America got a rare unanimous decision from the Supreme Court this week in a case that has widespread implications for our electric grid, as well as the markets and regulations that govern and move it.
The case was Hughes v. Talen Energy Marketing (docket no. 14-614). The Court decided it 8-to-0, with Justice Ginsburg writing the opinion.
It centered on a Maryland decision to guarantee fixed revenues for an electric generator. Typically, generators are paid through wholesale markets, regulated by the Federal Energy Regulatory Commission (FERC). These wholesale markets keep prices down and costs competitive by only paying for the lowest-cost resources necessary to keep the system running. By guaranteeing money for a generator, no matter how competitive it was in the market, Maryland effectively muted the price signal and ensured that electricity from this particular resource would be paid – regardless of how costly it might be for consumers.
The Supreme Court found that Maryland’s guarantee had interfered with the wholesale markets, which are regulated at the federal level.
The dispute is one of many cases the Supreme Court has taken up on the question of jurisdiction over energy between states and the federal government. At issue here was whether (and to what extent) Maryland’s decision could interfere with federal, competitive wholesale markets. The Court was unanimous, ruling that Maryland’s scheme improperly usurped FERC’s exclusive jurisdiction over wholesale power prices. In doing so, the Court upheld the validity of the cost-effective, competitive marketplace regulated by FERC.
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This decision is good news for ensuring that we only use cost-effective, efficient electric resources. Conversely, it’s bad news for energy deals and contracts that do the opposite – that is, costly resources that undermine a well-functioning, cost-effective market process. These costly, wholesale market-muting deals were the particular target of the Court. Other types of state actions to incent electric resources – including clean resources – were left untouched by the Court’s opinion.
The Decision states:
“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.’” (Decision, page 15)
This decision and limitation make clear that the law does not allow for uneconomic state actions that mute or effectively ignore wholesale market signals and prices. That’s why the Supreme Court’s decision may also be bad news for the uneconomic Ohio coal bailouts.
This decision and limitation make clear that the law does not allow for uneconomic state actions that mute or effectively ignore wholesale market signals and prices.
Those coal bailouts — in which Ohio companies were allowed to keep inefficient, dirty, and costly coal plants running by charging Ohio consumers more money — similarly undermine a competitive marketplace.
A decision in favor of Maryland’s scheme would have given validity to the Ohio coal bailouts. But by deciding against Maryland, the court clearly indicated that the law prohibits actions that “infringe on FERC’s exclusive authority to set wholesale” prices. (Decision, page 10)
So the Ohio coal bailouts – bailouts done between affiliate companies, behind closed doors – continue to find no support in law.
The Supreme Court opinion was a welcome decision for those of us who support affordable clean energy, a strong and reliable electric grid, and government transparency. It protects the integrity of competitive markets with a sharp eye on consumers, and thereby raises serious questions about the lawfulness of actions such as the uneconomic, consumer-callous coal plant bailouts in Ohio.