DC Circuit tosses challenge to ISO-NE renewable energy market rules

Dive Brief:

The D.C. Circuit Court of Appeals on Tuesday upheld ISO-New England market rules that enhance renewable energy, rebuking a challenge from natural gas generators.
The three judge panel ruled that exemptions to ISO-NE's capacity market price floor that allow renewable resources to bid in below the minimum level are legal and do not improperly suppress market prices, as gas generators argued.
The ruling comes as the Federal Energy Regulatory Commission and states struggle over wholesale market rules like the Minimum Offer Price Rule (MOPR) debated in this case. Last month, FERC threw out capacity market rules in PJM, the nation's largest electricity market, saying state energy policies to support renewables and nuclear suppressed market prices.

Dive Insight:

Tuesday's D.C. Circuit decision is a win for state policies that seek to influence the generation mix in wholesale power markets. While states hold jurisdiction over the power mix in their borders, interstate electricity markets like the one run by ISO-NE are subject to federal regulation by FERC.

The ISO-NE rules, approved by FERC in 2014, allow 200 MW of state-sponsored resources to bid in below the ISO's MOPR, which sets the price floor for other resources. A number of states in the ISO have renewable power mandates and other clean energy policies, and the exemption allowed those resources to participate in the market.

Gas generators challenged the exemption in court, arguing that it lowered the clearing price for other resources, cutting into generator revenues, and amounted to a market subsidy for renewables.

The court, however, deferred to FERC's ruling that the MOPR would not suppress market prices because it is limited in size and tied to expectations of lower load growth in the New England market. The commission must "balance" risks of price suppression with state jurisdiction, the court said.

"We see no reason to disturb the Commission's balancing just because it came out in favor of the renewable exemption despite the potential for price suppression," the opinion says.

The decision may have more impact as legal precedent than it will on actual market operations in ISO-NE. As the court noted, the ISO has since decided to phase out the renewable energy exemption, and this spring FERC approved a new two-part capacity market construct for the ISO that seeks to limit the price impact of state subsidies.

The court's deference to FERC's decisionmaking process could come into play in other market debates. This week, multiple states in the PJM Interconnection challenged a June FERC ruling that threw out the grid operator's capacity market rules because renewable energy and nuclear policies will suppress market prices. States said FERC overstepped its jurisdiction in the ruling, and the decision is likely to be challenged in court.