hour), plus a $17.48 ZEC payment subsidy, funded by New York consumers, for a total of $38.11 per MWh, the coalition said. Meanwhile, a competing energy generator nearby would receive only $20.63 per MWh.

"The ZEC program is unlawful because it operates in the area of FERC's exclusive jurisdiction, and federal law thus pre-empts it," the coalition said.

PSC's Zibelman calls lawsuit ‘frivolous'

PSC Chairman Audrey Zibelman defended the plan for the zero-emission credits.

"The frivolous lawsuit is right out of the fossil fuel industry's playbook to deny and thwart actions to combat climate change," Zibelman said in a statement.

The Supreme Court "has repeatedly upheld the rights of states to protect their environment for the welfare of citizens," Zibelman said. "This challenge to New York's authority is a challenge to the 29 states that have taken similar actions to encourage renewable energy development."

The PSC official added that New York's goal to reduce carbon emissions by 40 percent by 2030 "is essential to protect New York and New Yorkers and we will vigorously defend it and are confident of our success."

The coalition of generators told the court in their Oct. 19 filing that the PSC, "by artificially retaining the otherwise uneconomic nuclear units," is using the ZECs "to exert a large depressive effect on energy and capacity prices." Those suppressed prices "threaten the viability of more efficient generators, including plaintiffs, and discourage investment in efficient new, flexible generators better suited to integrate weather-dependent, zero-carbon renewable generating resources like wind and solar," the coalition told the court. "Accordingly, not only will the ZEC program ultimately lead to higher wholesale prices, but it will also stifle the unquestionable environmental benefits derived from competitive electric markets."

The coalition also argued that the zero-emission credits for New York's nuclear plants would discriminate against other non-carbon emitting technologies. For example, "a small hydroelectric dam producing zero-emission energy would receive the FERC-determined energy price, but would not qualify for ZECs," the coalition said.