Coal. for Competitive Elec., Dynegy Inc. v. Zibelman

• Decision Date: 25 July 2017
• Docket Number: 16–CV–8164 (VEC)
• Citation: 272 F.Supp.3d 554
• Parties: COALITION FOR COMPETITIVE ELECTRICITY, DYNEGY INC., Eastern Generation, LLC, Electric Power Supply Association, NRG Energy, Inc., Roseton Generating LLC, and Selkirk Cogen Partners, L.P., Plaintiffs, v. Audrey ZIBELMAN, in her official capacity as Chair of the New York Public Service Commission, Patricia L. Acampora, Gregg C. Sayre, and Diane X. Burman, in their official capacities as Commissioners of the New York Public Service Commission, Defendants, and Constellation Energy Nuclear Group, LLC, Exelon Corporation, R.E. Ginna Nuclear Power Plant LLC, and Nine Mile Point Nuclear Station LLC, Intervenors.
• Court: U.S. District Court — Southern District of New York

272 F.Supp.3d 554

COALITION FOR COMPETITIVE ELECTRICITY, DYNEGY INC., Eastern Generation, LLC, Electric Power Supply Association, NRG Energy, Inc., Roseton Generating LLC, and Selkirk Cogen Partners, L.P., Plaintiffs,

v. Audrey ZIBELMAN, in her official capacity as Chair of the New York Public Service Commission, Patricia L. Acampora, Gregg C. Sayre, and Diane X. Burman, in their official capacities as Commissioners of the New York Public Service Commission, Defendants,andConstellation Energy Nuclear Group, LLC, Exelon Corporation, R.E. Ginna Nuclear Power Plant LLC, and Nine Mile Point Nuclear Station LLC, Intervenors.

16–CV–8164 (VEC)

United States District Court, S.D. New York.

Signed July 25, 2017

David A. Barrett, Jonathan David Schiller, Boies, Schiller & Flexner LLP, New York, NY, Stuart Harold Singer, William Thomas Dzurilla, Boies, Schiller & Flexner LLP, Fort Lauderdale, FL, for Plaintiffs.

Elizabeth Austin Edmondson, Jenner & Block LLP, New York, NY, David W. DeBruin, Matthew E. Price, William K. Dreher, Zachary C. Schauf, Jenner & Block, LLP, Jeffrey Alan Schwarz, Peter Hopkins, Scott Harris Strauss, Amber Martin, Jessica Bell, Spiegel & McDiarmid, LLP, Washington, DC, John Calvin Graham, Jonathan D. Feinberg, Salomon Tsimi Menyeng, State of New York, Department of Public Service, John J. Sipos, Office of the Attorney General New York State, Albany, NY, for Defendants.

MEMORANDUM OPINION & ORDER

VALERIE CAPRONI, United States District Judge:

Some say that human-caused global warming is a "hoax,"¹ while others accept the overwhelming scientific conclusion that human activities, and particularly carbon dioxide discharges into the atmosphere, are causing the planet to warm. Although no individual State can reverse the trend all by itself, New York and many other States have decided that they will do their part to reduce the emissions that contribute to global warming. The issue in this case is whether the method New York has chosen to facilitate its doing so is constitutional. For the reasons that follow, the Court concludes that the New York program is constitutional.

Plaintiffs are various electrical generators and trade groups of electrical generators. They challenge one aspect of the Clean Energy Standard ("CES") Order, adopted by the New York Public Service Commission ("PSC"), that awards credits to certain nuclear generators for their zero-emissions electricity production. Plaintiffs claim that this program is preempted under the Federal Power Act ("FPA") and that it violates the dormant Commerce Clause.

Defendants, who are PSC members, move to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6), arguing that there is no private right of action for Plaintiffs' preemption claims and that, even if there were, Plaintiffs' claims would fail as a matter of law. Notice of Defendants' Motion to Dismiss, Dkt. 54. Intervenors, who are the nuclear generators receiving the zero-emissions credits and their owners, also move to dismiss pursuant to Rule 12(b)(6). Notice of Motion, Dkt. 76. For the following reasons, the Court GRANTS both motions to dismiss.

BACKGROUND²

The Electricity Market

In New York, wholesale electricity is bought and sold through market-based auctions administered by the New York Independent System Operator ("NYISO"). Compl. ¶ 28. The NYISO, which is regulated by the Federal Energy Regulatory Commission ("FERC"), conducts two types of auctions: energy and capacity. Compl. ¶¶ 28–29. Energy auctions are for the purchase and sale of electricity itself, whereas capacity auctions are for the purchase and sale of options to purchase electricity. Compl. ¶ 36. Retail electricity suppliers, also called load-serving entities ("LSEs"), purchase electricity at wholesale from generators in these auctions. Compl. ¶ 35. Although some of the buyers are located outside New York, most of the buyers are in-state utilities that resell energy at retail to New York customers and businesses. Compl. ¶ 28. The energy suppliers in the wholesale auction include generators located inside and outside of New York. Compl. ¶ 28.

The NYISO auctions determine electricity prices in the New York wholesale market. Compl. ¶ 27. The auction operates by "stacking" bids from generators for the sale of energy or capacity, beginning with the lowest bid and moving up until demand is satisfied. Compl. ¶¶ 32–33. The price of the highest-stacked bid that satisfies demand is known as the "market clearing price." Compl. ¶ 33. Any generator that bids at or below the market-clearing price "clears" the auction and is paid the market-clearing price, regardless of the price the generator actually bid.³ Compl. ¶¶ 33, 39. This pricing mechanism incentivizes generators to be efficient and cost-effective: "it creates price signals for new capacity to enter the market if [the generator] can supply capacity at prices below the clearing price. At the same time, the market provides price signals for existing suppliers to exit the market if they are unable to beat the clearing price." Compl. ¶ 40 (citation and internal quotation marks omitted).

Nuclear generators, such as Intervenors, bid as so-called "price-takers" in the NYISO auctions, meaning that they sell their entire output at the market-clearing price. Compl. ¶ 34. Unlike other types of electricity generators that can adjust their output to produce more or less energy depending on price, nuclear generators run continuously at maximum output. Compl. ¶ 34. Nuclear generators thus sell their entire electricity output into the auctions regardless of the price—even if the price is below their cost of production. Compl. ¶ 34.

Plaintiffs allege that the nuclear generators' price-taking behavior depresses market-clearing prices because the nuclear generators increase the energy supply available at auction. Compl. ¶ 34. Plaintiffs further allege that all electricity produced by these nuclear generators must be sold in the NYISO energy auctions because they have no alternative way to sell their output. Compl. ¶¶ 34, 64.

New York's ZEC Program

In order to promote the development of clean energy as part of New York's effort to stanch global warning, the PSC issued the CES Order. CES Order, Dkt. 76–1.

The CES Order created two programs: Renewable Energy Credits ("RECs") and Zero–Emission Credits ("ZECs"). CES Order at 13–14. The CES Order was adopted in furtherance of New York's goal to generate fifty percent of its electricity using renewable sources by 2030, which supports New York's broader mission to reduce greenhouse gas emissions statewide by forty percent by 2030. CES Order at 2, 12.

Tier 1 of the CES Order, which implements the REC program, requires all New York LSEs "to serve their retail customers by procuring new renewable resources." CES Order at 14; see also Compl. ¶ 49. Generators that produce energy from renewable sources, like wind or solar, are awarded a credit (a REC) for each megawatt-hour ("MWh") of renewable-generated electricity produced from renewable resources. Compl. ¶ 49; CES Order at 106. The New York State Energy Research and Development Authority ("NYSERDA") purchases RECs from generators, thereby subsidizing their cost of production, and, in turn, sells those RECs to LSEs. CES Order at 16, 107–08. Each LSE is required to purchase RECs in an amount based on a percentage of the total load served by that LSE or make an alternative compliance payment. Compl. ¶ 49; CES Order at 14–16. The cost of the RECs is passed on to commodity customers. CES Order at 17.

Tier 3 of the CES Order establishes New York's ZEC program, the program challenged in this case. CES Order at 19. A ZEC is a "credit for the zero-emissions attributes of one megawatt-hour of electricity production by" an eligible nuclear facility. CES Order, App'x E, at 1. Through the ZEC program, New York aims to "encourage the preservation of the environmental values or attributes of zero-emissions nuclear-powered electric generating facilities for the benefit of the electric system, its customers and environment." CES Order, App'x E, at 1. In particular, the ZEC program ensures that New York's nuclear generators—which comprise thirty-one percent of New York's electric generation mix and collectively avoid the emission of over fifteen million tons of carbon dioxide per year—continue to contribute to New York's electric generation mix pending the development of new renewable energy resources between now and 2030. CES Order at 19. According to the CES Order, losing the nuclear energy contributed by the generators before new renewable resources are developed "would undoubtedly result in significantly increased air emissions" and a "dangerously higher reliance on natural gas"; without the carbon-free attributes of the nuclear generators, New York would have to rely more heavily on existing fossil-fueled energy plants or the construction of new natural gas plants for its electricity, all of which would significantly increase carbon emissions.⁴ CES Order at 19. The CES Order cites Germany as a case in point: when Germany abruptly closed its nuclear plants following the Fukushima nuclear disaster, the electricity that had formerly been produced by nuclear generation was replaced by electricity generated by coal, causing carbon emissions to rise despite a simultaneous and "aggressive" increase in solar generation. CES Order at 19.

A nuclear generator is eligible for ZECs if it makes a showing of "public necessity," i.e., the facility's revenues "are at a level that is insufficient to provide adequate compensation to preserve the zero-emission environmental values or attributes historically provided by the facility." Compl. ¶ 67 (quoting CES Order at 124). Any nuclear generator, regardless of its location, is eligible for ZECs, so long as the generator has historically contributed to the resource mix of clean energy consumed by New York retail consumers.⁵ Compl. ¶ 68 (citing CES Order at 124). Pursuant to the CES Order, the nuclear...