The Legal Case FOR the Sale of FitzPatrick & Nuclear Subsidies.

Exelon Corp. agreed to purchase the FitzPatrick nuclear plant for $110 million only after New York regulators agreed to subsidize the facility and two other Exelon nuclear plants to help the state achieve its carbon-reduction goals. Payments for the first two years of the 12-year program will total almost $1 billion. 

Exelon, the beneficiary of almost $500 million in annual payments, is airing its legal defenses.

James FitzPatrick Nuclear Power Plant

Chicago-based Exelon Corp., owner of the R.E. Ginna and Nine Mile Point plants and the soon-to-be-owner of a third plant, James A. FitzPatrick has vetted all of the potential arguments its opponents could raise and its defense is airtight.

Exelon and the  New York's Public Service Commission (NYPSC) are in agreement. The NYPSC designed the policy to avoid specific legal tripwires. Experts say there's likely to be a court challenge anyway, if only because of the money at stake and the precedent it could establish. If it survives, the plan could be a blueprint for other states to achieve the same policy goals, even after similar efforts have been blocked by judges and regulators.

This year, the U.S. Supreme Court overturned a Maryland incentive program for new gas-fired generation because it strayed too far into federal jurisdiction over wholesale electricity markets (Greenwire, April 19). And the Federal Energy Regulatory Commission blocked a plan approved by Ohio regulators to subsidize utility-owned coal and nuclear plants because it clashed with affiliate transaction rules (EnergyWire, April 28).

The New York PSC approved its clean energy standard (CES) on Aug. 1, formalizing the state's goal of getting half its power from renewable energy by 2030. Toward that end, the CES will subsidize three nuclear power plants, giving more time for wind and solar power to develop in New York.

Despite nuclear's place as a carbon-free source of bulk power, some environmental groups, rival generators and consumer groups are pushing back against the subsidy, and any or all of them could launch legal challenges. Those could come at the PSC, New York Supreme Court or FERC.

A court ruling validates the use of the U.S. government's Interagency Working Group's "social cost of carbon. In its order, the 7th U.S. Circuit Court of Appeals upheld the use of the government's estimate for carbon's economic damage in a challenge to new Department of Energy standards for commercial refrigeration equipment (Greenwire, Aug. 9).

The ruling demonstrates that the social cost of carbon isn't "funny science."  New York's zero-emissions credit (ZEC) program will be administered in six two-year periods, and electricity retailers will purchase credits from the New York State Energy Research and Development Authority (NYSERDA) in proportion to their load.  During the first two-year, three nuclear plants will receive payments under a formula based on the social cost of carbon and the megawatt-hours of energy they produce.

The most important consideration regarding potential legal challenges to the plan is that it's "indistinguishable" from renewable energy credit (REC) programs that have been "blessed" by the states and the courts.  Just as an REC represents the environmental attributes of a megawatt-hour of wind or solar energy, a ZEC is the same for nuclear energy.

It is a REC program for nuclear. It's a credit that's tied to production, not wholesale market participation. Nowhere in the country has an REC program, on the theories that have been advanced now, ever been successfully challenged.  FERC in an order four years ago said REC programs and sales of RECs unbundled with electricity fall outside its jurisdiction.

In its final order, New York's PSC said it had legal authority to approve the clean energy standard and, moreover, that it had been designed to avoid FERC's turf. The order, however, noted: "States may encourage production of new or clean generation through measures 'untethered' to a generator's wholesale market participation."

Regulators moved quickly to finalize the clean energy standard. Entergy Corp., the owner of FitzPatrick, planned to shut the plant in January. Exelon was willing to buy it and add to its nuclear fleet, but it wanted clarity about what their economics would be.

The purchase remains contingent on approvals from state and federal regulators. In the meantime, Exelon will refuel the plant in January if certain conditions are met, including the clean energy standard being in full effect and the execution of an NYSERDA contract that guarantees an additional income stream.

On July 8, the state Department of Public Service proposed its plan to rescue the nuclear plants with ZECs. The plan contemplated nearly $1 billion in subsidies for the first two years. It said the $4 billion net benefit, largely from cutting carbon, was worth it.  Regulators took public comments for two weeks and issued a final order on Aug. 1.

Opponents said the process moved too fast given the high stakes. They've said it's dubious to peg the subsidy to the social cost of carbon, and that it will lead to burdensome costs for large energy users, like manufacturers. And some environmentalists have objected to any support for nuclear power in a policy meant to advance renewable energy.

A group of upstate manufacturers submitted a 35-page brief objecting to aspects of the CES. But a lawyer for the group said he had no comment on a suit. Another group of merchant power plants, including Calpine Corp., said in a filing last month that the CES was a plain step into FERC jurisdiction. But the group did not comment with regard to a legal challenge.

Experts said it's only been two weeks, so these suits are probably still in the works.

Parties have 30 days to petition the PSC for a rehearing, said Jon Sorensen, a spokesman for the Department of Public Service. They have four months to challenge a decision at the New York Supreme Court.

At FERC, parties could lodge a complaint at any time.

Some parties question how regulators set the amount of the nuclear subsidy. At first, it was based on the cost of running the reactors. They ultimately decided to use the social cost of carbon.

Whether the recent appellate court ruling validates the social cost of carbon metric, some critics say the PSC staff didn't allow enough time (two weeks) for parties to vet the formula.

According to the National Energy Marketers Association (NEMA), the PSC's timetable violated the state's Administrative Procedure Act. 

Exelon is also bracing for challenges that claim the PSC strayed too far into FERC's jurisdiction.

Calpine joined a group of power generators that last month cited the Supreme Court's decision in Hughes v. Talen Energy Marketing LLC and said New York is making the same mistake Maryland did: interfering with wholesale power markets. But some lawyers say New York might have avoided this legal trap by using a different mechanism to support power plants.

In Hughes, Maryland was focused on the money that would be needed to prop up companies, to help them survive in the face of changing markets. New York's final CES decision does what it can to stay away from that approach; instead, it focuses on properly valuing the low-carbon attributes of nuclear plants separate from the wholesale markets.

The April court order was carefully crafted to leave states room to craft their own policies.  It was clear the Supreme Court wanted to reserve the option for states that were trying to tackle clean energy policy to have a way to do that.  (E&E Publishing, 8/19/2016)

Exelon To Purchase James A. FitzPatrick Nuclear Power Plant

FitzPatrick Nuclear Power Plant

Exelon Generation, owner of the nation’s largest nuclear fleet, has agreed to assume ownership and management of operations of Entergy Corporation’s James A. FitzPatrick Nuclear Power Plant in Scriba, NY.

New York Governor Andrew Cuomo, who asked the New York Public Service Commission (PSC) to adopt a Clean Energy Standard (CES) benefitting the state’s nuclear power plants, helped facilitate the transaction.

In recent months, Entergy and Exelon began discussing a path forward that would allow the plant to continue operating beyond January 2017. The CES, approved last week, will save thousands of high-paying jobs and spur hundreds of millions of dollars in short-term investments in energy infrastructure in upstate New York. Without the CES, upstate nuclear plants would have been at risk of closure.

Under the agreement totaling $110 million, Entergy would transfer FitzPatrick’s operating license to Exelon. The New York Power Authority has agreed to transfer the decommissioning trust fund and liability for FitzPatrick to Entergy, and if regulatory approvals are obtained and the transaction closes, Entergy would then transfer the fund and associated liability to Exelon. Transaction closure is dependent upon regulatory review and approval by state and federal agencies, including the US Department of Justice, the Nuclear Regulatory Commission, the Federal Energy Regulatory Commission and the New York State Public Service Commission.

The transaction is expected to close in the second quarter of 2017. As Exelon has previously indicated, approval of the CES means the company will reinvest millions right back into the upstate economy, including approximately $400-500 million in operations, integration and refueling expenditures for the upstate plants in spring of 2017, all of which will have a positive impact across the state.

Exelon has committed to refueling FitzPatrick in January 2017 and does not anticipate any immediate change to staffing levels at the plant, which normally employs about 600 people. Acquiring FitzPatrick aligns with Exelon’s broader efforts to preserve the nation’s existing nuclear energy facilities and the economic, environmental and reliability benefits they provide. New York’s nuclear plants power millions of homes and businesses.

Replacing economically challenged nuclear units with carbon-based generation would significantly increase emissions in the state, making it far more difficult and expensive for customers and the state to meet their emissions reduction goals. The transaction also aligns with Entergy's strategy of reducing its merchant power market footprint.

The 838-megawatt James A. FitzPatrick Nuclear Power Plant generates carbon-free electricity for more than 800,000 homes and businesses. Exelon operates two other nuclear energy facilities in upstate New York: R.E. Ginna and Nine Mile Point, the latter of which is adjacent to FitzPatrick. Together, Exelon’s two upstate plants provide carbon-free electricity to more than 2.5 million homes and businesses while employing more than 1,500 full-time staff.  (Entergy Newsroom, 8/9/2016)

GOVERNOR CUOMO ANNOUNCES ESTABLISHMENT OF CLEAN ENERGY STANDARD THAT MANDATES 50 PERCENT RENEWABLES BY 2030

GOVERNOR ANDREW M. CUOMO
State of New York | Executive Chamber
Andrew M. Cuomo | Governor

First-ever State Mandate will More than Double Renewable Resources, Slash Carbon Emissions, Protect the Environment and Grow the Clean Energy Economy

ORDER ADOPTING A CLEAN ENERGY STANDARD

Governor Andrew M. Cuomo today announced the New York State Public Service Commission's approval of New York’s Clean Energy Standard, the most comprehensive and ambitious clean energy mandate in the state's history, to fight climate change, reduce harmful air pollution, and ensure a diverse and reliable energy supply. The Clean Energy Standard will require 50 percent of New York's electricity to come from renewable energy sources like wind and solar by 2030, with an aggressive phase in schedule over the next several years. In its initial phase, utilities and other energy suppliers will be required to procure and phase in new renewable power resources starting with 26.31 percent of the state's total electricity load in 2017 and grow to 30.54 percent of the statewide total in 2021. The Clean Energy Standard will cost less than $2 a month to the average residential customer’s bill.

The Clean Energy Standard will:

· Significantly reduce harmful greenhouse gas emissions and prevent backsliding on progress made to date by maintaining the operations of carbon-free nuclear power plants as the state transitions to a 50 percent renewable requirement; and,

· Strengthen New York’s electric fuel diversity for the reliability benefits it brings. The Clean Energy Standard also places New York as a leader of the global effort to combat climate change and the resulting extreme weather events.

By 2030, the 50 percent renewable mandate will be a critical component in reducing greenhouse gas emissions by 40 percent (from 1990 levels) and by 80 percent by 2050.

The Clean Energy Standard will be enforced by requiring utilities and other energy suppliers to obtain a targeted number of Renewable Energy Credits each year. These credits will be paid to renewable developers to help finance new renewable energy sources that will be added to the electric grid.

The Clean Energy Standard decision today also includes other directives to reach the 50 by 2030 mandate:

· The Public Service Commission will work with New York State Energy Research and Development Authority and stakeholders to develop the content and standards that could be used to create a New York-certified clean electric product. This product will be clearly labeled and identified as New York-based clean power giving consumers the ability to buy 100 percent clean power, should they want that option.

· The Public Service Commission will promote and support maximum expansion of energy efficiency wherever possible and evaluate the creation of renewable heating and cooling technologies such as geothermal heat pumps.

· The New York State Energy Research and Development Authority will develop a blueprint to advance offshore wind energy, a report already in progress by the Authority.

· Public Service Commission Staff will work with the NYISO and other stakeholders to ensure that necessary investments are made in storage, transmission and other technologies to secure a reliable electric system.

· The Public Service Commission will requires triennial reviews of the Clean Energy Standard by the Public Service Commission to ensure economic and clean energy goals are being achieved.

Click here to view statements from organizations which are applauding and endorsing New York State's adoption of the Clean Energy Standard.

Maintaining zero-emission nuclear power is a critical element to achieving New York’s ambitious climate goals. Starting in April 2017, the Clean Energy Standard requires 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 New York Power Authority and the Long Island Power Authority are also expected to adopt the same requirements. This will allow financially-struggling upstate nuclear power plants to remain in operation during New York’s transition to 50 percent renewables by 2030.

A growing number of climate scientists have warned that if these nuclear plants were to abruptly close, carbon emissions in New York will increase by more than 31 million metric tons during the next two years, resulting in public health and other societal costs of at least $1.4 billion.