New England’s state renewable energy laws provide numerous benefits and are key to the region’s efforts to combat climate change. But these popular laws are under attack, as opponents seek to undermine them and prop up polluting energy instead. This week, NRDC pushed back against one such challenge.
The New England states—Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, and Vermont—have long been clean energy leaders. All six have adopted renewable portfolio standards that require growing levels of the region’s electricity to come from renewable energy sources, such as wind and solar power. In addition to helping cut carbon pollution to avoid the worst impacts of climate change, these policies protect public health by moving the power grid away from polluting fossil fuels, improve energy security, create jobs, and stimulate economic growth.
A lawsuit by three power companies—NextEra, NRG, and PSEG—that all own non-renewable generation in New England would undermine these benefits. The companies are asking the D.C. Circuit Court of Appeals to reverse a rule that recognizes the electricity benefits of renewable energy in a federally regulated power market, arguing that the rule is inconsistent with the Federal Power Act, which regulates such markets. The rule, which was approved by the Federal Energy Regulatory Commission (FERC), the agency charged with implementing the Federal Power Act, helps harmonize New England’s power markets with state renewable energy laws, lowers customer bills, and supports state clean energy goals; overturning it would reverse these benefits.
NRDC has submitted a friend of the court brief, together with the Conservation Law Foundation, opposing the generators’ challenge and asking the D.C. Circuit to uphold the rule and recognize the benefits of renewable energy.
Rule to Recognize Renewable Energy’s Benefits
The rule approved by FERC is simple: it ensures that when new renewable energy projects are built in accordance with the New England states’ clean energy laws, the electricity benefits of those resources will be recognized and accounted for by the region’s FERC-regulated wholesale power grid operator, ISO New England. This has two important features: (1) it promotes economic efficiency by ensuring that electricity customers receive the full benefits of the renewable energy projects being built under state laws, and (2) it prevents ISO New England from procuring unnecessary fossil fuel-fired generation in its wholesale markets.
As more renewable energy comes online, the need for polluting fossil fuels to provide electricity to our homes and businesses is declining. However, prior to FERC’s approval of the rule in question, ISO New England’s wholesale capacity market—the market that ensures the region’s grid can meet future electricity demand—was set up in a way that would effectively ignore new renewable energy projects’ ability to serve customer demand. This occurred because market pricing rules prohibited new renewable projects from accounting for support they received under state renewable policies when these projects bid into the competitive capacity market. In other words, new renewable projects were required to bid in the market at elevated prices, above what they actually needed to be financially viable. Because of this, the capacity market, which selects resources at lowest cost, was likely to select non-renewable resources, which were able to bid at lower prices, instead.
Although these pricing rules were intended to ensure competitive outcomes, free from market manipulation, they also caught up state renewable energy policies, which were enacted to incentivize pollution-free energy. This threatened to harm electricity customers by resulting in over-purchasing of unnecessary non-renewable energy in the capacity market, which would raise costs. The rules also threatened state clean energy and climate goals by potentially incentivizing new natural gas generation, when none was needed, or extending the lives of fossil fuel-fired generators that would otherwise retire.
Recognizing these harms, ISO New England proposed, and FERC approved, a rule that provides a limited exemption for new renewable energy from capacity market pricing rules. This rule enables new renewable resources, up to a 200-megawatt annual limit, to bid into the capacity market at lower prices that reflect the projects’ true economics. The exemption better enables renewable energy to participate in the capacity market. And that helps protect customers by avoiding inefficient over-procurement of fossil fuels. In its order approving the rule, FERC determined the exemption would have minimal effects on market prices and was “just and reasonable” under the Federal Power Act.
Why This Case Is Important
New England state renewable energy laws require construction of new renewable energy projects, regardless of ISO New England market rules. Under current laws, we will continue to see wind and solar energy meeting a growing share of the region’s electricity demand. Nevertheless, the lawsuit is a threat to both customers’ pocketbooks and the abilities of states to transition their electricity systems to cleaner sources of energy and to combat climate change.
States have adopted renewable energy policies at least in part because wholesale power markets are not incentivizing the clean energy resources that the states and voters in the region want. ISO New England’s markets do not put a value on the pollution-free benefits of renewable energy, nor the pollution harms from fossil fuels. State policies help fill in these gaps.
The lawsuit represents a challenge to FERC’s ability to harmonize New England’s power markets with these state policies. If the power generators succeed, the outcome will raise electricity costs for customers by forcing them to pay twice: once for renewable energy being built under state laws, and again for unnecessary, duplicative fossil fuels that will be procured by ISO New England. As owners of non-renewable generation, they might be better off, but customers would suffer. By providing more money to fossil fuels, the power grid would also be dirtier.
The Federal Power Act and court precedent are clear that states have authority to incentivize renewable energy, and FERC has an obligation to respect state policy choices. While FERC also has an important role in overseeing wholesale power markets, this role is not in conflict with respecting legitimate state interests. FERC can ensure market efficiency while also respecting state policies.
In approving the New England renewable energy rule, FERC appropriately determined that its role is not simply to protect power generators’ profits, but is instead to find a “just and reasonable” outcome that also protects and balances state interests and the interests of customers. The D.C. Circuit should uphold FERC’s decision.
Related Blog Posts
States’ authority to enact clean energy policy was significantly bolstered last week in an important federal district court decision. The U.S. District Court for the Northern District of Illinois dismissed a challenge from fossil fuel companies who objected to the Illinois program to support nuclear generation because it hurt their bottom line. The case is important far beyond the nuclear context because it demonstrates that states have many strong tools to dictate their energy mix (including advancing renewable energy) without violating the Constitution or federal energy laws.
The Federal Energy Regulatory Commission (FERC) is examining the intersection between state energy policies and the wholesale electricity markets it regulates. How FERC will ultimately address state policies is unclear (especially with three empty commissioner seats), but what is clear is that its future actions could either impede or facilitate states’ ability to advance renewable energy, particularly in the Eastern United States.