State subsidies and competitive wholesale electricity markets
Competitive wholesale markets are directed by regional transmission organizations (RTOs) and fall under FERC’s jurisdiction. The RTO markets are responsible for dispatching the cheapest reliable power available, regardless of fuel source. So far, Texas, Illinois, Ohio and states in the mid-Atlantic and Northeast all look to the market to value power companies’ investments in generation, rather than through state-approved regulatory proceedings.
Subsidies, however, are not uncommon in competitive markets. They provide a financial advantage to particular fuel types in ways that alter the competitiveness of other resources within organized wholesale-electricity markets. Common examples of subsidies include energy-efficiency standards, income guarantees for new or uneconomic power plants, renewable portfolio mandates and the federal wind Production Tax Credit.
Since January, both FERC and the U.S. Supreme Court have decided cases involving questions about the impact state subsidies have on the jurisdictional line between federal and state authority. The letter to FERC referenced Hughes v. Talen Energy Marketing LLC, where the Supreme Court invalidated a Maryland program subsidizing construction of an in-state power plant, saying it interfered with federal authority over wholesale-electricity rates. Although the court’s holding was cabined to the facts presented, collectively, the effect of it and other recent decisions is likely to encourage further challenges regarding the validity of state subsidies.
