Entergy Nuclear Fitzpatrick, LLC v. Zibelman
| Decision Date | 07 March 2016 |
| Docket Number | 5:15-CV-230 |
| Parties | ENTERGY NUCLEAR FITZPATRICK, LLC, ENTERGY NUCLEAR POWER MARKETING, LLC, and ENTERGY NUCLEAR OPERATIONS, INC., Plaintiffs, v. AUDREY ZIBELMAN, in her official capacity as Chair of the New York Public Service Commission, PATRICIA L. ACAMPORA, in her official capacity as Commissioner of the New York State Public Service Commission, DIANE X. BURMAN, in her official capacity as Commissioner of the New York Public Service Commission, and GREGG C. SAYRE, in his official capacity as Commissioner of the New York State Public Service Commission, Defendants, -and- DUNKIRK POWER, LLC, Intervenor-Defendant. |
| Court | U.S. District Court — Northern District of New York |
APPEARANCES:
QUINN, EMANUEL LAW FIRM
Attorneys for Plaintiffs
51 Madison Avenue, 22nd Floor
New York, NY 10010
ENTERGY SERVICES, INC.
Attorneys for Plaintiffs
101 Constitution Avenue NW, Suite 200 East
Washington, DC 20001
639 Loyola Avenue, 26th Floor
440 Hamilton Avenue, 12th Floor
White Plains, NY 10601
MCNAMEE, LOCHNER LAW FIRM
Attorneys for Plaintiffs
677 Broadway
Albany, NY 12207
STEPTOE, JOHNSON LAW FIRM
Attorneys for Plaintiffs
1330 Connecticut Avenue NW
Washington, DC 20036
SPIEGEL & MCDIARMID LLP
Attorneys for Defendants
1875 Eye Street NW, Suite 700
Washington, DC 20006
NEW YORK STATE DEPARTMENT
OF PUBLIC SERVICE
Attorneys for Defendants
Three Empire State Plaza
Albany, NY 12223
PUBLIC SERVICE COMMISSION OF THE
STATE OF NEW YORK
Attorneys for Defendants
Three Empire State Plaza, 18th Floor
Albany, NY 12223
NEW YORK STATE PUBLIC
SERVICE COMMISSION
Attorneys for Defendants
Three Empire State Plaza, 17th Floor
Albany, NY 12223
BARCLAY DAMON LLP
Attorneys for Intervenor-Defendant
80 State Street
Albany, NY 12207
NRG ENERGY, INC.
SANFORD I. WEISBURST, ESQ.
ELLYDE R. THOMPSON, ESQ.
KATHLEEN M. SULLIVAN, ESQ.
ROBERT C. JUMAN, ESQ.
WILLIAM B. ADAMS, ESQ.
YELENA KONANOVA, ESQ.
GREGORY W. CAMET, ESQ.
KARIS ANNE G. PARNHAM, ESQ.
WENDY HICKOK ROBINSON, ESQ.
WILLIAM B. GLEW, JR., ESQ.
SCOTT A. BARBOUR, ESQ.
DOUGLAS G. GREEN, ESQ.
JEFFREY A. SCHWARZ, ESQ.
JOHN C. GRAHAM, ESQ.
PETER J. HOPKINS, ESQ.
SCOTT H. STRAUSS, ESQ.
JONATHAN D. FEINBERG, ESQ.
LINDSEY N. OVERTON, ESQ.
SALOMON T. MENYENG, ESQ.
YVONNE E. HENNESSEY, ESQ.
EKIN SENLET, ESQ.
ABRAHAM H. SILVERMAN, ESQ.
MEMORANDUM-DECISION and ORDER
Plaintiffs Entergy Nuclear Fitzpatrick, LLC, Entergy Nuclear Power Marketing, LLC, and Entergy Nuclear Operations, Inc. (collectively "Entergy" or "plaintiffs") seek to invalidate a June 13, 2014 Order (the "Order") issued by defendant Commissioners of the New York Public Service Commission ("NYPSC") (collectively the "Commission"), sued here in their respective official capacities.
The challenged Order approves a subsidy-like agreement between non-party National Grid, a retail utility company, and intervenor-defendant Dunkirk Power, LLC ("Dunkirk"), a generating facility that had previously announced plans to shut down due to unprofitability, that would keep Dunkirk in business for at least another decade.
According to Entergy, this agreement will improperly suppress market prices for the sale of wholesale electric energy, causing economic harm to other generating facilities participating in the relevant regional market (such as plaintiffs, as owners and operators of a nuclear power plant based in Oswego, New York). Plaintiffs assert two claims for relief from this alleged harm: Count One seeks a declaration that the Commission's Order is bothfield- and conflict-preempted by the Federal Power Act ("FPA"), which confers exclusive regulatory jurisdiction over the marketplace for wholesale electric energy on the Federal Energy Regulatory Commission ("FERC"); alternatively, Count Two seeks a declaration that the Commission's Order violates the dormant Commerce Clause.
The Commission has moved pursuant to Federal Rule of Civil Procedure ("Rule") 12(c) seeking a judgment on the pleadings or, in the alternative, partial dismissal of Count One pursuant to the doctrine of primary jurisdiction. The motion has been fully briefed and oral argument was heard on October 16, 2015 in Utica, New York.1 Decision was reserved.
For much of the 20th century, local utility companies dominated the burgeoning market for electrical energy, exercising exclusive control over the production, transmission, and delivery of electrical power to their end-user customers. Am. Compl. ¶ 31. These purely intrastate entities were subject only to state and local regulation without interference from the federal government. See id.
However, rapid technological advancements eventually made it possible for some of these companies to begin selling their electrical power to buyers located in neighboring states. Am. Compl. ¶ 32. These interstate sales raised the question of (and generatedlawsuits over) whether state and local authorities could properly regulate these new, cross-border transactions without running afoul of the dormant Commerce Clause. See id.
In 1927, the Supreme Court answered that question in the negative, holding in Public Util. Comm'n of R.I. v. Attleboro Steam & Elec. Co., 273 U.S. 83, 89-90 (1927), that the states were in fact barred from regulating certain electricity transactions, such as the wholesale sales at issue here, that crossed state lines. Am. Compl. ¶ 32. That ruling created the so-called "Attleboro gap," a regulatory vacuum only Congress could fill. Id.
In 1935, Congress took up the mantle by enacting the FPA, which initially vested FERC's predecessor with broad authority to regulate the transmission and sale of wholesale electric energy in interstate commerce. Am. Compl. ¶ 33. Under this regulatory regime, traditional state authorities, such as NYPSC, retained jurisdiction over the entities, such as National Grid, responsible for intrastate retail sales of power to customers. Id. ¶ 35.
Since 1935, FERC's role in the electrical energy business has grown exponentially as the market has shifted away from local utility monopolies toward a competitive, nationwide "grid" system of electrical distribution.3 Am. Compl. ¶ 34. Among other things, the FPA empowers FERC to regulate this massive interstate wholesale market to ensure that nationwide electricity rates are "just and reasonable." Id. ¶ 36.
However, FERC prefers not to engage in the direct setting of these energy rates. Am. Compl. ¶ 37. Instead, it has pursued its mandate indirectly: first, by encouraging the creation of regional non-profit entities, known as "regional transmission organizations" or "independent system operators," charged with administering and maintaining portions of thenationwide electrical grid; second, and more importantly, by exercising a measure of control over the competitive auctions for wholesale pricing that these regional operators conduct. Id. ¶ 38.
The relevant FERC-approved regional organization in this case is the New York Independent System Operator, Inc. ("NYISO").4 Am. Compl. ¶ 38. NYISO operates two different wholesale markets in New York: the "energy market" and the "capacity market." Id. ¶ 39. In the "energy market," generators sell actual electric energy to retailers. Id. In the "capacity market," however, generators sell retailers the option to purchase electricity in the future. Id. The capacity market acts as a tool that a regional entity like NYISO can use (subject to FERC's oversight) to help ensure a reliable and adequate supply of electric power to the region's customers. See id.
NYISO operates its capacity market by conducting monthly "spot market auctions" in four sub-zones within the region. Am. Compl. ¶ 41. In these mandatory auctions, NYISO first issues a determination: it announces the aggregate amount of electrical power it has predicted will be needed by all electricity consumers in a particular area during the coming month. Id. The electrical generators that sell capacity to consumers in this region must then respond by submitting a monthly "bid": an offer to sell a certain amount of future electrical capacity at a certain price. Id. ¶ 42.
NYISO "stacks" this list of bids from the lowest to highest price. Am. Compl. ¶ 42. Then, starting with the lowest price offering, NYISO "accepts" each bid in increasing orderuntil the total predicted demand—the aggregate amount of electricity NYISO believes will be needed for consumers in the coming month—has been met. Id. The last (and highest) bid price that NYISO accepts during this process establishes what is known as the "market-clearing price." Id.
In industry parlance, any electrical generator that bids at or below this "market-clearing price" is referred to as having "cleared" the market. Am. Compl. ¶ 42. A generator who "clears" the market is rewarded by being paid the "market-clearing price" and, in exchange for this payment from NYISO, the power generator is on the hook to deliver the amount of electric energy it had represented it would be able to provide when it submitted its bid. Id. Conversely, the electrical generators who bid above the "market-clearing price" are not selected, receive no payments, and have no future obligation to provide any energy in the capacity market. Id.
In other words, this "stacking" system incentivizes power generators to operate in a cost-effective manner, since generators that bid too high will not "clear the market" and therefore will not make money in the region. Am. Compl. ¶ 44. Importantly, it also provides pricing signals to other generators who may be considering entering the regional market (because they can produce power at or below the "market-clearing price" and thus sell their energy) or considering exiting the power delivery business in that region (because, for example, operating costs have become too high to remain competitive there). Id.
In March 2012, Dunkirk, a coal-fired power plant located in Western New York that participates in NYISO's...
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