SDNY Dismisses Challenge to New York’s Zero Emission Credit Nuclear Subsidy Program

Written By Conor Tallet

On July 25, 2017, District Judge Valerie Caproni, of the U.S. District Court for the Southern District of New York, dismissed a challenge to New York’s Zero Emission Credit (“ZEC”) subsidy program.

Background

The program originated from Governor Andrew Cuomo’s Clean Energy Standard, which established a policy goal of achieving 50% of electrical generation from renewable sources by the year 2030. It also sets forth a goal of a 40% reduction in carbon emissions by 2030.

Due to low gas prices leading to lower power pricing, nuclear plants have been threatening to shut down because they are operating at a loss. The plan, then, is to have taxpayers subsidize the nuclear power plants over the next twelve years in order to ensure that they continue to operate, thus permitting New York to “reap[] the value of the virtually emissions-free power.” It’s estimated to cost New York electric ratepayers approximately $7.6 billion over the next twelve years.

Discussion

A key component in achieving a reduction in carbon emissions is to preserve the zero-carbon attributes of nuclear generation facilities in New York. Consequently, the Clean Energy Standard promulgated a nuclear subsidy targeted at uneconomic nuclear power plants in the New York wholesale electricity market.

The subsidy involves the payment of approximately $17.48 per megawatt hour sold from the nuclear generation facilities into the wholesale market. This causes the wholesale electricity market to work as an auction, by matching up the demand for electricity with the cheapest bids for electricity from generators.  Thus, the subsidy helps nuclear plants to continue operating.

Soon after the subsidy was passed by the New York Public Service Commission, a number of wholesale electricity generators filed suit. In Coalition for Competitive Electricity v. Zibelman, the plaintiffs argued that New York’s program intrudes on the Federal Energy Regulatory Commission’s (“FERC”) exclusive jurisdiction over the wholesale energy market vested in it by the Federal Power Act.

Where the direct sale of electricity from an individual’s local utility, to a consumer, is regulated by the individual states, any “sale for resale” of electricity is regulated by FERC. Because the ZEC subsidy works to allow nuclear plants to submit artificially low bids in the wholesale auction (when they otherwise would be uncompetitive in the wholesale market), the plaintiffs argued that the Federal Power Act should preempt the ZEC state subsidy.

A key case for the plaintiffs has been Hughes v. Talen Energy Marketing, LLC. In Hughes, the Supreme Court struck down a Maryland subsidy aimed at preserving in-state generation by paying a generator a subsidy of the difference between a bilateral contract price and the actual price the generator’s electricity cleared the wholesale market. In a narrow holding, Justice Ginsburg articulated that “[s]o long as a state does not condition payment of funds on capacity clearing auction, the State’s program would not suffer from the fatal defect that renders Maryland’s program unacceptable.” Accordingly, so long as the payment of a subsidy is not contingent, or “tethered,” on the electricity clearing the wholesale auction, it escapes the grasp of the Supreme Court’s rule and is a permissible state regulation.

The Southern District of New York determined that the ZEC program is not tethered as in Hughes. Specifically, the court stated that, contrary to the plaintiffs’ argument, New York does not require nuclear generators to sell their power into the wholesale market to receive the subsidy; rather, it is a business decision on the generators’ part. Since New York is not requiring the qualifying nuclear plants to actually sell their power into the wholesale market, the ZEC program lacks the “tether,” as was fatal in Hughes. In addition, the court determined that ZECs merely incorporate environmental attributes that are “unbundled” from the wholesale electric rate, and therefore, fall squarely within a state’s jurisdiction to incentivize clean energy outside the confines of FERC’s wholesale jurisdiction.

New York’s ZEC program has been copied in the State of Illinois, who also recently threw out a challenge to its ZEC subsidy and will likely continue to proliferate to states seeking to preserve environmental attributes of expensive forms of electrical generation.

This case has been appealed to the Second Circuit and will likely be appealed all the way up to the Supreme Court.

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Sources Cited

Andy Anderson, New York Electricity Supply Costs to Increase in 2017 – PSC Approves Clean Energy Standard, Subsidizes Upstate Nuclear Power, EnergyWatch (Aug. 1, 2017).

Coalition for Competitive Electricity v. Zibelman, 16-CV-8164 (S.D.N.Y. 2017).

Hughes v. Talen Energy Marketing, LLC, 136 S.Ct. 1288 (2016).

Tim Knauss, How Will Subsidies for Upstate NY Nuclear Plants Affect Your Electricity Bill?, Syracuse.com (Mar. 3, 2017).

Supreme Court Finds Arkansas Statute Unconstitutional; Holds Both Same-Sex Parents’ Names Should Be On Child’s Birth Certificate

Photo via Arkansas Online

Written by Joseph Railey

ABSTRACT

In a brief per curium opinion, the Supreme Court found Arkansas’ birth certificate statute to be unconstitutional because it treated same-sex couples differently. The Court stated that the statute “denied married same-sex couples access to the ‘constellation of benefits that the stat[e] ha[s] linked to marriage.’”

DISCUSSION

The case began when two, married, same-sex couples in Arkansas decided to have a child through artificial insemination. Upon the birth of the children, each of the couples wrote in two mothers’ names on the birth certificate paperwork. However, when the couples received the birth certificates back, the State had listed only the mother who carried and gave birth to the child.

At the time, Arkansas’ birth certificate statute provided that “the mother is deemed to be the woman who gives birth to the child” and that, “[i]f the mother was married at the time of either conception or birth, . . . the name of [her] husband shall be entered on the certificate as the father of the child.” One exception to this rule is when the child is born via artificial insemination, where Arkansas allows for only the mother’s name to be listed, unless the father consents to his name being listed as well.

The trial court held that the statute conflicted with Obergefell v. Hodges, 135 S. Ct. 2071 (2015), as it “categorically prohibited every same-sex married couple . . . from enjoying the same spousal benefits which are available to every opposite-sex married couple.” The Arkansas Supreme Court, however, disagreed and held that the statute focused on the relationship between the biological mother, father, and child rather than on the “marital relationship of husband and wife.” As such, it held that the statute did not conflict with Obergefell and was, therefore, constitutional. Thereafter, the United States Supreme Court granted certiorari and reversed the Arkansas Supreme Court’s decision, remanding the case.

In its opinion, the United States Supreme Court noted the disparate treatment.

As already explained, when a married woman in Arkansas conceives a child by means of artificial insemination, the State will—indeed, must—list the name of her male spouse on the child’s birth certificate. And yet state law, as interpreted by the court below, allows Arkansas officials in those very same circumstances to omit a married woman’s female spouse from her child’s birth certificate. As a result, same-sex parents in Arkansas lack the same right as opposite-sex parents to be listed on a child’s birth certificate, a document often used for important transactions like making medical decisions for a child or enrolling a child in school.

In Obergefell, the Court specifically addressed this issue. Where some of the petitioners in Obergefell sued to be listed as parents on their child’s birth certificates, the Obergefell Court expressly identified birth certificates as part of the “terms and conditions” of marriage.

Justices Gorsuch, Thomas, and Alito dissented, noting that summary reversal should not have been applied in this case and that the state’s arguments for only listing biological parents on a birth certificate were permissible. The justices also opined that, as the petitioners only sought relief under the state’s birth certificate registration statute (§ 20-18-401), and not the statute relating to artificial insemination (§ 90-10-201), the Court impermissibly applied that provision.

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Sources Cited

Pavan v. Smith, 198 L.Ed.2d 636 (2017).

Obergefell v. Hodges, 135 S. Ct. 2584 (2015).

Ark.  Code Ann. § 20-18-401 (West 2017).

Ark. Code Ann. § 9-10-201(a) (West 2017).

Common Sense Prevails: SEC Disgorgement Damages are Deemed a Penalty

Written by: Mike Corelli

Facts & Procedural History

In 2009, the Securities and Exchange Commission (SEC) commenced an action against Charles Kokesh for violating federal securities laws by misappropriating funds. After a jury found Kokesh had violated the federal securities laws, the District Court addressed the damages the SEC demanded. Under 28 U.S.C. § 2462, there is a five-year statute of limitations that precludes civil monetary damages from being enforced. Holding that SEC disgorgement damages were not subject to 28 U.S.C. § 2462, the District Court entered a disgorgement judgment of $34.9 million against Kokesh. The Tenth Circuit affirmed. The Supreme Court granted certiorari to determine whether 28 U.S.C. § 2462 applies to SEC disgorgement damages.

Supreme Court Decision

The Supreme Court reversed the Tenth Circuit’s decision holding that SEC disgorgement damages are subject to 28 U.S.C. § 2462. Under 28 U.S.C. § 2462, “an action, suit[,] or proceeding for the enforcement of any civil fine, penalty, or forfeiture, pecuniary or otherwise, shall not be entertained unless commenced within five years.” Thus, the Court turned to whether SEC disgorgement damages constitute a “civil fine, penalty, or forfeiture.”

In resolving whether SEC disgorgement damages are subject to 28 U.S.C. § 2462, the Court considered the definition of “penalty.” The Court defined a penalty as a punishment imposed and enforced by the State, for a crime or offense against its laws. Accordingly, this definition establishes two factors that are determinative as to what constitutes a penalty. The first factor as to whether a pecuniary damage is a penalty is whether the wrong being addressed is a wrong against the public, as opposed to a wrong against a private citizen. The second factor is whether the pecuniary damages are sought to penalize and serve as a deterrent, as opposed to compensating a victim.

With these factors guiding its analysis, the Court addressed whether the $34.9 million disgorgement judgment against Kokesh was a penalty and subject to 28 U.S.C. § 2462. First, the Court noted that the lower court’s judgment was imposed for violating public laws. Essentially, disgorgement judgments provide a remedy to the United States, not aggrieved individuals. Moreover, after these judgments are paid, the courts have discretion in how these funds are distributed. Second, the Court noted that disgorgement judgments are intended to put others on notice by serving as a deterrent. Accordingly, the Court held that SEC disgorgement damages are a penalty and are subject to 28 U.S.C. § 2462. Thus, SEC disgorgement judgments must comply with the five-year statute of limitations. The $34.9 million disgorgement judgment against Kokesh was reduced to comply with the five-year statute of limitations enumerated in 28 U.S.C. § 2462.

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Sources Cited

Kokesh v. SEC, 580 U. S. ____ (2017).