On June 10, 2016, Rep. Fred Upton (R-MI), Chairman of the House Energy and Commerce Committee and Rep. Ed Whitfield (R-KY), Energy and Power Subcommittee Chairman, sent a letter to the the Federal Energy Regulatory Commission (FERC) regarding the state of organized wholesale electricity markets. This included questions on how state and federal subsidies affect organized markets and the jurisdictional “bright line” between state (retail) and federal (wholesale) authority. Deployment of new technologies, regulations and subsidies are affecting the outcomes and compositions of electricity markets. The Congressmen are exploring whether the Federal Power Act should be altered to help markets adapt to changing conditions to ensure consumers receive reliable and affordable power.
Competitive wholesale markets are directed by regional transmission organizations (RTOs) and fall under FERC’s jurisdiction. The RTO markets are responsible for dispatching the cheapest reliable power available regardless of fuel source. So far, Texas, Illinois, Ohio, and states in the Mid-Atlantic and Northeast all look to the market to value power companies’ investments in generation rather than through state-approved regulatory proceedings.
Subsidies however are not uncommon in competitive markets. They provide a financial advantage to particular fuel types that alter the competitiveness of other resources within organized wholesale electricity markets. Common examples of subsidies include energy efficiency standards, income guarantees for new or uneconomic power plants, renewable portfolio mandates, and the federal wind production tax credit.
Since January, both FERC and the U.S. Supreme Court have decided cases involving questions about the impact state subsidies have on the jurisdictional line between federal and state authority. The letter to FERC referenced Hughes v. Talen Energy Marketing, LLC, where the Supreme Court invalidated a Maryland program subsidizing construction of an in-state power plant, saying it interfered with federal authority over wholesale electricity rates. Although the court’s holding was cabined to the facts presented, collectively, the effect of it and other recent decisions is likely to encourage further challenges regarding the validity of state subsidies.