THE NUCLEAR OPTION: WHAT CAN STATES DO TO ENCOURAGE CLEAN ENERGY AFTER HUGHES AND EPSA?

• Author: Ko, Jennifer

INTRODUCTION 1268 I. STATE EFFORTS TO ENCOURAGE CLEAN ENERGY 1270 II. THE HISTORICAL "BRIGHT-LINE" DIVISION BETWEEN THE STATES AND THE FEDERAL GOVERNMENT UNDER THE FEDERAL POWER ACT 1273 A. Preemption under the Federal Power Act 1274 B. Dormant Commerce Clause 1275 III. SUPREME COURT CASES SHAPING THE DEBATE 1276 IV. CHALLENGES TO ILLINOIS AND NEW YORK'S NUCLEAR PROGRAMS 1281 A. New York and Illinois's ZEC Programs 1281 B. Federal Litigation Involving the ZEC Programs 1284 V. RECOMMENDATIONS: WAYS STATES CAN STRUCTURE CLEAN-ENERGY PROGRAMS TO WITHSTAND LEGAL CHALLENGES 1288 A. Subsidy Calculation 1288 B. Market Participation 1290 C. Bid Selection Process 1290 CONCLUSION 1291 INTRODUCTION

Climate change has long been a thorny issue dividing parties and administrations in the United States. For instance, although President Barack Obama has publicly stated that the consequences of climate change are "terrifying," (1) President Donald Trump, in contrast, has called climate change a hoax "created by and for the Chinese in order to make U.S. manufacturing noncompetitive.' (2) In the absence of a coherent domestic approach to climate change, many states have taken it upon themselves to adopt climate-friendly policies in the two sectors that affect climate change most: transportation and electricity. (3)

Transportation and electricity generation account for more than half of all greenhouse gas emissions in the United States. According to the U.S. Environmental Protection Agency, electricity generation was responsible for 29% of all domestic emissions in 2015, and transportation was responsible for 27%. (4) The factor that unites these figures is clear--U.S. dependence on fossil fuels. Fossil fuels such as coal, oil, and natural gas have powered domestic economic development for decades, making it possible for average Americans to power their homes, enjoy consumer goods, and travel autonomously. But these benefits have come at a cost. (5) The vast majority of electricity is generated from burning coal and natural gas, whereas almost all fuel used domestically is petroleum-based. (6) And with climate change threatening to affect many aspects of modern life, from the types of crops that are grown, to where American cities are situated, (7) concerted action to reduce greenhouse gas emissions is necessary.

The advent of clean energy technologies such as wind, solar, and nuclear has introduced the possibility of maintaining current standards of living while simultaneously reducing emissions--and many states have taken notice. (8) Nuclear energy in particular is an increasingly attractive option for a number of states pursuing clean energy policies, (9) though it remains a contentious public issue. (10) The fact that nuclear power plants are able to generate electricity without producing any greenhouse gas emissions means that nuclear energy will be key to achieving ambitious emissions reduction targets for certain states. Thus far, any attempts by state regulators to encourage instate clean generation have also been trailed by fierce legal challenges from industry and consumer groups. (11) One key question emerges from these challenges: how can states adopt programs that achieve their energy goals without triggering important legal tripwires?

This Comment distills the case law on state clean energy programs, and identifies best practices for regulators designing programs that can withstand legal challenges. In Part I, I discuss the factual background and policy reasons behind state-led clean energy initiatives. In Part II, I examine the historical allocation of regulatory authority over electricity between states and the federal government, and introduce the constitutional hurdles that state programs must overcome. In Part III, I discuss the Supreme Court's decisions in Hughes v. Talen Energy Marketing (12) and Federal Energy Regulatory Commission v. Electric Power Supply Ass'n (13) (FERC v. EPSA), which have reframed the debate on the limits of states' regulatory authority in the energy sector. In Part IV, I examine ongoing litigation challenging nuclear energy subsidies in New York and Illinois. In Part V, I provide recommendations for ways that state regulators can design clean energy programs so that these programs are able to withstand legal challenges.

1. STATE EFFORTS TO ENCOURAGE CLEAN ENERGY

   Clean and renewable energy sources--those that generate electricity while producing zero or low emissions (14)--have an environmental advantage over traditional fossil fuels. And in the absence of a national requirement to use energy sources such as nuclear, wind, or solar in electricity generation, states have spearheaded a number of efforts to encourage clean energy development. (15) States now have a variety of policy instruments available to them, such as renewable portfolio standards, renewable energy credits, zero emission credits, net metering, feed-in-tariffs, local carbon and greenhouse gas regulations, and renewable system benefit charges. (16)

   One of the most well-established methods for states to encourage clean energy generation is a renewable portfolio standard (RPS), which sets a target for the amount of electricity in a particular jurisdiction that must come from renewable sources. (17) Although just one state, Iowa, had an RPS in 1983, RPSs have become more common in the United States, and as of 2016, twenty-nine states have adopted standards with an additional eight states adopting nonbinding renewable energy goals. (18) Because each state sets its own renewable energy goals, standards vary from state to state. For instance, although Hawaii has set a goal of sourcing 40% of its electricity from renewable energy by 2030, Texas has chosen to procure a set number of megawatts of electricity from renewable sources by 2015. (19)

   The mechanism by which nearly all state RPSs encourage clean energy generation is a renewable energy certificate (REC) program.20 On a conceptual level, a REC reflects the principle that clean air and water have some value to consumers, and that clean generators should be compensated for the positive environmental attributes of their electricity. (21) RECs can be traded across markets (22) so that, for instance, a natural gas plant in North Dakota that is required to meet a state RPS of 10% renewable energy could potentially buy RECs from a wind farm in Texas. The North Dakota gas plant would be able to fulfill its state RPS obligation and the Texas wind farm would also financially benefit from the sale of its REC. The price of a REC is determined by supply and demand, although prices in different state markets may vary depending on factors such as whether the state mandates REC purchases or makes them voluntary. (23)

   Apart from RPSs, states have also adopted a number of initiatives that are shaping U.S. clean energy policy. As observed by scholars like Steven Ferrey, 85% of states have adopted net metering--a policy that compensates customers for electricity that they generate and put back onto the grid--as compared to the approximately 60% of states that have adopted RPSs. (24) Additionally, a minority of states have adopted policies such as feed-in tariffs, direct carbon and greenhouse gas regulations, and renewable system benefit charges.25 Feed-in-tariffs, which guarantee payments to renewable energy developers by requiring utilities to purchase certain types of power, have been successful in stimulating renewable energy development in the United States and internationally (26) Certain states have also adopted carbon or greenhouse gas regulations individually or as part of a coalition. One of the most prominent multistate coalitions is the Regional Greenhouse Gas Initiative, which was formed by nine Eastern states in 2009 to reduce greenhouse gas emissions using a market-based, cap-and-trade approach.27 And finally, renewable system benefit charges, which impose a monthly surcharge on consumers that can be used to subsidize renewable energy projects, are currently used by approximately one-third of U.S. states.28

   Although increasing reliance on clean energy has clear benefits, the stateby-state approach to encouraging this type of generation has not been without its hurdles. Practically speaking, relying on resources such as wind and solar presents unique technical and financial challenges, as renewable sources of energy may not be consistently available to power homes, and generating facilities may be located far from consumers. (29) Encouraging clean generation can also raise legal issues, such as when growing state roles in the area of clean energy trigger preemption and dormant Commerce Clause questions. (30)

2. THE HISTORICAL "BRIGHT-LINE" DIVISION BETWEEN THE STATES AND THE FEDERAL GOVERNMENT UNDER THE FEDERAL POWER ACT

   One Supreme Court decision has undergirded all modern challenges involving the division between state and federal authority in electricity regulation: Public Utility Commission of Rhode Island v. Attleboro. (31) In Attleboro, the Supreme Court shaped the future of energy law when it held that, under the Commerce Clause, states are barred from regulating interstate electricity sales and furthermore, that only Congress could fill this "regulatory void."32 Taking a cue from the Court, Congress passed the Federal Power Act of 1935 (33) to fill the gap left by the Attleboro decision, and created an early predecessor of the modern U.S. Federal Energy Regulatory Commission (FERC). (34) FERC is an independent agency that is empowered to regulate "the interstate transmission of electricity, natural gas, and oil," and "wholesale sales of electricity in interstate commerce." (35)

   Under [section] 201 of the Federal Power Act, FERC has exclusive jurisdiction over the "transmission of electric energy in interstate commerce," the "sale of electric energy at wholesale in interstate commerce," and "all facilities for such transmission or sale of electric energy."...