U.S. Supreme Court Decision Will Not Harm Renewable Energy

Jerry Elmer

On April 19, the U.S. Supreme Court handed down its decision in Hughes v. PPL, No. 14-614. The case addressed the kinds of incentives that states are allowed (or not allowed) to provide for certain kinds of energy production. For this reason, some environmentalists were concerned that the decision could affect the legality of Renewable Portfolio Standards (RPS) or other state-based incentive programs for renewable energy.

However, the decision the Supreme Court issued was a very narrowly drawn one, and it is unlikely to have any impact at all on renewable energy incentives. That is good news for environmentalists and for renewable energy developers.

The narrow issue before the Supreme Court in Hughes was a challenge to a pair of (Maryland and New Jersey) state policies that provided financial incentives to builders of gas-fired power plants. The Supreme Court ruled 8–0 that the Maryland and New Jersey state programs were impermissible state violations of the Federal Power Act and the Supremacy Clause because those state programs were an attempt to do an impermissible end run around already-completed FERC-sanctioned capacity auctions run by PJM. (PJM is the entity that runs the electricity grid and wholesale electricity markets for all or parts of 13 states, much as ISO-NE runs the electricity grid and wholesale markets for the six New England states. You can see some background on both the ISO and the capacity auction it runs, here.)

The most important paragraph of the Hughes opinion is the next-to-last paragraph (found on page 15 of the Court’s decision). Justice Ginsburg, writing for a unanimous Court, says, “Our holding is limited,” and then she goes on to explain just how very limited it is:

We . . . do not address the permissibility of various other measures States might employ to encourage development of new or clean generation, including tax incentives, land grants, direct subsidies, construction of state-owned generation facilities, or re-regulation of the energy sector.

In other words, that whole panoply of state renewable energy laws pertaining to RPS mandates, Distributed Generation programs, net metering, state incentives for solar programs, Solar RECs – all these (and more) are left completely unaddressed and untouched by the Court’s ruling.

This outcome agrees substantially with what I wrote about these cases in an earlier blog, when I was considering the implications for Cape Wind of the lower court rulings that (on appeal) gave rise to the Hughes decision in the Supreme Court.

The bottom line of the Supreme Court’s unanimous ruling is pretty simple:  A wide range of state policies that create incentives for renewable energy are legal and are not pre-empted by the Federal Power Act; however trying to do a post-hoc end run around an already-completed capacity auction run by an RTO/ISO is (obviously) not allowed.

 

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