Analysis
State electricity markets and the licences that do not transfer
As states stand up their own electricity commissions, operators are discovering that a federal licence does not automatically become a state one.
The Electricity Act 2023 gave states the power to legislate for electricity markets within their own territory. Many have now done so, and the transition period the Act contemplated is producing a problem the drafters anticipated but did not fully solve.
An operator holding a NERC licence to distribute within a state that has since established its own commission does not automatically hold a state licence. The Act provides for transfer of regulatory oversight, but transfer of oversight is not the same as transfer of the instrument.
Where the gap opens
The Act requires NERC to transfer regulatory responsibility to a state commission once that commission is established and has given notice. In practice the transfer has been handled by memoranda between the two regulators, and the terms of those memoranda differ from state to state.
Some states have treated existing federal licences as continuing in force. Others have required fresh application, on terms that are not identical to the federal conditions. An operator working across several states can therefore hold instruments of different character for the same activity.
The tariff question
The more commercially significant divergence is tariff. A state commission setting a tariff for intrastate supply is not bound by the federal methodology, and several have signalled an intention to depart from it.
For an operator whose cost base was modelled against the federal multi-year tariff order, that is a material change. Existing power purchase agreements frequently do not contemplate it, because they were drafted when there was one tariff-setting authority.
What to review now
Read the change in law clause. Most PPAs written before 2023 define the regulator by reference to NERC specifically rather than to a class of regulator, and a clause drafted that way may not be triggered by the arrival of a state commission at all.
Then check whether the licence conditions are internally consistent across the states where you operate. Where they are not, the inconsistency needs to be raised with the commissions rather than managed quietly, because the first time it surfaces should not be during an enforcement inquiry.
