On April 19, 2016, the U.S. Supreme Court issued an opinion in Hughes v. Talen Energy Marketing, LLC affirming the decisions of the courts below that the Federal Power Act (“FPA”) vests in FERC exclusive jurisdiction over wholesale sales of electricity. As a result, the Supreme Court upheld the determination that Maryland’s state program to grant power plant subsidies was preempted by the FPA.
Maryland enacted a state program to encourage new electricity generation within the state through which Maryland would provide subsidies, through a state-regulated contract, to new generators. However, receipt of these subsidies was conditioned upon the generator selling capacity into a FERC-regulated wholesale auction, which in this case was PJM’s capacity auction. Where the capacity cleared the auction and the bid price cleared at a price below the state contract price, Maryland would pay the generator the difference in prices. Conversely, where the capacity cleared and the bid price exceeded the contract price, the generator reimbursed other generators and Maryland for the difference in prices. In this way, the state contract effectively guaranteed the generator the state contract price, while also creating an incentive for the generator to bid its capacity into the PJM markets at the lowest possible price to ensure it cleared. If the capacity failed to clear the market, the generator would receive no payments at all.
Competitors of the generator selected by the state to receive these subsidies challenged the state-based program and claimed it was preempted by the FPA. The Supreme Court agreed and held that FERC exclusively regulates the structure of the PJM capacity auction. The court determined that Maryland’s program set an interstate wholesale rate because it interfered with the prices in PJM’s capacity auction, which contravenes the FPA’s division of authority between state and federal regulators. As a result, the Supreme Court affirmed the decision of the Court of Appeals for the Fourth Circuit and struck down the Maryland program.
A copy of the Supreme Court’s opinion can be found here.