The US Court of Appeals for the Second Circuit [official website] on Thursday upheld [opinion, PDF] New York’s Zero Emissions Credit (ZEC) program, which provides subsidies to specific nuclear power plants in New York for being greenhouse gas-emission free sources of energy.

In the first two years of the program, the FitzPatrick, Ginna and Nine Mile Point nuclear power plants received ZEC of $17.48 per MWh of electricity the plants generated. The cost is paid by local utilities based on their proportional share of the state’s total electric load. Utilities may also purchase the ZECs directly from the nuclear power plants.

The lawsuit against the ZEC program was brought by several electrical generators and electricity generation trade groups. The plaintiffs argued that the law violated the Constitution because the law is preempted by the Federal Power Act and because the law violates the dormant Commerce Clause.

The courts have previously found that states have the right to regulate production. However, they cannot affect interstate rates, which is the jurisdiction of the Federal Energy Regulatory Commission (FERC). This is the line that Congress has determined, and the court acknowledged that “New York has kept the line in sight, and gone as near as can be without crossing it.”

The law was found to be allowable because the ZEC apply at the production of electricity “regardless of whether or how the electricity is ultimately sold.” The law does not set a certain wholesale price and does not replace the NYISO auction price for electricity. The court also found FERC allows states to subsidize facilities for environmental or policy reasons, even if they have an indirect effect on wholesale electricity prices.

The Commerce Clause challenge to the law was dismissed by the court. The plaintiffs did not show an injury that could be redressed by a favorable decision. The plaintiffs argued that the law favored New York nuclear power plants that would be given unfair competition in the interstate market. However, because none of the plaintiffs operate nuclear power plants out of the state, the plaintiffs’ injuries would continue even if New York gave the subsidies to out of state nuclear power plants.

The US Court of Appeals for the Seventh Circuit upheld [JURIST report] a similar ZEC law in Illinois in September. The Illinois ZECs were enacted [JURIST report] by law in December 2016. The lawsuit was filed [JURIST report] against the Illinois law in February 2017.