FERC to Discuss Interaction Between Competitive Wholesale Energy Markets and State Energy Policies

By Molly Suda and William M. Keyser

The Federal Energy Regulatory Commission (“FERC”) has scheduled a technical conference on May 1 and 2 to discuss and obtain input on the interaction between competitive wholesale markets and state energy policies. In recent years, several states that are part of organized wholesale energy markets have adopted legislation or policies to support or promote certain generation resources or resource types.  As a result of these state policy initiatives, FERC has been forced to grapple with questions about state versus federal jurisdiction and the effect of the state policies on competition and prices in the organized wholesale energy markets. The technical conference offers an open forum to discuss potential solutions and find ways to reconcile states’ interests with interests in preserving the benefits of regional competitive wholesale markets.    

State energy policy initiatives have faced legal challenges not just at FERC, but in the courts as well. For example, the United States Supreme Court’s April 2016 decision in Hughes v. Talen Energy Marketing found that a Maryland regulatory program that encouraged the development of in-state energy generation was preempted by the Federal Power Act and FERC’s exclusive jurisdiction over interstate wholesale electricity rates.  However, the Court limited its holding to the specific Maryland program at issue, expressly stating that the Court was not addressing “the permissibility of various other measures States might employ to encourage development of new or clean generation, including tax incentives, land grants, direct subsidies, construction of state-owned generation facilities, or re-regulation of the energy sector.”

Although the Court purported to limit its holding in Hughes v. Talen, and the case has arguably spawned an increase in litigation regarding state legislation and policy initiatives has continued.  Since Hughes v. Talen, the courts and FERC have heard complaints about power purchase agreements approved by Ohio regulators to support aging coal and nuclear plants.  More recently, there have been several challenges to legislation and regulatory programs in Illinois and New York adopting zero emission credit (ZEC) programs that provide payments to in-state nuclear plants based on their environmental attributes.  A Connecticut law that established a state regulatory program requiring electric distribution companies to enter into long-term contracts with renewable generators has also been challenged in the courts and at FERC.

In its notice issued on March 3, 2017, FERC Staff recognized that there are complicated and unresolved questions about how competitive wholesale energy and capacity markets can incorporate the interests that state policy makers have in supporting particular resources or resource attributes, while preserving the benefits of regional markets and economic resource selection.  Accordingly, FERC Staff scheduled a two-day technical conference on May 1 and 2, 2017 “to foster further discussion regarding the development of regional solutions in the Eastern RTOs/ISOs that reconcile the competitive market framework with the increasing interest by states to support particular resources or resource attributes.”

FERC Staff will issue supplemental notices with further details regarding the agenda, speakers, and organization of the technical conference. All interested parties are invited to attend the conference, and those that wish to be included in the speaking agenda should submit a nomination form online by March 17, 2017.

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