D.C. Circuit Decision Is a Win for Customers and the Climate

The D.C. Circuit Court of Appeals, the nation’s second-highest court, delivered a victory to customers and the climate last week when it rejected a request from fossil fuel generators to ignore the contributions of renewable energy to a reliable electricity grid.
Block Island Wind Farm
Renewable energy projects like the Block Island Wind Farm off the coast of Rhode Island, shown here, contribute to a reliable electricity grid. Electricity markets must recognize these benefits.

Photo: Val Stori / Clean Energy Group via Flickr under a Creative Commons license

The D.C. Circuit Court of Appeals, the nation’s second-highest court, delivered a victory to customers and the climate last week when it rejected a request from fossil fuel generators to ignore the contributions of renewable energy to a reliable electricity grid. NRDC, together with the Conservation Law Foundation, had submitted a friend of the court brief opposing the generators’ request and explaining that it would raise costs to customers by forcing them to pay more for unnecessary polluting energy. The court agreed.

I wrote about the challenge from the generators—power companies NextEra, NRG, and PSEG, which all own non-renewable generation in New England—and NRDC’s brief opposing it last year, while the case was still pending before the court.

The challenge involved a rule proposed by ISO New England—the entity that operates the electricity grid in Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, and Vermont—and approved by the nation’s electricity grid regulator—the Federal Energy Regulatory Commission, or FERC. The rule in question is intended to better recognize the benefits of renewable energy in maintaining a reliable grid.

The D.C. Circuit has now upheld the rule, siding with FERC against the fossil fuel generators.

Unfortunately, the benefits of this decision may be short-lived. Earlier this year, FERC approved sweeping changes to New England’s grid rules that would phase out the renewable energy protections the court just upheld. As I explain further below, NRDC has petitioned FERC to reconsider this misguided decision and is fighting similar efforts that could undermine renewable energy across the country.

Background on Electricity Markets and Renewable Energy

To help ensure grid reliability—that the lights stay on—electricity grid operators in many regions of the country, including New England, have established FERC-regulated electricity markets for buying and selling electricity. These markets help match electricity demand with the generation and energy efficiency resources needed to meet it. The markets are also meant to ensure reasonable costs of electricity for customers.

While these markets can provide many benefits, they aren’t perfect. One glaring omission in all of the markets, including in New England, is that they do not currently account for the full costs of climate-changing carbon pollution from fossil fuels, or the benefits of pollution-free energy from renewables.

Many states have stepped in to fill this void by adopting renewable energy and energy efficiency policies that incentivize development of new and innovative clean energy technologies. To help fight climate change and clean up the grid, the New England states have adopted some of the most ambitious clean energy laws in the country.

These laws, however, don’t sit well with some companies that own dirty power plants that burn coal, oil, and natural gas. When FERC approved rules intended to better recognize the benefits of New England states’ renewable energy laws within the region’s electricity capacity market—a market intended to ensure there will be sufficient electricity generation to meet customer demand three years in the future—several polluting generators in the region objected.

D.C. Circuit Sides with FERC

The generators argued that FERC’s approval violated federal law, which requires that electricity rates be “just and reasonable,” and violated requirements that agencies like FERC engage in reasoned decision-making. The D.C. Circuit rejected both arguments.

Generators argued that accounting for the renewable energy being built under state laws in New England’s capacity market was not “just and reasonable” because it would reduce the generators’ profits. Instead, they favored rules that would effectively exclude renewable energy from competing in the capacity market, resulting in higher payments to non-renewable resources.

But as FERC correctly argued, the requirement that electricity rates be “just and reasonable” isn’t a one-sided look at generators’ profits. It also requires consideration of customer interests. Ignoring renewable energy’s contributions to grid reliability would force customers to pay twice: once for renewable energy being built to comply with state clean energy laws and again for unnecessary and redundant polluting generators in the capacity market.

In siding with FERC, the D.C. Circuit recognized that the federal agency has a duty to protect customers from excessive rates and deferred to FERC’s determination that recognizing renewable energy’s contributions in the capacity market sends a correct signal to the market about the need (or lack thereof) for additional non-renewable energy resources.

The court similarly deferred to the agency’s judgment on other matters, holding that FERC engaged in reasoned decision-making in evaluating evidence and in concluding that generators’ claims about the effects of renewable energy on market prices were exaggerated.

Future Implications

Unfortunately, as noted above, FERC recently approved changes to New England’s capacity market rules that would phase out the renewable energy rule that the D.C. Circuit just upheld.

As my colleague Miles Farmer and I have written, these changes could once again force customers to pay too much for polluting resources, while undermining New England states’ efforts to tackle climate change. NRDC and other groups have asked FERC to reconsider. We are also opposing similar efforts in PJM, the nation’s largest grid region, which are part of a disturbing raft of recent decisions by FERC to prop up unnecessary and expensive fossil fuels at the expense of renewable energy.

In light of these actions, the D.C. Circuit's decision is an important precedent. In validating the New England renewable energy rule, the court made clear that FERC has a duty to protect customers from excessive costs, including those imposed by market rules that ignore renewable energy’s benefits and instead favor unnecessary polluting resources.

As it moves forward, FERC must live up to this mandate, and NRDC will continue our work—both at FERC and in the courts—to ensure that it does.

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