FERC ruling could undermine state renewable energy mandates

When President Donald Trump appointed Neil Chatterjee (R) to a vacant seat on the Federal Energy Regulatory Commission (FERC), it was understood that anything could happen. Like many of those appointed to energy roles in the Trump Administration the former energy policy advisor to Senate Majority Leader Mitch McConnell (R) is an outspoken supporter of fossil fuels, and specifically the coal industry.

Chatterjee was outnumbered by his fellow commissioners in the rejection of the Department of Energy’s attempt to ram through a coal and nuclear bailout, which even he eventually voted against. However, it appears Chatterjee’s day may have come.

Chatterjee was in the majority earlier this month when FERC voted 3-2 to approve a proposal by the New England Independent System Operator (ISO-NE) which energy experts say will help to keep uneconomic fossil fuel generation online, while undermining state renewable energy mandates.

 

CASPR

ISO-NE’s Competitive Auctions with Sponsored Policy Resources (CASPR) will create a separate auction for resources approved through state renewable energy mandates, which must be paired with conventional generators that are willing to retire.

According to Energy Innovation, this will increase the cost of renewable energy, while preventing the retirement of plants that would otherwise retire. “Customers will have to pay twice for the same energy: once for the subsidized clean energy resources and again for the retirement of other resources,” notes Robbie Orvis, the director of energy policy design at Energy Innovation.

This is unlikely to affect the adoption of net metered-solar in New England, which makes up the large majority of the region’s solar market. However, Orvis notes that the rule is likely to exacerbate an oversupply problem on the regional grid.

“If renewable resources do not pair with a generator willing to retire, those resources would still be built anyway under the state RPS and uneconomic fossil fuel will be kept online,” explains Orvis. “The result would be more overcapacity and higher costs for customers, not the other way around.”

“If the market is oversupplied, the solution is letting some units retire, not raising market prices, which encourages those units to stick around longer and encourages new investment.”

 

National implications

However, the potential impact is not limited to New England.

CASPR includes a mechanism called the minimum offer price rule (MOPR), which does not allow the inclusion of technology-specific subsidies such as renewable energy credits (RECs) in the prices that generators are offering in the wholesale market. Under CASPR, there is an exemption for the first 200 MW of resources in any year.

However, FERC has decided to apply this to wholesale capacity markets in the rest of the United States. ”Absent a showing that a different method would appropriately address particular state policies, we intend to use the MOPR to address the impacts of state policies on the wholesale capacity markets,” notes a statement in the ruling.

It is important to note that this statement was supported by only two of the commissioners – FERC Chair McIntyre (R) and Chatterjee. While the overall ruling was supported by Commissioner Cheryl LaFleur (D), she was not willing to go along with the guidance that this should be applied to wholesale markets writ large.

“I disagree with the generic guidance set forth in the order regarding how the Commission should address the interplay of state policies in wholesale markets,” stated LaFleur in her partial concurrence.

Commissioner Richard Glick (D) went farther, stating that the attempt to apply MOPR to other markets is “ill-conceived, misguided, and a serious threat to consumers, the environment and, in fact, the long-term viability of the Commission’s capacity market construct”.

Miles Farmer, an attorney with Natural Resources Defense Council (NRDC) went further, stating that this was the preparation for an “unprecedented power grab” that would “trample states’ authority”

The first test of this is expected to be rulings on proposals by PJM Interconnection to a change to wholesale capacity market rules.

Former FERC Chair Norman C. Bay has stated that he expects strong legal challenges to the ruling, which was hinted at in Commissioner Glick’s dissent. “the suggestion in [the] order that the Commission will rely on MOPRs – or something similar – to mitigate the impacts of state public policies will eventually come to rank as a historically serious misstep.”