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SCOTUS to Hear Cases on Wholesale Power Rates

October 28, 2015 By Cheryl Kaften

The U.S. Supreme Court on October 19 agreed to hear a consolidated case, which – much like its pending decision on Order 745 – will determine whether the Federal Energy Regulatory Commission (FERC) or the individual states can claim final authority over wholesale power pricing.

The justices will consider testimony on two cases – W. Kevin Hughes v. PPL EnergyPlus LLC and CPV Maryland v. PPL EnergyPlus – in order to rule on whether the State of Maryland can provide incentives for new generation in the form of a fixed, 20-year revenue stream that will make up the difference between FERC market rates for power and a pre-guaranteed contractual price.  The court also is considering whether to hear arguments in a New Jersey case that involved a comparable incentive program.

Under the Federal Power Act, the states retain authority over electricity and capacity purchases by local utilities. They cannot, however, impose the rates for those purchases; only FERC can regulate interstate wholesale rates.

However, looking at the long term, would only the promise of fluctuating wholesale prices be enough to attract new development and ensure energy reliability in the Maryland market? According to court documents, energy regulators thought extra inducement might be necessary.

Maryland conducted a competitive procurement and directed its local utilities to enter into long-term contracts with the successful bidder, providing the stable revenue needed to induce the developer’s investment and support the costs of construction. Under those contracts, if the developer’s accepted bid price exceeds what the developer earns by selling the plant’s capacity in the FERC-supervised auction, the utility pays the difference to the developer; if auction revenue exceeds the bid price, the developer rebates the difference to the utility. The payment or rebate is passed on to retail ratepayers.

The Maryland program has been challenged unsuccessfully in two lower courts by existing plants that would compete with the new generators in the regional wholesale electricity market operated by PJM Interconnection. The courts chucked the programs on the grounds that they violated FERC’s sole authority to regulate interstate wholesale markets.

In turn, Maryland and a group of generators have appealed to the Supreme Court, asserting that the contracts do not directly set wholesale prices, but instead simply provide economic surety to attract new generation construction.

According to a report on Greenwire, the Higher Court’s decision to hear the Maryland case is “good news,” in the opinion of National Association of Regulatory Utility Commissioners (NARUC) General Counsel Brad Ramsay. NARUC filed an amicus brief urging the Supreme Court to reverse the lower court’s ruling. “If nothing else — it means petitioners get one more shot in the ‘batter’s box’ to make our case.”  It takes the votes of four Supreme Court justices to grant review of a case.

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