Illinois Digs Nuclear? Federal Court Upholds Illinois State Subsidies to Nuclear Power Plants

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The State of Illinois recently passed the Future Energy Jobs Act and created a “zero emission credit” program to subsidize nuclear power generation and corresponding sales of nuclear power in the energy market. The statute grants zero emission credits to certain qualifying energy-generating facilities, specifically, several nuclear power plants owned by Exelon in Illinois. Utilities that sell electricity to consumers must purchase zero emission credits from the qualifying power plants, and those utilities then pass the costs of the zero emission credits onto their customers. Official estimates place the cost of the subsidies at approximately $2 extra per month for the average household and a total of up to $235 million in payments to Exelon annually.

Companies operating coal and natural gas power plants in Illinois, including Dynegy, Illinois’ second-largest power generator after Exelon, and NRG Energy, filed a lawsuit challenging the nuclear subsidies. The lawsuit sought to invalidate the zero emission credit program, claiming that it is preempted by the Federal Power Act and that it violates the dormant commerce clause. The companies also claimed that the program denied them the equal protection of federal laws governing the wholesale electricity markets, in violation of the Fourteenth Amendment.

On July 14, 2017, U.S. District Judge Manish Shah entered an order dismissing the lawsuit. Judge Shah ruled that the plaintiffs had no standing to challenge the zero emission credit program. Judge Shah wrote in his opinion that, while the subsidies clearly harm Dynegy and NRG economically, federal regulators have the power to address the market disruption, stating “[t]he complaint certainly alleges that [the subsidies] will cause billions of dollars in market impact, but it does not allege that [the Federal Energy Regulatory Commission] is damaged in its ability to determine just and reasonable rates.”

In a statement, Exelon called the ruling “good news for the environment and consumers. The [Future Energy Jobs Act] employs the same legal and appropriate policy mechanisms that states have been using for years to support investment in other sources of clean energy, such as wind and solar.”

This decision and the underlying Future Energy Jobs Act serve as a reminder of the myriad of policy and regulation networks that energy companies must navigate to remain successful. Even with the support of the federal executive and legislative branch, coal and natural gas companies can still be subject to significant taxes imposed on a state level.