On December 15, 2016, the New York Public Service Commission (“Commission” or “PSC”) issued an Order on Petitions for Rehearing (“Rehearing Order”) which modifies certain aspects of the Clean Energy Standard Order issued August 1, 2016, and requires PSC Staff to explore resource eligibility issues and prepare recommendations to the Commission prior to the first triennial review. While the Rehearing Order dismissed most of the petitions for reconsideration, it opened the door for Staff to develop proposals that could modify the way in which Load Serving Entities (“LSEs”) comply with the Clean Energy Standard (“CES”).

The CES is divided into a Renewable Energy Standard (“RES”) and a Zero-Emissions Credit (“ZEC”) requirement. The RES consists of a Tier 1 obligation on every Load Serving Entity (“LSE”) to procure Renewable Energy Credits (“RECs”) from new resources coming online after January 1, 2015, or make Alternative Compliance Payments (“ACPs”). The RES also requires a Tier 2 maintenance program to provide support for “at-risk” generation facilities that may not be economically viable. The ZEC program requires each LSE to purchase ZECs from the New York State Energy Research and Development Authority (“NYSERDA”) in proportion to its load to provide financial support to keep nuclear plants in operation.

The Rehearing Order was issued in response to 17 petitions requesting that the Commission rehear or reconsider a number of issues decided in the CES Order. One of those issues is that not all baseline resources are eligible to be included in the CES program, either by way of the Tier 2 maintenance credit or by allowing zero-emissions resources to get the same credit support that the at-risk nuclear facilities are receiving. Some petitioners fear that existing baseline resources may sell their energy and attributes to neighboring markets that provide better incentives than New York—particularly Maryland, which recently enacted legislation requiring utilities to enter into long-term power purchase agreements with renewable generators—making it more difficult and expensive for New York to meet its clean energy goals. Some petitioners also noted that without CES support, wind power developers may be incentivized to dismantle existing wind turbines and sell the site to new generators which can then re-erect them as new projects eligible for Tier 1.

In response to the petitioners’ concerns, the Commission acknowledged that “it is in the best interest of consumers to retain existing renewable resources provided the cost of retention is less than the cost to replace them with new facilities under the Tier 1 REC program.” Therefore, the Commission directed Staff to further develop the eligibility criteria for Tier 2 to ensure cost-effective retention of baseline resources by preparing recommendations, in collaboration with stakeholders, for the Commission’s consideration. As part of that report, the Commission directed Staff to identify how complementary Reforming the Energy Vision (“REV”) initiatives, such as community aggregation, can assist with this retention by working with local renewable generators.

One petitioner requested that the CES Order be modified to allow incremental renewable power (beyond the 2013 baseline inventory), that flows into the New York Control Area from adjacent control areas, be eligible for purchase by LSEs to meet the LSE’s obligation to purchase RECs or make ACPs. The petitioner also requested that large-scale hydropower should qualify under this proposal. While the Commission rejected the proposal to allow incremental existing hydro to serve as a replacement for Tier 1 renewables, it left the question open for other types of resources. The Commission directed Staff to consider how to treat new voluntary arrangements to purchase incremental existing renewable resources that do not qualify under Tier 1 but may provide benefits to New York State.

The Rehearing Order also responded to a number of petitioners’ claims that the Commission’s CES Order goes beyond the scope of its state-delegated authority and impinges on area pre-empted by federal law. One major concern of the petitioners is that the ZEC program improperly regulates wholesale markets, which is an area within the exclusive jurisdiction of the Federal Energy Regulatory Commission (“FERC”). While that question, among others, is currently pending before the Southern District Court of New York in Coalition for Competitive Electricity et al. v. Zibelman et al., the Commission took this opportunity to defend its order by stating that “the ZEC requirement does not establish wholesale energy or capacity prices, it only establishes pricing for attributes completely outside of the wholesale commodity markets.”

The Commission also granted Exelon’s request for rehearing and approved its petition to remove a CES Order requirement which conditioned the 12-year duration of the ZEC contracts on transfer of the FitzPatrick Nuclear Power Plant by September 2018. The Commission noted that the intent of the condition was to attract a buyer of the facility to ensure the preservation of the zero-emission attributes. In November 2016, Exelon agreed to purchase the FitzPatrick plant from Entergy, although the deal still faces review by the FERC and the Nuclear Regulatory Commission. With Exelon now being contractually obligated to purchase the facility, the Commission removed the conditional clause.

Lastly, the Commission rejected claims made by a number of petitioners that the CES Order violates the State Environmental Quality Review Act (“SEQRA”) by not evaluating all reasonable alternatives to the nuclear subsidies. The Commission rejected the idea that energy efficiency measures or additional new renewable generation could be implemented in sufficient time to offset the 27.6 million MWh of zero-emission nuclear power per year that would be needed to meet the CES goals.

As the Coalition for Competitive Electricity case drags on, the potential for federal preemption could slow the implementation of the CES. The PSC is up against a number of power generators and marketers who argue that the ZEC proposal artificially suppresses wholesale market prices, and thus, impinges on the FERC’s exclusive jurisdiction over those markets. The CES Order also comes in the wake of numerous court cases addressing state authority to craft creative, non-market solutions to prevent base load power from exiting wholesale power markets, such as Hughes v. Talen Energy Marketing, where the U.S. Supreme Court rejected Maryland’s attempt to subsidize a natural gas plant for distorting price signals in the wholesale market. In its Rehearing Order, the New York PSC maintained that its program only establishes prices addressing externalities outside the wholesale markets, but it is sure to face a long legal battle. When all is said and done, the outcome in New York will likely establish guidance for other states that continue to develop policies to provide incentives for base load power to remain in the markets.

Phillips Lytle’s Energy Practice Team has extensive expertise in Public Service Commission/Utility regulatory matters, including all aspects of retail energy regulation in New York. For more information about Phillips Lytle’s Public Service Commission practice, please contact Thomas F. Puchner, Partner, at (518) 472-1224 Ext. 1245, tpuchner@phillipslytle.com, or Kevin C. Blake, Associate, at (716) 847-7082, kblake@phillipslytle.com.