Hughes v. Talen Energy Marketing, LLC

PETITIONER: W. Kevin Hughes, Chairman, Maryland Public Service Commission, et al.
RESPONDENT: Talen Energy Marketing, LLC, fka PPL EnergyPlus, LLC, et al.
LOCATION: Maryland Public Service Commission

DOCKET NO.: 14-614
DECIDED BY: Roberts Court (2016- )
LOWER COURT: United States Court of Appeals for the Fourth Circuit

CITATION: 578 US (2016)
GRANTED: Oct 19, 2015
ARGUED: Feb 24, 2016
DECIDED: Apr 19, 2016

ADVOCATES:
Ann O'Connell - Assistant to the Solicitor General, for the United States as amicus curiae, for the respondents
Paul D. Clement - for the respondents
Scott H. Strauss - for the petitioners in 14-614
Clifton S. Elgarten - for the petitioner in 14-623

Facts of the case

The Federal Power Act (FPA) was passed in 1935 to regulate interstate electricity sales. The FPA vested the Federal Energy Regulatory Commission (FERC) with authority over the transmission of electrical energy in interstate commerce and the wholesale of electric energy in interstate commerce. To this end, FERC has created regional transmission organizations, such as PJM Interconnection, LLC, (PJM) which regulates a large regional market that includes Maryland and the District of Columbia. Maryland became concerned that FERC actions were failing to adequately incentivize the construction of new plants, so the Maryland Public Service Commission began soliciting proposals for the construction of a new plant and instituted a Generation Order to regulate how the company that won the bid would interact with the rest of the energy market. Commercial Power Ventures Maryland, LLC, (CPV) won the bid. PPL EnergyPlus, LLC, (PPL) and other existing power plants sued and argued that the Generation Order unconstitutionally interfered with the PJM-regulated market. The district court held that the Generation Order was preempted by the federal regulation of the energy markets pursuant to the Supremacy Clause. The U.S. Court of Appeals for the Fourth Circuit affirmed. This case was consolidated with CPV’s suit against PPL and the other existing power plants.

Question

Does the Federal Power Act preempt attempted state regulation of utility contracts and sales?

Media for Hughes v. Talen Energy Marketing, LLC

Audio Transcription for Oral Argument - February 24, 2016 in Hughes v. Talen Energy Marketing, LLC

Audio Transcription for Opinion Announcement - April 19, 2016 in Hughes v. Talen Energy Marketing, LLC

John G. Roberts, Jr.:

Justice Ginsburg has our opinion this morning in case 14-614, Hughes versus Talen Energy Marketing and the consolidating case.

Ruth Bader Ginsburg:

These cases concern the separate domains of federal and state authorities of electricity sales.

The Federal Power Act gives states exclusive regulatory authority over retail sales of electricity but there is in the Federal Energy Regulatory Commission, “FERC”, exclusive jurisdiction over interstate wholesale sales.

In terms of complexity, can I top the case as Justice Breyer just announced, yes, I can.

In recent decades, many states including Maryland have deregulated their energy markets.

In today's deregulated markets wholesale sales often occur through competitive auctions regulated by FERC.

The litigation before us involves one such auction, the capacity auction administered by PJM Interconnection, a non-profit entity responsible for administering a multi-state electricity bid.

Designed to identify need for new generation, the PJM capacity auction facilitates the sale of capacity to supply electricity three years hence.

Owners of such capacity, often generators, place bids in the auction stating the amount of electricity they plan to supply and the price they would be willing to accept for that capacity.

PJM projects the amount of electricity needed to satisfy demand three years forward and purchases that amount in the auction.

All capacity sellers receive the highest rate set out in an accepted bid.

This rate is called the clearing price.

PJM then assigns a share of projected demand to each entity that sells electricity to retail customers.

Such entities are called load serving entities of LSEs.

Each LSE must purchase from PJM at the clearing price enough electricity dissatisfy the LSE share.

Concerned that the PJM capacity auction provided insufficient incentive for new in-state electricity generation, Maryland enacted its own regulatory program.

Maryland selected CPV Maryland to construct the new power plant and required Maryland LSEs to enter into long-term pricing contracts with CPV.

Under the terms of the contract, CPV must sell its capacity to PJM through the auction but for those sales CPV receives the contract price rather than the PJM auction carrying price.

Generators competing with CPV, respondents here, commenced suit against members of the Maryland Public Service Commission, CPV intervened in the suit as a defendant. The complaining generators sought and gained from the District Court a declaratory judgment holding that Maryland's program impermissibly intruded on the wholesale electricity market, a domain Congress reserved for Federal Regulation.

The Fourth Circuit affirmed the District Court's judgment and we in turn affirm the Fourth Circuit’s judgment.

FERC has approved the PJM capacity auction as the sole rate selling mechanism for sales of capacity to PJM and regards the auction clearing price as per se just unreasonable.

Doubting FERC's judgment, Maryland required the state's approved new generator CPV to participate in the PJM capacity auction but guaranteed CPV a rate distinct from the clearing price for CPVs into state sales of capacity to PJM.

Maryland's program thus set an interstate wholesale rate contravening the Federal Power Act's allocation of that authority exclusively to FERC.

Encouraging development of in-state generation Maryland urged is well within the traditional scope of state regulatory authority.

True enough, but states may not seek to achieve ends, however legitimate, through regulatory means that encroach on FERC's exclusive authority over interstate wholesale sales.

Our decision is confined.

We reject Maryland's program because and only because it disregards an interstate wholesale rate prescribed by FERC.

Like the Fourth Circuit, we do not egress the permissibility of other measures states might employ to encourage development of new or clean generation.

Justice Sotomayor has filed a concurring opinion.

Justice Thomas has filed an opinion concurring in part and in the judgment.