States and Feds May Face Policy Donnybrook

A major dustup over national energy policies is brewing between state governments and the Federal Energy Regulatory Commission. It’s about basic regulatory authorities, with the states emboldened by Trump administration rhetoric about states’ rights, and the feds handcuffed by the apparent unwillingness (or incompetence) of the White House in filling vacant FERC seats. If FERC is unable to act, federal courts may weigh in.

The battle is shaping up over two major infrastructure issues: state policies to give existing nuclear electric generating plants consumer subsidies in federally-regulated wholesale energy markets, and state efforts to assert jurisdiction over interstate natural gas pipelines. Under long-established federal law, FERC has primacy over both wholesale electric markets and interstate gas pipelines.

A weakened FERC today is unable to assert its well-established authorities. So far it appears that the Trump administration is indifferent to the situation at FERC, where the two sitting commissioners, both Democrats, are unable to make major decisions because of a lack of a quorum at the five-member agency. Once FERC can function again on major issues (presuming that happens), the state challenges to federal authority could come to a head.

Ground zero in the jurisdictional warfare is New York, where the Democratic administration of Gov. Andrew Cuomo is challenging FERC over both wholesale electricity markets and natural gas pipeline siting. Cuomo’s Public Service Commission last year approved an out-of-market mechanism, known as “Zero Emissions Credits,” to give consumer-paid subsidies to upstate nuclear plants unable to compete in the New York Independent System Operator’s competitive market. Non-utility generators have rightly complained to FERC and the courts that this amounts to the state putting its thumb on the competitive scales, tilting the market toward the New York nukes.

New York Gov. Andrew Cuomo
New York Gov. Andrew Cuomo


Illinois matched Cuomo’s move at about the same time last year, with state legislation approved by Republican Gov. Bruce Rauner providing consumer-financed subsidies for Exelon nuclear units bidding into the PJM Interconnection, allowing them to compete against gas and renewables generation. That action is also under challenge by non-utility generators.

Now it looks like Ohio is moving to do the same thing to keep Akron-based FirstEnergy’s economically uncompetitive nuclear plants from closing. The state legislature is now considering a FirstEnergy proposal, modeled on the New York and Illinois plans, for customer subsidies for its long-troubled Davis-Besse and Perry plants so they can to bid into PJM’s auction. Dick Munson of the Environmental Defense Fund is challenging the Ohio nuclear bailout. “Why should customers pay for FirstEnergy’s mistakes?” he argues. “The Ohio-based power company made a string of bad business decisions and asked customers to pay for them – initially to the tune of nearly $4 billion.”

On the gas side, Cuomo has asserted federal Clean Water Act authority to block natural gas pipelines that FERC has approved, but which environmental groups oppose. New York’s Department of Environmental Conservation (DEC) April 10 denied a water permit for the $455 million Northern Access project, which won FERC approval in February for a 96-mile pipeline linking Pennsylvania and New York gas pipeline systems.

This sets up a clear federal versus state (with authority delegated from the feds to New York under the water law) clash, both in the courts and at FERC, assuming the federal agency is able to function.

A year ago, Cuomo’s DEC also refused to grant a Clean Water Act permit, under section 401 of the water law, for the Constitution Pipeline from Pennsylvania to New York and New England. The project’s sponsors sued, charging that the permit denial “was arbitrary and unjustified and improperly relies on the same failed arguments that the NYSDEC made during the FERC certificate proceeding regarding the pipeline route and stream crossings.”

New York’s challenge to FERC’s pipeline authority is energizing anti-fracking activists elsewhere, with the support of national environmental groups. Natural Resources Defense Council attorney Kimberly Ong blogged that the Northern Access permit denial “demonstrates that, even when the federal government erodes basic safeguards on health and the environment, states still have the power to protect their citizens and their waterways from the encroachment of the fossil fuel industry. And when citizens band together, they can halt the construction of unnecessary natural gas pipelines and stand up for their communities.”

In New Jersey, opponents of the $1 billion PennEast project to move gas from Pennsylvania’s Marcellus shale region to the Garden State, which has not yet won FERC approval (the commission staff released its favorable environmental impact statement this month), are advocating Cuomo’s approach.

A recent letter to the editor of the Lehigh Valley Live news site by Jeff Tittel, head of the New Jersey chapter of the Sierra Club, said, “PennEast may have gotten its final environmental impact statement from FERC, but we can still stop it by pressuring the New Jersey Department of Environmental Protection and Gov. Chris Christie to deny them a 401 water quality permit. This is how Gov. Andrew Cuomo stopped two pipelines in New York.”

FERC remains handcuffed by lack of a quorum. It cannot effectively respond to the state challenges to its authority. Once the commission is able to exert its full authority, watch for a series of agency and court battles. Energy lawyers will be enriched for years ahead.