W. KEVIN HUGHES, CHAIRMAN, MARYLAND PUBLIC SERVICE COMMISSION, ET AL., PETITIONERS
TALEN ENERGY MARKETING, LLC, FKA PPL ENERGYPLUS, LLC, ET AL. CPV MARYLAND, LLC, PETITIONER
TALEN ENERGY MARKETING, LLC, FKA PPL ENERGYPLUS, LLC, ET AL
February 24, 2016
WRITS OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR
THE FOURTH CIRCUIT
S.Ct. 1289] [194 L.Ed.2d 417] The Federal Power Act (FPA)
vests in the Federal Energy Regulatory Commission (FERC)
exclusive jurisdiction over wholesale sales of electricity in
the interstate market, but " leaves to the States alone,
the regulation of [retail electricity sales]."
FERC v. Electric Power Supply Assn., 577
U.S. ___, ___, 136 S.Ct. 760; 193 L.Ed.2d 661. In Maryland
and other States that have deregulated their energy markets,
" load serving entities" (LSEs) purchase
electricity at wholesale from independent power generators
for delivery to retail consumers. Interstate wholesale
transactions in deregulated markets typically occur through
(1) bilateral contracting, where LSEs agree to purchase [136
S.Ct. 1290] a certain amount of electricity from generators
at a certain rate over a certain period of time; and (2)
competitive wholesale auctions administered by Regional
Transmission Organizations (RTOs) and Independent System
Operators (ISOs), nonprofit entities that manage certain
segments of the electricity grid.
Interconnection (PJM), an RTO overseeing a multistate grid,
operates a capacity auction. The capacity auction is designed
to identify need for new generation and to accommodate
long-term bilateral contracts for capacity. PJM predicts
demand three years into the future and [194 L.Ed.2d 418]
assigns a share of that demand to each participating LSE.
Owners of capacity to produce electricity in three years'
time then bid that capacity into the auction for sale to PJM
at rates the sellers set in their bids. PJM accepts bids
until it has purchased enough capacity to satisfy anticipated
demand. All accepted capacity sellers receive the highest
accepted rate, called the " clearing price." LSEs
then must purchase, from PJM, enough electricity to satisfy
their assigned share of overall projected demand. FERC
extensively regulates the structure of the capacity auction
to ensure that it efficiently balances supply and demand,
producing a just and reasonable clearing price.
that the PJM capacity auction was failing to encourage
development of sufficient new in-state generation, Maryland
enacted its own regulatory program. Maryland selected,
through a proposal process, petitioner CPV Maryland, LLC
(CPV), to construct a new power plant and required LSEs to
enter into a 20-year pricing contract (called a contract for
differences) with CPV at a rate CPV specified in its
proposal. Under the terms of the contract, CPV sells its
capacity to PJM through the auction, but--through mandated
payments from or to LSEs--receives the contract price rather
than the clearing price for these sales to PJM. In a suit
filed by incumbent generators (respondents here) against
members of the Maryland Public Service Commission--CPV
intervened as a defendant--the District Court issued a
declaratory judgment holding that Maryland's program
improperly sets the rate CPV receives for interstate
wholesale capacity sales to PJM. The Fourth Circuit affirmed.
Maryland's program is preempted because it disregards
the interstate wholesale rate FERC requires. A state law is
preempted where " Congress has legislated
comprehensively to occupy an entire field of
regulation," Northwest Central Pipeline Corp.
v. State Corporation Comm'n of Kan., 489 U.S.
493, 509, 109 S.Ct. 1262, 103 L.Ed.2d 509, as well as
" 'where, under the circumstances of [a]
particular case, [the challenged state law] stands as an
obstacle to the accomplishment and execution of the full
purposes and objectives of Congress,'"
Crosby v. National Foreign Trade Council,
530 U.S. 363, 373, 120 S.Ct. 2288, 147 L.Ed.2d 352.
Exercising its exclusive authority over interstate
wholesale sales, see 16 U.S.C. § 824(b)(1), FERC has
approved PJM's capacity auction as the sole ratesetting
mechanism for capacity sales to PJM, and has deemed the
clearing price per se just and reasonable.
However, Maryland--through the contract for
differences--guarantees CPV a rate distinct from the
clearing price for its interstate capacity sales to PJM. By
adjusting an interstate wholesale rate, Maryland's
program contravenes the FPA's division of authority
between state and federal regulators.
Maryland was attempting to encourage construction of new
in-state generation does not save its program. States may
regulate within their assigned domain even when their laws
incidentally affect areas within FERC's domain. But
they [136 S.Ct. 1291] may not seek to achieve ends, however
legitimate, through regulatory means that intrude on
FERC's authority over interstate wholesale rates, as
Maryland has done here. See Mississippi Power &
Light Co. v. Mississippi [194 L.Ed.2d 419]
ex rel. Moore, 487 U.S. 354, 373, 108 S.Ct. 2428,
101 L.Ed.2d 322; Nantahala Power & Light Co.
v. Thornburg, 476 U.S. 953, 966, 106 S.Ct. 2349,
90 L.Ed.2d 943. Maryland and CPV analogize the contract for
differences to traditional bilateral contracts for
capacity. Unlike traditional bilateral contracts, however,
the contract for differences does not transfer ownership of
capacity from one party to another outside the auction.
Instead, Maryland's program operates within the
auction, mandating LSEs and CPV to exchange money based on
the cost of CPV's capacity sales to PJM.
program is rejected only because it disregards an
interstate wholesale rate required by FERC. Neither
Maryland nor other States are foreclosed from encouraging
production of new or clean generation through measures that
do not condition payment of funds on capacity clearing the
auction. Pp. 11-15.
753 F.3d 467, affirmed.
H. Strauss argued the cause for petitioners.
S. Elgarten argued the cause for petitioner.
Clement argued the cause for respondents.
O'Connell argued the cause for petitioner as amicus
curiae, by special leave of court.
J., delivered the opinion of the Court, in which ROBERTS, C.
J., and KENNEDY, BREYER, ALITO, SOTOMAYOR, and KAGAN, JJ.,
joined. SOTOMAYOR, J., filed a concurring opinion. THOMAS,
J., filed an opinion concurring in part and concurring in the
Federal Power Act (FPA), 41 Stat. 1063, as amended, 16 U.S.C.
§ 791a et seq., vests in the Federal Energy
Regulatory Commission (FERC) exclusive jurisdiction over
wholesale sales of electricity in the interstate market.
FERC's regulatory scheme includes an auction-based market
[136 S.Ct. 1292] mechanism to ensure wholesale rates that are
just and reasonable. FERC's scheme, in Maryland's
view, provided insufficient incentive for new electricity
generation in the State. Maryland therefore enacted its own
regulatory program. Maryland's program provides
subsidies, through state-mandated contracts, to a new
generator, but conditions receipt of those subsidies on the
new generator selling capacity into a FERC-regulated
wholesale auction. In a suit initiated by competitors of
Maryland's new electricity generator, the Court of
Appeals for the Fourth Circuit held that Maryland's
scheme impermissibly intrudes upon the wholesale electricity
market, a domain Congress reserved to FERC alone. We affirm
the Fourth Circuit's judgment.
the FPA, FERC has exclusive authority to regulate " the
sale of electric energy at wholesale in interstate
commerce." § 824(b)(1). A wholesale sale is defined
as a " sale of electric energy to any person for
resale." § 824(d). The FPA assigns to FERC
responsibility for ensuring that " [a]ll rates and
charges made, demanded, or received by any public utility for
or in connection with the transmission or sale of electric
energy subject to the jurisdiction of the Commission . . .
shall be just and reasonable." § 824d(a). See also
§ 824e(a) (if a rate or charge is found to be unjust or
[194 L.Ed.2d 420] unreasonable, " the Commission shall
determine the just and reasonable rate" ). " But
the law places beyond FERC's power, and leaves to the
States alone, the regulation of 'any other
sale'--most notably, any retail sale--of
electricity." FERC v. Electric Power Supply
Assn., 577 U.S. ___, ___, 136 S.Ct. 760, 193 L.Ed.2d
661, 667 (2016) ( EPSA ) (quoting § 824(b)).
The States' reserved authority includes control over
in-state " facilities used for the generation of
electric energy." § 824(b)(1); see Pacific Gas
& Elec. Co. v. State Energy Resources
Conservation and Development Comm'n, 461 U.S. 190,
205, 103 S.Ct. 1713, 75 L.Ed.2d 752 (1983) (" Need for
new power facilities, their economic feasibility, and rates
and services, are areas that have been characteristically
governed by the States." ).
Since the FPA's passage, electricity has increasingly
become a competitive interstate business, and FERC's role
has evolved accordingly." EPSA, 577 U.S. at
___, 136 S.Ct. 760, 193 L.Ed.2d 661, 670. Until relatively
recently, most state energy markets were vertically
integrated monopolies-- i.e., one entity, often a
state utility, controlled electricity generation,
transmission, and sale to retail consumers. Over the past few
decades, many States, including Maryland, have deregulated
their energy markets. In deregulated markets, the
organizations that deliver electricity to retail
consumers--often called " load serving entities"
(LSEs)--purchase that electricity at wholesale from
independent power generators. To ensure reliable transmission
of electricity from independent generators to LSEs, FERC has
charged nonprofit entities, called Regional Transmission
Organizations (RTOs) and Independent System Operators (ISOs),
with managing certain segments of the electricity grid.
wholesale transactions in deregulated markets typically occur
through two mechanisms. The first is bilateral contracting:
LSEs sign agreements with generators to purchase a certain
amount of electricity at a certain rate over a certain period
of time. After the parties have agreed to contract terms,
FERC may review the rate for reasonableness. See Morgan
Stanley Capital Group Inc. v. Public Util.
Dist. No. 1 of Snohomish Cty., 554 U.S. 527, 546-548,
128 S.Ct. 2733, 171 L.Ed.2d 607 (2008) (Because rates set
[136 S.Ct. 1293] through good-faith arm's-length
negotiation are presumed reasonable, " FERC may abrogate
a valid contract only if it harms the public interest."
). Second, RTOs and ISOs administer a number of competitive
wholesale auctions: for example, a " same-day
auction" for immediate delivery of electricity to LSEs
facing a sudden spike in demand; a " next-day
auction" to satisfy LSEs' anticipated near-term
demand; and a " capacity auction" to ensure the
availability of an adequate supply of power at some point far
in the future.
cases involve the capacity auction administered by PJM
Interconnection (PJM), an RTO that oversees the electricity
grid in all or parts of 13 mid-Atlantic and Midwestern States
and the District of Columbia. The PJM capacity auction
functions as follows. PJM predicts electricity demand three
years ahead of time, and assigns a share of that demand to
each participating LSE. Owners of capacity to produce
electricity in three years' time bid to sell that
capacity to PJM at proposed rates. PJM [194 L.Ed.2d 421]
accepts bids, beginning with the lowest proposed rate, until
it has purchased enough capacity to satisfy projected demand.
No matter what rate they listed in their original bids, all
accepted capacity sellers receive the highest accepted rate,
which is called the " clearing price."
LSEs then must purchase from PJM, at the clearing price,
enough electricity to satisfy their PJM-assigned share of
overall projected demand. The capacity auction serves to
identify need for new generation: A high clearing price in
the capacity auction ...