The New Jersey Board of Public Utilities (BPU) approved applications submitted by PSEG Nuclear LLC seeking subsidies of up to $300 million annually, in the form of zero emission credits (ZECs), for PSEG’s Hope Creek and Salem 1 and 2 nuclear generating stations on April 18. The PSEG applications were filed on December 19, 2018, after New Jersey enacted legislation on May 23, 2018, establishing a ZEC program for the state (the ZEC Act).
The ZEC Act provides that a nuclear power plant is eligible for ZECs if it demonstrates, among other things, that
- the nuclear power plant minimizes emissions resulting from electricity consumed in New Jersey;
- if the nuclear power plant were to be retired, the retirement would significantly impact New Jersey’s ability to comply with air emissions reduction requirements; and
- the nuclear power plant and its positive environmental attributes are at risk due to the financial risk of being unable to cover costs, and the plant will cease operations within three years unless it experiences a material financial change.
The BPU determined that the PSEG nuclear plants met all factors, noting that nuclear power will be critical in meeting New Jersey’s goal of 100% clean energy by 2050, as nuclear power currently provides almost 40% of the state’s power and 90% of its carbon-free electricity.
The BPU’s approval means that the PSEG plants will be issued ZECs, which in turn will be purchased by New Jersey’s electric utilities. This is a similar process to the subsidies available to renewable energy sources in New Jersey, such as solar and wind, through renewable energy credits (RECs) and offshore wind renewable energy credits (ORECs).
Notably, the BPU’s decision to approve the ZECs follows on the heels of an April 15 US Supreme Court decision declining to hear appeals of decisions out of the US Court of Appeals for the Second Circuit (Coalition for Competitive Electricity v. Zibelman) and the US Court of Appeals for the Seventh Circuit (Electric Power Supply Association v. Star), which upheld ZEC programs in New York and Illinois, respectively.
The primary legal issue before the Second Circuit and Seventh Circuit courts of appeals was whether the New York and Illinois ZEC programs were preempted by the Federal Power Act (FPA) and thus unlawfully interfered with wholesale energy markets regulated by FERC. Challengers of the ZEC programs relied upon the Supreme Court’s decision in Hughes v. Talen, in which the Court struck down a Maryland program designed to support new in-state generation. The Maryland program provided subsidies, through state-mandated contracts, to new in-state generators, but conditioned receipt of those subsidies on the generators selling capacity into FERC-regulated wholesale markets. In determining that the Maryland program was unlawful, the Court drew a distinction between state laws that depend on participation in interstate auctions and those that do not, and rejected Maryland’s program “because it disregards an interstate wholesale rate required by FERC.” In reaching this conclusion, the Court emphasized that its holding was “limited” and “[n]othing 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.’” Hughes v. Talen Energy Marketing, LLC, 136 S. Ct 1288, 1299 (2016).
In upholding the New York and Illinois ZEC programs, the Second Circuit and Seventh Circuit applied Hughes and determined that the statutory schemes at issue did not unlawfully condition subsidies on generators selling their emission-free power into wholesale markets, even though the subsidies could indirectly influence auction prices. Earlier Up and Atom posts describe the Zibelman and Star decisions in greater detail.
In the petitions for review of Zibelman and Star to the Supreme Court, the Energy Power Supply Association and other petitioners urged the Court to apply a broad preemption standard to overturn any state laws that pay generators in connection with their energy production, arguing that those subsidies distort wholesale rates.
The Supreme Court’s decision not to take up the appeals of Zibelman and Star allows the structure of the Illinois and New York ZEC programs to stand and will provide some comfort to supporters of the New Jersey ZEC Act. While a denial of certiorari is not decisive as to the merits of a case, the Court’s denial casts an additional shadow over arguments that ZEC-based programs are “tethered” to wholesale rates.