Legal Controversies about State Clean Energy Policies in ... · E| 3/11/2019 Legal Controversies about State Clean Energy Policies in Courts and at FERC Ari Peskoe, Director of the

E| 3/11/2019

Legal Controversies about State Clean Energy Policies in Courts and at FERC

Ari Peskoe, Director of the Electricity Law Initiative at HLS

Ari Peskoe| Legal Controversies about State Clean Energy Policies | 3/11/2019

Number of Preemption Cases about State Policies and RTO/ISO Markets


Federal Appeals Courts Supreme Court

0 0

1998 – 2013 2014 – 2018

Federal Appeals Courts Supreme Court

5* 1

PJM – Total ENERGY Price per MWh, Inflation Adjusted

0

10

20

30

40

50

60

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Source: PJM Market Monitory, 2017 State of the Market Report

Why file a lawsuit?


PJM – Total CAPACITY Price per MWh, Inflation Adjusted

0

1

2

3

4

5

6

7

8

9

10

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017


Why file a lawsuit?


PJM – Total ENERGY and Capacity Prices per MWh, Inflation Adjusted

0

10

20

30

40

50

60

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017


Why file a lawsuit?


Why file a lawsuit?


Load Growth: 2007 – 2018:

3.73%

Load Growth: 2007 – 2017:

-0.5%

Why file a lawsuit?


25,159 3,098 3,570 608

PJM – Generator Deactivations, 2007– 2018 (MW)

Why file a lawsuit?

RPS Obligations – DC, DE, IL, MD, NC, NJ, OH, PA (GWh)

Source: LBNL0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

2007 2017 2027

(projected)


•IL – 2.9 GW•NJ – X.X GW (pending)•NY – 3.3 GW•PA - ?? (proposed)•OH - ?? (proposed)

•CT – 200 MW procured•MA – 800 MW procured

(800 more by 2027)•MD – 368 MW procured•NJ – 1,100 MW (pending)•NY – 9,000 MW by 2035 goal•RI – 430 MW procured

Why file a lawsuit?


FERC StatesTransmission and sales of electricenergy at wholesale in interstate commerce

Rules and practices directly affectingthose rates

“facilities used in local distribution”

“Any other sale” of electric energy• Retail rates

• Some intrastate wholesale sales

“facilities used for [] generation”• Siting

• Energy production

The Federal Power Act (FPA)


Integrated Resource Planning –Is there any federal role?

Building new plants Saving energy Purchasing power


The Electric Utility Corporate Shuffle

• Separation of power generation from its delivery

• Retail competition

State Restructuring Laws

• Open-access transmission

• RTO/ISO formation

FERC Competition-Enabling Orders


Electric Utility Restructuring


• Separation of power generation from its delivery

• Retail competition

State Restructuring Laws

• Open-access transmission

• RTO/ISO formation

FERC Competition-Enabling OrdersFPA IS UNCHANGED

The Massachusetts Energy Facilities Siting Board “shall review only the environmental impacts of generating facilities, consistent with the commonwealth's policy of allowing market forces to determine the need for and cost of such facilities.”

- Restructuring Act (1997)


Massachusetts Policy – Competition

Restructuring – Did States Cede Authority?

Restructuring – Did States Cede Authority?

The Massachusetts Energy Facilities Siting Board “shall review only the environmental impacts of generating facilities, consistent with the commonwealth's policy of allowing market forces to determine the need for and cost of such facilities.”


Massachusetts Policy – Competition


Massachusetts Policy – Mandate

Regulators “shall establish a renewable energy portfolio standard for all retail electricity suppliers.”


Legal Controversies about RPSs / RECs

Do RPSs Regulate Wholesale Sales?


Do RPSs Conflict with FERC Regulation?


No case law.

FERC held it has no authority over unbundled REC sales.

In numerous orders, FERC has sought to accommodate state RPS laws.





No case law.

FERC held it has no authority over unbundled REC sales.

In numerous orders, FERC has sought to accommodate state RPS laws.




No case law.

Other cases strongly suggest the answer is NO.

Legal Controversies about RFPs

Does State selection of the winning bid amount to rate regulation?

• Lingering question

Do RFPs Regulate Wholesale Sales?


Do RFPs Conflict with FERC Regulation?

Legal Controversies about RFPs

Does State selection of the winning bid amount to rate regulation?

• Lingering question

Do RFPs Regulate Wholesale Sales?

Adding capacity indirectly affects markets

BUT - One judge (possibly two judges) in the 8th Circuit held state rule barring coal ‘conflicts’ with FPA

• Has little precedential value

Do RFPs Conflict with FERC Regulation?



Legal Arguments Against ZECs

ZECs are sold ‘in connection with’ energy sold at wholesale

In purpose and effects, ZECs are like Maryland contracts

ZECs Regulate Wholesale Sales

ZECs distort market price signals

ZECs Conflict with FERC’s Regulation


All rates and charges made, demanded, or received by any public utility for or in connection with the transmission or sale of electric energy subject to the jurisdiction of the Commission, and all rules and regulations affecting or pertaining to such rates or charges shall be just and reasonable, and any such rate or charge that is not just and reasonable is hereby declared to be unlawful

Federal Power Act, § 205(a)


Are ZECs sold ‘in connection with’ wholesale energy sales?

Because there is no wholesale sale when ZECs change hands, FERC lacks jurisdiction to decide whether the ZEC transactions are just and reasonable. . . . ZECs are created when electricity is produced in a statutorily defined manner, regardless of whether or how the electricity is ultimately sold.

Zibelman (2d Cir. 2018)


Are ZECs sold ‘in connection with’ wholesale energy sales?

Because there is no wholesale sale when ZECs change hands, FERC lacks jurisdiction to decide whether the ZEC transactions are just and reasonable. . . . ZECs are created when electricity is produced in a statutorily defined manner, regardless of whether or how the electricity is ultimately sold.


If a producer does offer power to an interstate auction, the value of a [ZEC] does not depend on its bid. . . What (indeed, whether) a producer bids in the interstate auction does not determine the amount it receives [for the ZEC].

Star (7th Cir. 2018)


Are ZECs like the Maryland contracts in Hughes?

The tether in Hughes is tied to wholesale market participation, not prices.




Nothing in this opinion should be read to foreclose Maryland and other States from encouraging production of new or clean generation through measures “untethered to a generator’s wholesale market participation.” Brief for Respondents 40. So long as a State does not condition payment of funds on capacity clearing the auction, the State’s program would not suffer from the fatal defect that renders Maryland’s program unacceptable

Hughes v. Talen (2016)


Are ZECs like the Maryland contracts in Hughes?

The tether in Hughes is tied to wholesale market participation, not prices.


A nuclear plant receives [the] market-clearing price, with none of the adjustments that Maryland law required.



Do ZECs interfere with FERC-regulated prices?

To the extent the ZEC program distorts an efficient wholesale market, it does so by increasing revenues for qualifying nuclear plants, which in turn increases the supply of electricity, which in turn lowers auction clearing prices. But that is (at best) an incidental effect resulting from New York’s regulation of producers.




To the extent the ZEC program distorts an efficient wholesale market, it does so by increasing revenues for qualifying nuclear plants, which in turn increases the supply of electricity, which in turn lowers auction clearing prices. But that is (at best) an incidental effect resulting from New York’s regulation of producers.


States may continue to support their preferred types of resources in pursuit of state policy goals. As the Supreme Court remarked in Hughes, the exercise of powers reserved to the states . . . affects interstate sales. Those effects . . . are an inevitable consequence of a system in which power is shared between state and national governments.




Allco asserts that the contracts that will arise from the 2015 RFP will increase the supply of electricity . . . and will have an effect on wholesale prices, thereby infringing upon FERC’s regulatory authority. This incidental effect on wholesale prices does not, however, amount to a regulation of the interstate wholesale electricity market that infringes on FERC’s jurisdiction.

Allco (2d Cir. 2017)

States may continue to support their preferred types of resources in pursuit of state policy goals. As the Supreme Court remarked in Hughes, the exercise of powers reserved to the states . . . affects interstate sales. Those effects . . . are an inevitable consequence of a system in which power is shared between state and national governments.



Examples of States Going Too Far...

Wyoming Senate Act No. 74 (2019)


Examples of States Going Too Far...

New Hampshire SB 365 (2018)

The electric distribution company’s solicitation to eligible facilities shall inform eligible facilities of the opportunity to submit a legally binding request to sell an amount of firm or non-firm energy and capacity output to the electric distribution company for use as part of its default service. Sales of firm energy shall be priced at the adjusted energy rate-firm and non-firm energy shall be priced at the adjusted energy rate-non-firm, each such rate based on the default service rates approved by the commission in the applicable default service supply solicitation and resulting rates proceeding.



ISO-NE renewable exemption “is designed to achieve a reasonable balance between market-based procurement and acknowledgment of state public policies.”

FERC - 2017


FERC on State Generation Incentives


ISO-NE renewable exemption “is designed to achieve a reasonable balance between market-based procurement and acknowledgment of state public policies.”

FERC - 2017

State actions can erode the investor confidence on which the FCM relies to meet its objective. Erosion of investor confidence can prevent the FCM from attracting investment . . . or can lead to excessive costs for consumers as capacity sellers include significant risk premiums in their offers.

FERC - 2018


PJM’s tariff “fails to protect the integrity of competition in the wholesale capacity market against unreasonable price distortions and cost shifts caused by out-of-market support . . . The resulting price distortions compromise the capacity market’s integrity.”

FERC - 2018

State actions can erode the investor confidence on which the FCM relies to meet its objective. Erosion of investor confidence can prevent the FCM from attracting investment . . . or can lead to excessive costs for consumers as capacity sellers include significant risk premiums in their offers.

FERC - 2018



States remain free to subsidize the construction of new generators . . . FERC's orders simply regulate the price constructs that result in offers into the capacity market from these resources that are not reflective of their actual costs.

New England Power Gen. (DC Cir 2014)


What Have Courts Said on Mitigating Bids by State-Sponsored Resources?


Forthcoming Legal Challenges to MOPR-izing State Clean Energy Policies

• Drawing a line that’s not arbitrary and capricious

• Raising wholesale rates twice

• Becoming a regional generation planner

• Countermanding state policies

Documents

Legal Controversies about State Clean Energy Policies in ... · E| 3/11/2019 Legal Controversies about State Clean Energy Policies in Courts and at FERC Ari Peskoe, Director of the