New York’s Clean Energy Standard: Unfair to Small Hydro Facilities?
August 29, 2016
The New York Public Service Commission (“PSC”) has issued a controversial order that will have significant consequences for the wholesale competitive electricity market. The PSC’s August 1, 2016 order in Case 15-E-0302 (“Order”), is part of landmark proceeding to implement a large-scale renewable energy program and promote a Clean Energy Standard for the state. A centerpiece of the controversial Order is the establishment of a mechanism and a price for granting Zero Emission Credits (“ZECs”) to qualifying nuclear electric generating facilities. Significantly, other electricity generation facilities that are renewable and also produce zero emissions (such as small hydro facilities) are not entitled to receive ZECs.
The Order recognized that “New York has adopted strongly proactive policies to combat climate change and modernize the electric system to improve the efficiency, affordability, resiliency, and sustainability of the system.”[1] One of the concerns raised in the Order was that if existing nuclear generation facilities were no longer available to produce electricity, this “would undoubtedly result in significantly increased air emissions due to heavier reliance on existing fossil-fueled plants or the construction of new gas plants to replace the supplanted energy.”[2] The Order reviewed many alternatives, but focused on economic solutions that would result in nuclear generation facilities remaining available to produce electricity.
The Order recognized the zero-emission attributes of qualifying nuclear electric generating facilities and: (1) created ZEC procedures to discourage qualifying nuclear generation facilities from prematurely retiring; and (2) established ZEC subsidies for qualifying nuclear facilities of $17.48 per MWh for the first two years; the ZEC price would be adjusted every two years thereafter. It has been estimated that the 12-year proposed subsidy of nuclear power plants in the Order could exceed $7 billion.[3]
Ironically, the Order explicitly recognized that small hydro generation resources, a competing generation resource with zero emissions, may be not able to survive in the competitive wholesale energy market in New York; the Order acknowledge that this renewable resource may be forced to retire.[4] Significantly, however, the Order failed to adequately explain why electricity generation resources that no party challenged were zero-emission, renewable resources (including small hydroelectric facilities) should be denied ZECs.
Some parties, such as Ampersand Hydro, LLC (“Ampersand”) have already filed a Petition for Rehearing of the Order. Ampersand argued in an August 23, 2016 pleading prepared by Eckert Seamans that the Order should be modified by the PSC, because the Order: (1) arbitrarily and capriciously ignores the deleterious economic impact of subsidizing qualifying nuclear generation, even though the Order acknowledges the “at risk” economic status of small hydroelectric power generation facilities given a competitive wholesale energy market in New York; and (2) unduly discriminates, without reasoned justification, between nuclear generation facilities and small hydro facilities, both of which have equally positive zero emission characteristics. Ampersand requested that the PSC issue an order on rehearing which mandates that small hydro facilities be provided compensation for ZECs in the same way as the Order presently does for qualifying nuclear generation facilities
The Order is yet another reminder that state or federal regulatory policies can interfere with wholesale competitive electricity markets, with potentially unforeseen consequences. Even when a regulator is attempting to achieve laudable objectives (such as preventing the premature retirement of large electricity generation resources), there can be significant detrimental economic consequences to competitors in a wholesale marketplace.
This Eckert Seamans Energy and Utilities Blog is intended to keep readers current on matters affecting businesses and is not intended to be legal advice.
[1] Order, p 8.
[2] Order, p 24.
[3] See, https://documents.dps.ny.gov/public/Common/ViewDoc.aspx?DocRefId={7A832957-8899-418B-BCCC-43EFF39A4B62} at page 22.
[4] See, CES Order, pp. 17-18 (“For those resources such as small hydro that may retire without additional support for their environmental benefits, Tier 2 as adopted in this Order will consist of a maintenance program as existed under the RPS.”)