Mersing: Courts Back State Flexibility on Choice of Generation

Energy regulatory attorney Jennifer Mersing contributed an article to POWER magazine titled “Courts Back State Flexibility on Choice of Generation,” published December 2, 2018. The article discusses how the courts have addressed the regulatory divide between the states and federal government over power generation as certain states have enacted large-scale generation subsidy programs.

Several years ago, the Supreme Court struck down a Maryland program that sought to encourage new generation in the state by guaranteeing a set payment for the generator’s participation in the PJM Interconnection, LLC (PJM) capacity market. The Supreme Court found the Maryland program intruded into FERC’s jurisdiction by disregarding the FERC-regulated wholesale electricity rate, but narrowed the reach of its decision to the facts of its case and did not address the permissibility of other means states could use to encourage the development of generation.

More recently, Illinois and New York offered subsidies to in-state nuclear generation facilities in the form of zero emissions credits (ZECs). The ZECs were not directly tied to a generator’s participation to a FERC-regulated market, although the subsidy would facilitate the selected generator’s continued participation in FERC-regulated markets by providing additional financing support. The ZEC subsidy programs were upheld by both the Seventh Circuit and Second Circuit courts, which found that the programs did not suffer from the same defect as the Maryland programs as they did not directly mandate participation in a FERC-regulated market.

“The circuit courts are allowing states to achieve indirectly what they are prevented from achieving directly,” Mersing wrote. “Under this precedent, as long as states are not mandating participation in FERC-regulated markets, the states maintain their flexibility to encourage generation of their choosing.”