A panel of energy lawyers Oct. 30 predicted courts and regulators will continue to face sticky legal questions over where to draw the line between state and federal jurisdiction as states pursue policies that reward carbon-free electricity generation.
James Danly, general counsel for the Federal Energy Regulatory Commission, said at the Energy Bar Association's midyear forum in Washington, D.C., that three emerging issues have made the agency's job of regulating interstate power markets more challenging: recent uncertainty in case law, the development of new technologies and increasing state activity on energy policy.
Danly pointed to three court decisions that stand as guideposts on the state and federal jurisdiction question. "There are a lot of people who enjoy hanging their hat on Hughes," Danly said, referencing the U.S. Supreme Court's 2016 decision in Hughes v. Talen Energy (14-614 et al.). "But it's often read for more than it ought to be."
In Hughes, the high court unanimously found that state laws requiring a utility to participate in an interstate auction, such as Maryland tying a subsidy to the selling of power in an interstate auction, are forbidden because they intrude on FERC's jurisdiction. But the justices also avoided complex technical questions that some observers predicted could have widespread reverberations on the renewable energy sector.
The U.S. Court of Appeals for the 7th Circuit on Sept. 13 recalled the Hughes ruling when it decided to uphold an Illinois nuclear subsidy program in Electric Power Supply Association v. Anthony Star (17-2433, et al). There, the court found that programs that do not require participation in interstate auction markets are allowed even though they may affect auction prices.
The U.S. Court of Appeals for the 2nd Circuit on Sept. 27 also cited Hughes in dismissing claims that New York's zero-emissions credit program for nuclear power plants is preempted by federal law in Coalition for Competitive Electricity v. Zibelman (No. 17-2654). There, the court said plaintiffs failed to identify an "impermissible 'tether'" between the program and wholesale market participation — the link the Supreme Court identified in striking down Maryland's program in Hughes.
"The takeaway from this is that even given those recent markers … I fully expect there is going to be more litigation along this line," Danly said. "As time goes on, there are going to be more and more difficult cases."
On the technology front, federal and state regulators will need to work closer together on cost recovery related to grid modernization efforts, said Amanda Rome, managing attorney and head of regulatory affairs for Xcel Energy Inc. Rome said questions will continue to arise over net metering, a system in which the owners of renewable energy generators such as solar panels are allowed to sell surplus power back to a utility-owned grid. "There are the practical realities of running a utility or being responsible for the resilience of the grid to think about," Rome said. "If those investments have to be made, how are those costs being recovered and who are those allocated to?"
Panelists also addressed questions about whether states, the federal government or the courts are best positioned to set a price on climate-changing carbon dioxide pollution.
"It will take the leadership of Congress," said Colette Honorable, a partner at ReedSmith LLP who served as FERC commissioner from 2014 to 2017. "But we probably shouldn't hold our breath."
Andre Porter, general counsel for Midcontinent ISO, added that state and federal regulators need to work collaboratively to avoid resolving issues "via adversarial processes."
"Issues that are important such as the future reliability of the grid, the adequacy of the resources, efficiency of markets and consumer pricing, should not, in fact, be decided in our courts," Porter said.
