Johns and Bayles Discuss Areas for Compromise Between State Public Policy and Federal Regulation

Energy development and regulatory attorneys Jason Johns and Jessica Bayles contributed an article to POWER magazine titled “In Search of Middle Ground Between State Public Policy and Federal Regulation,” published November 2, 2020. The authors discuss how a pair of FERC orders regarding the effects of out-of-market factors on capacity market prices also served as a declaration from FERC that the agency may use its authority under the Federal Power Act (FPA) to counteract state public policy.

In 2018, capacity market owner PJM offered to FERC a proposed solution to the issues in a 2016 complaint – basically that the market failed to account for the suppressive impacts of state subsidies on its energy prices. However, FERC’s late-2019 order constituted an unsolicited reinvention of PJM’s proposal in which, according to the authors, “FERC drew clear jurisdictional lines that permit it to frustrate the primary originators of climate change legislation—state governments.”

In a similar proceeding, FERC rejected a proposal by the New York ISO (NYISO) that would have allowed certain new participants in the state’s capacity market to avoid being subject to a minimum offer price floor.

The authors argue that neither decision reached a result required by the FPA but instead seem to reach a result preferred by FERC. They conclude: “The point here is that integrating state public policy into wholesale markets does not necessarily require sharp elbows (all the time), and that the FPA contains the legal latitude necessary to translate state public policy into justifiable resource discrimination in the wholesale markets.”