Dive Brief:
- The majority of the Supreme Court's eight justices appeared skeptical of a Maryland power plant subsidy, seeming to side with critics who say the mechanism oversteps the state's authority and intrudes into federal power markets, Bloomberg reports.
- The court heard oral arguments last week in a consolidated case examining state incentives to construct new power plants. The cases are Hughes v. Talen Energy Marketing and CPV Maryland LLC v. Talen Energy Marketing.
- Bloomberg BNA reports experts believe the subsidies will be struck down in a narrow ruling that focuses on how the subsidies interacted with the PJM Interconnection market.
Dive Insight:
The remaining eight Supreme Court justices are once again hearing a case focused on the state and federal jurisdiction over electrical power markets. This time, it's over whether or not a state authority overstepped its boundaries in the wholesale electrical power markets, typically under the purview of the Federal Energy Regulatory Commission (FERC).
Four years ago, the state of Maryland ordered utilities to enter a 20-year contract to support construction of a 725 MW gas-fired facility in Charles County. That in itself isn't the problem, according to experts. The deal also required the capacity be bid into the PJM market, and that's where the state may have overstepped.
According to Bloomberg, Justice Elena Kagan said it's within FERC's authority to “to set the rates and other terms of wholesale sales, and that's not for the states to do. So that means you're preempted."
Justice Sonia Sotomayor echoed a similar theme.
“They appeared to be firmly convinced that no matter how the Maryland scheme was characterized, that the scheme intruded upon FERC jurisdiction," Joel Eisen, law professor at the University of Richmond School of Law, told Bloomberg.
“In this case the problem is that, because of the bidding and clearing requirement, it's directly altering the incentives of the people in that market,” Ann O'Connell, assistant to the U.S. solicitor general, said during the case's arguments.
Two lower courts previously tossed out the programs, finding that providing incentives for generation that would compete in regional markets violated FERC's sole authority to regulate interstate wholesale markets.
Maryland and a group of generators appealed to the Supreme Court, arguing that the programs do not directly set wholesale prices, but instead simply provide financial arrangements to facilitate new generation construction. Both states initiated their programs due to concerns that the PJM market structure is too focused on the short term to provide reliability and low rates years into the future.
This is the third energy case the high court has hard recently. Like the FERC Order 745 demand response case, the Maryland case will hinge on whether action in one market constitutes regulation of another. In 2015, the high court determined state lawsuits against energy companies were not preempted by FERC's authority, and earlier this year the judges sided with federal regulators over demand response participation in wholesale markets.
