FERC Tramples on States’ Rights, Approves Plan to Penalize Clean Energy, Subsidize Dirty Energy

Washington, D.C. — The Federal Energy Regulatory Commission (FERC) has issued an order to drastically alter capacity market rules in PJM Interconnection, the regional transmission organization that runs wholesale electricity markets covering 13 states in the mid-Atlantic and Midwest and the District of Columbia. The order undercuts states’ rights to determine their electric generation mix, including state policies to advance towards a clean energy future by disallowing these resources from participating in PJM’s capacity market. (The capacity market utilizes an auction process to procure future generation resources.) In a 2-1 decision, FERC increased costs in this capacity market for consumers while hobbling the development of the clean energy resources that an increasing number of states prefer and that are crucial elements in the fight against climate change.

For more background information, see our detailed explainer on this issue.

“FERC’s order declares war on state clean energy policies, and will raise our citizens’ utility rates, all to prop up failing fossil fuel generators,” said Maryland Attorney General Brian Frosh. “The states will not stand idly by as FERC undermines the choices we’ve made for our energy future and harms our ratepayers.”

“President Trump’s newly announced energy market rules reward polluting coal-fired power plants and punish clean renewable energy,” said District of Columbia Attorney General Karl Racine. “I will keep fighting for solutions that help the District meet our ambitious clean energy goals, make energy prices fair for District residents, and to fight the Trump administration’s attempts to reward polluters at the expense of clean energy.”

“AGs will not stand for a rule that undercuts states’ rights to favor clean energy resources over fossil fuels,” said David J. Hayes, executive director of the State Energy & Environmental Impact Center. “Rather than respecting state choices, this rule penalizes them, treating statutorily-authorized state renewable portfolio standards and other clean energy preferences as ‘out of market’ distortions, while hypocritically ignoring glaring ‘out of market’ advantages provided to fossil fuels - including generous federal tax preferences and a complete pass on climate pollution costs. Everyone loses with this rule, including consumers who will be paying billions of dollars more to extend the life of unneeded, dirty fossil fuel power plants.”

FERC’s action expands a rule for PJM’s capacity market called the “minimum offer price rule” (MOPR). The MOPR is an offer floor that was initially implemented to prevent unfair price manipulation from entities that both buy and sell capacity. FERC expanded the MOPR to dictate the bids of new renewable and other resources that receive state subsidies (but not federal subsidies) in a way that may shut them out of the auction.

FERC and other proponents of the change say that the rule is necessary to correct for so-called market distortion when state-supported clean energy resources participate in the capacity market. However, states are well within their authority under the Federal Power Act and longstanding principles of cooperative federalism to enact these preferences for their in-state generation mix. And the PJM capacity market already overprocures fossil fuel resources at consumers’ expense. Today’s order will only exacerbate these issues while shutting clean energy resources out of PJM’s capacity market in an attempt to effectively unwind state policies.

Preliminary analyses indicate that consumers will pay billions of dollars more each year as a result of today’s order with no corresponding benefit to the electricity services they receive. In his dissent, FERC Commissioner Richard Glick’s rough estimate of the cost increase is “at least 2.4 billion dollars per year” that will be “a windfall to existing resources.” And the order will saddle consumers with the additional climate-related costs of allowing aging coal and unnecessary natural gas plants to be commercially viable.

Maryland Attorney General Brian Frosh, then-Illinois Attorney General Lisa Madigan, District of Columbia Attorney General Karl Racine, then-Delaware Attorney General Matt Denn, and New Jersey Attorney General Gurbir Grewal previously wrote an op-ed vowing to combat FERC’s undue and unlawful discrimination against state clean energy policies. Several AGs are engaged in the FERC proceeding as well, and had sought rehearing of FERC’s earlier finding of the “problem” with PJM’s market rules.

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About the State Energy & Environmental Impact Center:
The State Energy & Environmental Impact Center at NYU School of Law is a nonpartisan academic center at NYU School of Law. The Center is dedicated to working towards a healthy and safe environment, guided by inclusive and equitable principles. The Center studies and supports the work of state attorneys general (AGs) in defending, enforcing, and promoting strong laws and policies in the areas of climate, environmental justice, environmental protection, and clean energy.