Supreme Court rules on state energy incentives

The U.S. Supreme Court has released its ruling on a case affecting how states may provide incentives for electric power generation.  In Hughes v. Talen Energy Marketing, LLC, the Court upheld a lower court's ruling invalidating a Maryland program to subsidize construction of new power plants.  The ruling provides important insight into how the Court views the boundary between federal and state jurisdiction over energy matters.

The Supreme Court of the United States.

The Hughes case involved a new Maryland program to encourage in-state generation capacity, and its relationship to federally blessed capacity market.  Under the Federal Power Act, the Federal Energy Regulatory Commission has exclusive jurisdiction over wholesale sales of electricity in the interstate market, while States regulate retail electricity sales. 

For years,  Mid-Atlantic regional grid operator PJM Interconnection has held capacity auctions to identify need for new generation and compensate generators for development.  PJM's auctions have been approved by the Federal Energy Regulatory Commission under the Federal Power Act.  But due to concern that the PJM auction was failing to encourage development of sufficient new in-state generation, Maryland enacted its own regulatory program.  Under that state program, Maryland held a competitive process to select a developer for a new power plant, and required load-serving entities to enter into a 20-year pricing contract (called a "contract for differences") with the developer.  The developer would still sell its capacity to PJM, but would receive extra money under the state program to make up the difference between the PJM market price and the contract price.

But incumbent generators challenged the new Maryland program; a federal district court issued a declaratory judgment holding that Maryland's program improperly sets the rate the developer receives for interstate wholesale capacity sales to PJM.  On appeal, the Fourth Circuit affirmed, finding that Maryland's program was preempted because it impermissibly conflicts with FERC policies.  The case then came to the Supreme Court of the United States.

The Supreme Court's April 19, 2016 decision affirms the lower courts' rulings.  The Court agreed with the Fourth Circuit's judgment "that Maryland's program sets an interstate wholesale rate, contravening the FPA's division of authority between state and federal regulators."  In the majority opinion's words, "States may not seek to achieve ends, however legitimate, through regulatory means that intrude on FERC's authority over interstate wholesale rates, as Maryland has done here."

The Hughes ruling sheds light on how the Court might view other state programs to incentivize new or clean generation.  That said, the Court emphasized that its holding in Hughes is limited -- that it rejected Maryland's program "only because it disregards an interstate wholesale rate required by FERC."  The Court explicitly said it would not address "the permissibility of various other measures States might employ to encourage development of new or clean generation," such as tax incentives, land grants, direct subsidies, construction of state-owned generation facilities, or re-regulation of the energy sector.

The majority opinion concludes with a reminder that "[s]o long as a State does not condition payment of funds on capacity clearing the auction, the State's program would not suffer from the fatal defect that renders Maryland's program unacceptable."  This suggests one potential path for permissible state incentives for electric power generation.

Massachusetts nuclear power plant to close

The Pilgrim Nuclear Power Station, the sole nuclear power plant in Massachusetts, will close by June 2019, according to its owner Entergy Corp.

Entergy is an integrated energy company headquartered in New Orleans, Louisiana.  Entergy is one of the leading nuclear generators in the U.S., with nearly 10,000 megawatts in nuclear generating capacity as well as about 20,000 megawatts of other electric generating capacity, as well as serving retail utility customers in Arkansas, Louisiana, Mississippi and Texas.

The company's Entergy Wholesale Commodities business owns and operates five nuclear power units located in the northern United States, and sells electricity produced by those plants to wholesale customers.  Those units include Pilgrim Station's Unit 1, a boiling water reactor with a maximum dependable capacity of 688 megawatts.  The Pilgrim Station unit was installed in 1972, and is currently licensed through June 8, 2032.

Today Entergy announced plans to close Pilgrim Station by June 2019.  In its press release, Entergy cites "poor market conditions, reduced revenues and increased operational costs."  In Entergy's view, low current and forecast wholesale energy prices "brought about by record low natural gas prices, driven by shale gas production" hurt Pilgrim's revenues; wholesale energy market design flaws mean merchant nuclear power plants are inadequately compensated, while "unfavorable state energy proposals ... subsidize renewable energy resources at the expense of Pilgrim and other plants."  Entergy also cites "increased operational costs and enhanced Nuclear Regulatory Commission oversight" following a recent NRC decision to give Pilgrim a higher level of scrutiny.

The announcement resembles a 2013 decision by Entergy to close the Vermont Yankee Nuclear Power Station, a plant similar in vintage to Pilgrim Station.  Entergy announced Vermont Yankee's closure in 2013; that plant ceased commercial operation at the end of 2014, and Vermont Yankee's decommissioning is now underway.  In announcing the Vermont Yankee closure, Entergy pointed to financial factors including a "natural gas market that has undergone a transformational shift in supply due to the impacts of shale gas, resulting in sustained low natural gas prices and wholesale energy prices", high plant cost structures, and wholesale market design flaws.

According to Entergy, it has notified regional electric grid operator ISO New England Inc. of its intent to exit the region's capacity market.  Entergy said the exact timing of plant shutdown will be decided in the first half of 2016.

August 26, 2010 - more tidal; subsidies in question

I'm continuing to follow the successes of tidal energy developer ORPC.  This article quotes ORPC President and CEO Chris Sauer as calling Eastport the “Kitty Hawk” of the tidal power industry.  (Add this to Maine's list of comparative titles, including the Saudi Arabia of wind, the Saudi Arabia of biomass and forestry and the Silicon Valley of ocean energy.)


Here's a letter to the editor of the Bangor Daily News pointing out the subsidies applied to fossil fuels versus renewables.  The author agrees with a previous editorial's claim that fossil fuel subsidies were 12 times higher than alternative energy subsidies, but adds additional figures from the Energy Information Agency.  The author claims that natural gas or petroleum-produced electricity gets a subsidy of $0.25 for every million megawatt hours produced -- yes, that's a reward of one shiny coin per million MWh produced -- while wind gets a subsidy of $23.37 per MWh.  (I suspect there is a typo here, because the author concludes that the wind subsidy is "100 times more than fossil fuels", whereas these numbers would appear to support a less credible claim of wind being subsidized "100 million times more" than gas/oil.  The author then claims that recent home weatherization and efficiency improvements have been made "without government subsidies but with free market forces."

I suspect quasi-governmental entities like the Efficiency Maine Trust and the Maine State Housing Authority might argue that subsidies, incentives, and other state government spending programs deserve significant credit for residential efficiency improvements.  Rather than argue those points here, it's worth noting that the author of the editorial raises interesting policy questions about which tools are appropriate to achieve state energy, environmental and social goals.  Due to the complex layering of both energy production businesses and federal and state governments, an exact calculation of the subsidies available for various resources can prove challenging.  This debate is a fine illustration of the challenges of an apples-to-apples comparison of various resources' costs to society.


It's great to hear that here in Augusta, three hiking trail systems are about to be interconnected:
the Augusta Greenway Trail running along the Kennebec River's east bank, the Kennebec River Rail Trail along the river's west bank, and ultimately the Viles Arboretum trails on the east side.