PPL EnergyPlus, LLC v. Douglas Nazarian

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 13-2419
PPL ENERGYPLUS, LLC; PPL BRUNNER ISLAND, LLC; PPL HOLTWOOD,
LLC; PPL MARTINS CREEK, LLC; PPL MONTOUR, LLC; PPL
SUSQUEHANNA, LLC; LOWER MOUNT BETHEL ENERGY, LLC; PPL NEW
JERSEY SOLAR, LLC; PPL NEW JERSEY BIOGAS, LLC; PPL
RENEWABLE ENERGY, LLC; PSEG POWER LLC; ESSENTIAL POWER,
LLC,
Plaintiffs - Appellees,
v.
DOUGLAS R.M. NAZARIAN; HAROLD WILLIAMS; LAWRENCE BRENNER;
KELLY SPEAKES-BACKMAN; KEVIN HUGHES,
Defendants – Appellants,
and
CPV MARYLAND, LLC,
Defendant.
-------------------------
AMERICAN PUBLIC POWER ASSOCIATION; NATIONAL RURAL ELECTRIC
COOPERATIVE ASSOCIATION; NRG ENERGY INC.; MARYLAND OFFICE OF
PEOPLE'S COUNSEL; CONNECTICUT PUBLIC UTILITIES REGULATORY
AUTHORITY; CONNECTICUT DEPARTMENT OF ENERGY AND
ENVIRONMENTAL PROTECTION; GEORGE JEPSEN, Attorney General
for the State of Connecticut; CONNECTICUT OFFICE OF CONSUMER
COUNSEL; NEW ENGLAND CONFERENCE OF PUBLIC UTILITIES
COMMISSIONERS, INC.; MAINE PUBLIC UTILITIES COMMISSION;
RHODE ISLAND PUBLIC UTILITIES COMMISSION; VERMONT PUBLIC
SERVICE BOARD; VERMONT DEPARTMENT OF PUBLIC SERVICE;
CALIFORNIA PUBLIC UTILITIES COMMISSION; PUBLIC SERVICE
COMMISSION OF THE STATE OF NEW YORK (NYPSC); PUBLIC SERVICE
COMMISSION OF THE DISTRICT OF COLUMBIA; DELAWARE PUBLIC
SERVICE COMMISSION; NEW JERSEY BOARD OF PUBLIC UTILITIES;
NEW JERSEY DIVISION OF RATE COUNSEL; MARYLAND ENERGY
ADMINISTRATION; AMERICAN WIND ENERGY ASSOCIATION; THE MID-
ATLANTIC RENEWABLE ENERGY COALITION,
Amici Supporting Appellants,
PJM POWER PROVIDERS GROUP; ELECTRIC POWER SUPPLY
ASSOCIATION; EDISON ELECTRIC INSTITUTE,
Amici Supporting Appellees.
No. 13-2424
PPL ENERGYPLUS, LLC; PPL BRUNNER ISLAND, LLC; PPL HOLTWOOD,
LLC; PPL MARTINS CREEK, LLC; PPL MONTOUR, LLC; PPL
SUSQUEHANNA, LLC; LOWER MOUNT BETHEL ENERGY, LLC; PPL NEW
JERSEY SOLAR, LLC; PPL NEW JERSEY BIOGAS, LLC; PPL
RENEWABLE ENERGY, LLC; PSEG POWER LLC; ESSENTIAL POWER,
LLC,
Plaintiffs - Appellees,
v.
CPV MARYLAND, LLC,
Defendant – Appellant,
and
DOUGLAS R.M. NAZARIAN; HAROLD WILLIAMS; LAWRENCE BRENNER;
KELLY SPEAKES-BACKMAN; KEVIN HUGHES,
Defendants.
-------------------------
AMERICAN PUBLIC POWER ASSOCIATION; NATIONAL RURAL ELECTRIC
COOPERATIVE ASSOCIATION; NRG ENERGY INC.; MARYLAND OFFICE OF
PEOPLE'S COUNSEL; CONNECTICUT PUBLIC UTILITIES REGULATORY
AUTHORITY; CONNECTICUT DEPARTMENT OF ENERGY AND
ENVIRONMENTAL PROTECTION; GEORGE JEPSEN, Attorney General
for the State of Connecticut; CONNECTICUT OFFICE OF CONSUMER
COUNSEL; NEW ENGLAND CONFERENCE OF PUBLIC UTILITIES
2
COMMISSIONERS, INC.; MAINE PUBLIC UTILITIES COMMISSION;
RHODE ISLAND PUBLIC UTILITIES COMMISSION; VERMONT PUBLIC
SERVICE BOARD; VERMONT DEPARTMENT OF PUBLIC SERVICE;
CALIFORNIA PUBLIC UTILITIES COMMISSION; PUBLIC SERVICE
COMMISSION OF THE STATE OF NEW YORK (NYPSC); PUBLIC SERVICE
COMMISSION OF THE DISTRICT OF COLUMBIA; DELAWARE PUBLIC
SERVICE COMMISSION; NEW JERSEY BOARD OF PUBLIC UTILITIES;
NEW JERSEY DIVISION OF RATE COUNSEL; MARYLAND ENERGY
ADMINISTRATION; AMERICAN WIND ENERGY ASSOCIATION; THE MID-
ATLANTIC RENEWABLE ENERGY COALITION,
Amici Supporting Appellant,
PJM POWER PROVIDERS GROUP; ELECTRIC POWER SUPPLY
ASSOCIATION; EDISON ELECTRIC INSTITUTE,
Amici Supporting Appellees.
Appeals from the United States District Court for the District
of Maryland, at Baltimore. Marvin J. Garbis, Senior District
Judge. (1:12-cv-01286-MJG)
Argued: May 13, 2014 Decided: June 2, 2014
Before WILKINSON, KEENAN, and DIAZ, Circuit Judges.
Affirmed by published opinion. Judge Wilkinson wrote the
opinion, in which Judge Keenan and Judge Diaz joined.
ARGUED: Scott H. Strauss, SPIEGEL & MCDIARMID, LLP, Washington,
D.C.; Clifton Scott Elgarten, CROWELL & MORING LLP, Washington,
D.C., for Appellants. Paul D. Clement, BANCROFT, PLLC,
Washington, D.C., for Appellees. ON BRIEF: H. Robert Erwin,
Ransom E. Davis, Baltimore, Maryland; Peter J. Hopkins, Jeffrey
A. Schwarz, SPIEGEL & MCDIARMID LLP, Washington, D.C., for
Appellants Douglas R.M. Nazarian, Harold Williams, Lawrence
Brenner, Kelly Speakes-Backman, and Kevin Hughes. Larry F.
Eisenstat, Richard Lehfeldt, Jennifer N. Waters, CROWELL &
MORING LLP, Washington, D.C., for Appellant CPV Maryland, LLC.
Erin E. Murphy, Candice Chiu, BANCROFT PLLC, Washington, D.C.,
for Amici. Jesse A. Dillon, PPL SERVICES CORP., Allentown,
3
Pennsylvania; David L. Meyer, MORRISON & FOERSTER LLP,
Washington, D.C., for Appellees PPL EnergyPlus, LLC, PPL Brunner
Island, LLC, PPL Holtwood, LLC, PPL Martins Creek, LLC, PPL
Montour, LLC, PPL Susquehanna, LLC, Lower Mount Bethel Energy,
LLC, PPL New Jersey Solar, LLC, PPL New Jersey Biogas, LLC, and
PPL Renewable Energy, LLC. Tamara Linde, Vice President-
Regulatory, Vaughn L. McKoy, General State Regulatory Counsel,
PSEG SERVICES CORP., Newark, New Jersey; Shannen W. Coffin,
STEPTOE & JOHNSON LLP, Washington, D.C., for Appellee PSEG
Power, LLC. David Musselman, ESSENTIAL POWER, LLC, Princeton,
New Jersey, for Appellee Essential Power, LLC. Susan N. Kelly,
Senior Vice President of Policy Analysis and General Counsel,
Delia D. Patterson, Assistant General Counsel, AMERICAN PUBLIC
POWER ASSOCIATION, Washington, D.C.; Jay A. Morrison, Vice
President, Regulatory Issues, Pamela M. Silberstein, Associate
Director, Power Supply Issues, NATIONAL RURAL ELECTRIC
COOPERATIVE ASSOCIATION, Arlington, Virginia, for Amici American
Public Power Association and National Rural Electric Cooperative
Association. Abraham Silverman, Cortney Madea, NRG ENERGY,
INC., Princeton, New Jersey; Jeffrey A. Lamken, Martin V.
Totaro, Washington, D.C., Kaitlin R. O'Donnell, MOLOLAMKEN LLP,
New York, New York, for Amicus NRG Energy Inc. Paula M.
Carmody, William F. Fields, MARYLAND OFFICE OF PEOPLE'S COUNSEL,
Baltimore, Maryland, for Amicus Maryland Office of People's
Counsel. Randall L. Speck, Jeffrey A. Fuisz, Kimberly B. Frank,
Susanna Y. Chu, KAYE SCHOLER LLP, Washington, D.C., for Amici.
Clare E. Kindall, Assistant Attorney General, OFFICE OF THE
ATTORNEY GENERAL, New Britain, Connecticut, for Amicus
Connecticut Public Utilities Regulatory Authority. Robert D.
Snook, Assistant Attorney General, OFFICE OF THE ATTORNEY
GENERAL, New Britain, Connecticut, for Amicus Connecticut
Department of Energy and Environmental Protection. John S.
Wright, Assistant Attorney General, Michael C. Wertheimer,
Assistant Attorney General, OFFICE OF THE ATTORNEY GENERAL, New
Britain, Connecticut, for Amicus George Jepsen, Attorney General
for the State of Connecticut. Elin Swanson Katz, Joseph A.
Rosenthal, CONNECTICUT OFFICE OF CONSUMER COUNSEL, New Britain,
Connecticut, for Amicus Connecticut Office of Consumer Counsel.
Sarah Hofmann, Executive Director, NEW ENGLAND CONFERENCE OF
PUBLIC UTILITIES COMMISSIONERS, INC., Montpelier, Vermont, for
Amicus New England Conference of Public Utilities Commissioners,
Inc. Lisa Fink, STATE OF MAINE PUBLIC UTILITIES COMMISSION,
Augusta, Maine, for Amicus Maine Public Utilities Commission.
Amy K. D'Alessandro, RHODE ISLAND PUBLIC UTILITIES COMMISSION,
Warwick, Rhode Island, for Amicus Rhode Island Public Utilities
Commission. June Tierney, General Counsel, VERMONT PUBLIC
SERVICE BOARD, Montpelier, Vermont, for Amicus Vermont Public
4
Service Board. Edward McNamara, Regional Policy Director,
VERMONT DEPARTMENT OF PUBLIC SERVICE, Montpelier, Vermont, for
Amicus Vermont Department of Public Service. Frank Lindh,
Candace Morey, CALIFORNIA PUBLIC UTILITIES COMMISSION, San
Francisco, California, for Amicus California Public Utilities
Commission. Kimberly A. Harriman, Acting General Counsel,
Jonathan D. Feinberg, Solicitor, Alan Michaels, Assistant
Counsel, PUBLIC SERVICE COMMISSION OF THE STATE OF NEW YORK,
Albany, New York, for Amicus Public Service Commission of the
State of New York. Richard A. Beverly, Richard S. Herskovitz,
PUBLIC SERVICE COMMISSION OF THE DISTRICT OF COLUMBIA,
Washington, D.C., for Amicus Public Service Commission of the
District of Columbia. Kathleen Makowski, Deputy Attorney
General, DELAWARE PUBLIC SERVICE COMMISSION, Dover, Delaware,
for Amicus Delaware Public Service Commission. John Jay
Hoffman, Acting Attorney General, Richard F. Engel, Deputy
Attorney General, Lisa J. Morelli, Deputy Attorney General, Alex
Moreau, Deputy Attorney General, Jennifer S. Hsia, Deputy
Attorney General, NEW JERSEY DEPARTMENT OF LAW AND PUBLIC
SAFETY, Trenton, New Jersey, for Amicus New Jersey Board of
Public Utilities. Stefanie A. Brand, Director, NEW JERSEY
DIVISION OF RATE COUNSEL, Trenton, New Jersey, for Amicus New
Jersey Division of Rate Counsel. Douglas F. Gansler, Attorney
General, Brent A. Bolea, Assistant Attorney General, Steven M.
Talson, Assistant Attorney General, MARYLAND ENERGY
ADMINISTRATION, Annapolis, Maryland, for Amicus Maryland Energy
Administration. Gene Grace, AMERICAN WIND ENERGY ASSOCIATION,
Washington, D.C., for Amici American Wind Energy Association and
The Mid-Atlantic Renewable Energy Coalition. Glen Thomas, PJM
POWER PROVIDERS GROUP, King of Prussia, Pennsylvania; John Lee
Shepherd, Jr., Karis Anne Gong, SKADDEN, ARPS, SLATE, MEAGHER &
FLOM LLP, Washington, D.C., for Amicus PJM Power Providers
Group. David G. Tewksbury, Stephanie S. Lim, Ashley C. Parrish,
KING & SPALDING LLP, Washington, D.C., for Amicus The Electric
Power Supply Association. Edward H. Comer, Vice President,
General Counsel and Corporate Secretary, Henri D. Bartholomot,
Associate General Counsel, Regulatory and Litigation, EDISON
ELECTRIC INSTITUTE, Washington, D.C., for Amicus Edison Electric
Institute.
5
WILKINSON, Circuit Judge:
At issue is a Maryland program to subsidize the
participation of a new power plant in the federal wholesale
energy market. Appellees are energy firms that compete with this
new plant in interstate commerce. They contend that the Maryland
scheme is preempted under the Federal Power Act’s authorizing
provisions, which grant exclusive authority over interstate
rates to the Federal Energy Regulatory Commission. The district
court agreed. For the reasons that follow, we affirm.
I.
A.
For much of the 20th century, the energy market was
dominated by vertically integrated firms that produced,
transmitted, and delivered power to end-use customers. New York
v. FERC, 535 U.S. 1, 5 (2002); PPL EnergyPlus, LLC v. Nazarian,
974 F. Supp. 2d 790, 798 (D. Md. 2013) (opinion below). These
firms were subject to extensive local regulation, though state
power in this respect was limited by the strictures of the
dormant Commerce Clause. See Pub. Utils. Comm’n v. Attleboro
Steam & Elec. Co., 273 U.S. 83, 89 (1927).
The Federal Power Act (FPA), passed in 1935, was designed
in part to fill the regulatory gap created by the dormant
Commerce Clause and cover the then-nascent field of interstate
electricity sales. It vests the Federal Energy Regulatory
6
Commission (FERC) with authority over the “transmission of
electric energy in interstate commerce” and the “sale of
electric energy at wholesale in interstate commerce.” 16 U.S.C.
§ 824(b)(1). Federal regulation has become increasingly
prominent as the energy market has shifted away from local
monopolies to a system of interstate competition. See New York,
535 U.S. at 7.
Rather than ensuring the reasonableness of interstate
transactions by directly setting rates, FERC has chosen instead
to achieve its regulatory aims indirectly by protecting “the
integrity of the interstate energy markets.” N.J. Bd. of Pub.
Utils. v. FERC, 744 F.3d 74, 81 (3d Cir. 2014). To this end,
FERC has authorized the creation of “regional transmission
organizations” to oversee certain multistate markets. PJM
Interconnection, LLC (PJM), superintended by FERC, administers a
large regional market that (as relevant here) includes Maryland
and the District of Columbia.
PJM operates both energy and capacity markets. The energy
market is essentially a real-time market that enables PJM to buy
and sell electricity to distributors for delivery within the
next hour or 24 hours.
The capacity market is a forward-looking market, which
gives buyers the option to purchase electricity in the future.
In the capacity market, PJM sets a quota based on how much
7
capacity it predicts will be needed three years hence and then
relies on a Reliability Pricing Model (RPM) to determine the
appropriate price per unit. Auction participants bid to sell
capacity for a single year, three years in the future. PJM
stacks the bids from lowest to highest and, starting at the
bottom, accepts bids until it has acquired sufficient capacity
to satisfy its quota.
The highest-priced bid that PJM must accept to meet this
quota establishes the market-clearing price. Every generator who
bids at or below this level “clears” the market and is paid the
clearing price, regardless of the price at which it actually
bid. Existing generators are permitted to bid at zero as “price-
takers,” meaning they agree to sell at whatever the clearing
price turns out to be.
Both the capacity and energy markets are designed to
efficiently allocate supply and demand, a function which has the
collateral benefit of incentivizing the construction of new
power plants when necessary. Clearing prices occasionally differ
based on geographical subdivisions designed by FERC to stimulate
new construction by signaling that certain regions are prone to
supply shortages. Such price signals are not the sole mechanism
for incentivizing generation, however. PJM’s new entry price
adjustment (NEPA) guarantees certain new producers a fixed price
for three years to “support . . . the new entrant until
8
sufficient load growth [i.e., increased demand] would be
expected to” do so. PJM Interconnection, LLC, 128 FERC ¶ 61,157,
at ¶ 101 (2009).
In 2006, FERC instituted a requirement (the minimum offer
price rule, or MOPR) that new generators in certain
circumstances bid at or above a specified price, fixed according
to the agency’s estimation of a generic energy project’s cost.
This rule was designed to prevent the manipulation of clearing
prices through the exercise of buyer market power. The MOPR
originally exempted certain state-supported generators, however,
and permitted them to bid at zero.
Following a complaint lodged by several competitors, FERC
eliminated the exemption for state-sanctioned plants. The new
rule required such plants to bid initially at the agency-
specified minimum price unless they could demonstrate that their
actual costs were lower than this default price. FERC held that
this adjustment was necessary to protect the integrity of its
markets against below-cost bids by subsidized plants that might
artificially suppress clearing prices. See PJM Interconnection,
LLC, 137 FERC ¶ 61,145, at ¶ 96 (2011).
As these features suggest, the federal markets are the
product of a finely-wrought scheme that attempts to achieve a
variety of different aims. FERC rules encourage the construction
of new plants and sustain existing ones. They seek to preclude
9
state distortion of wholesale prices while preserving general
state authority over generation sources. They satisfy short-term
demand and ensure sufficient long-term supply. In short, the
federal scheme is carefully calibrated to protect a host of
competing interests. It represents a comprehensive program of
regulation that is quite sensitive to external tampering.
B.
In 1999, Maryland decided to abandon the vertical
integration model and throw in its lot with the federal
interstate markets. Deregulation was accomplished by the
Electric Customer Choice and Competition Act, Md. Code Ann.,
Pub. Utils. § 7–501, et seq., which divested utilities of their
generation resources, effectively compelling Maryland energy
firms to participate in the federal wholesale markets. See PPL
EnergyPlus, LLC, 974 F. Supp. 2d at 815. The state believed that
these markets would ultimately produce more efficient and cost-
effective service than traditional monopolies, thus providing
state residents the benefit of lower prices. See In the Matter
of Baltimore Gas and Electric Company’s Proposal, Order No.
81423, at 36 (Md. Pub. Serv. Comm’n, May 2007). Maryland’s
decision to participate in the federal scheme and enjoy its
benefits was necessarily accompanied by a relinquishment of the
regulatory autonomy the state had formerly enjoyed with respect
to traditional utility monopolies.
10
Maryland soon became concerned, though, that the RPM was
failing to adequately incentivize new generation. PPL
EnergyPlus, LLC, 974 F. Supp. 2d at 795. To solve this perceived
problem, the Maryland Public Service Commission (MPSC) solicited
proposals for the construction of a new power plant. The plant
was to be located in the “SWMAAC zone,” an area comprising part
of Maryland and all of D.C., which the state believed was at
heightened risk for reliability problems. In order to attract
offers, the MPSC offered the successful bidder a fixed, twenty-
year revenue stream secured by contracts for differences (CfDs)
that the state would compel one or more of its local electric
distribution companies (EDCs) to enter. Maryland’s plan was
ultimately formalized in the Generation Order, issued by MPSC in
2012.
Intervenor-appellant Commercial Power Ventures Maryland,
LLC (CPV) submitted the winning bid and was awarded the promised
CfDs. The CfDs required CPV to build a plant and sell its energy
and capacity on the federal interstate wholesale markets. If CPV
successfully cleared the market, it would be eligible for
payments from the EDCs amounting to the difference between CPV’s
revenue requirements per unit of energy and capacity sold (set
forth in its winning bid) and its actual sales receipts. These
costs would in turn be passed on to the EDCs’ retail ratepayers.
If CPV’s receipts exceeded its approved revenue requirements, it
11
would be obligated to pay the difference to the EDCs. The CfDs
did not require CPV to actually sell any energy or capacity to
the EDCs.
Plaintiffs-appellees are existing power plants in
competition with CPV who allege that the Generation Order is
unconstitutional and has resulted in the suppression of PJM
prices, a reduction in their revenue from the PJM market, and a
distortion of the price signals that market participants rely on
in determining whether to construct new capacity. After a six-
day bench trial, the district court found the Generation Order
field preempted. It reasoned that the CfD payments had the
effect of setting the ultimate price that CPV receives for its
sales in the PJM auction, thus intruding on FERC’s exclusive
authority to set interstate wholesale rates. It did not reach
appellees’ conflict preemption claim and rejected their dormant
Commerce Clause claim. This appeal followed.
II.
Plaintiffs argue that the Generation Order and the
resulting CfDs are preempted by federal law under the Supremacy
Clause. U.S. Const. art. VI, cl. 2. They ground this contention
12
in two alternative theories: field preemption and conflict
preemption. We address each in turn. 1
A.
Preemption of all varieties is ultimately a question of
congressional intent. Nw. Cent. Pipeline Corp. v. State Corp.
Comm’n, 489 U.S. 493, 509 (1989). Here, the district court found
the Generation Order invalid under the doctrine of field
preemption, which applies when “Congress has legislated
comprehensively to occupy an entire field of regulation, leaving
no room for the States to supplement federal law.” Id. Actual
conflict between a challenged state enactment and relevant
federal law is unnecessary to a finding of field preemption;
instead, it is the mere fact of intrusion that offends the
Supremacy Clause. See N. Natural Gas Co. v. State Corp. Comm’n,
372 U.S. 84, 97-98 (1963). “If Congress evidences an intent to
occupy a given field, any state law falling within that field is
pre-empted.” Silkwood v. Kerr-McGee Corp., 464 U.S. 238, 248
(1984).
1
As a threshold matter, appellants assert that we lack
jurisdiction under the filed rate doctrine. See Appellants’ Br.
at 9. This claim is meritless, however, given that a judgment in
plaintiffs’ favor would require this court neither “to
invalidate a filed rate nor to assume a rate would be charged
other than the rate adopted by the federal agency in question.”
Pub. Util. Dist. No. 1 v. IDACORP Inc., 379 F.3d 641, 650 (9th
Cir. 2004) (internal quotation marks omitted).
13
Statutory text and structure provide the most reliable
guideposts in this inquiry. See Medtronic, Inc. v. Lohr, 518
U.S. 470, 486 (1996) (“Congress’ intent, of course, primarily is
discerned from the language of the pre-emption statute and the
statutory framework surrounding it.”) (internal quotation marks
omitted). The FPA’s “declaration of policy” states:
It is declared that the business of transmitting and
selling electric energy for ultimate distribution to
the public is affected with a public interest, and
that Federal regulation of matters relating to
generation to the extent provided in this subchapter
and subchapter III of this chapter and of that part of
such business which consists of the transmission of
electric energy in interstate commerce and the sale of
such energy at wholesale in interstate commerce is
necessary in the public interest, such Federal
regulation, however, to extend only to those matters
which are not subject to regulation by the States.
16 U.S.C. § 824(a); see also id. at § 824(b).
The breadth of this grant of authority is confirmed by the
FPA’s similarly capacious substantive and remedial provisions.
For example, 16 U.S.C. § 824d(a) states that:
All 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, and all rules and
regulations affecting or pertaining to such rates or
charges shall be just and reasonable, and any such
rate or charge that is not just and reasonable is
hereby declared to be unlawful.
A wealth of case law confirms FERC’s exclusive power to
regulate wholesale sales of energy in interstate commerce,
including the justness and reasonableness of the rates charged.
14
“The [FPA] long has been recognized as a comprehensive scheme of
federal regulation of all wholesales of [energy] in interstate
commerce,” Schneidewind v. ANR Pipeline Co., 485 U.S. 293, 300
(1988) (internal quotation marks omitted), and “FERC’s
jurisdiction over interstate wholesale rates is exclusive,”
Appalachian Power Co. v. Pub. Serv. Comm’n, 812 F.2d 898, 902
(4th Cir. 1987); see also New England Power Co. v. New
Hampshire, 455 U.S. 331, 340 (1982). 2 In this area, “if FERC has
jurisdiction over a subject, the States cannot have jurisdiction
over the same subject.” Miss. Power & Light Co. v. Mississippi
ex rel. Moore, 487 U.S. 354, 377 (1988) (Scalia, J., concurring
in the judgment).
Indeed, the Supreme Court has expressly rejected the
proposition that the “scope of [FERC’s] jurisdiction . . . is to
be determined by a case-by-case analysis of the impact of state
regulation upon the national interest.” Nantahala Power & Light
Co. v. Thornburg, 476 U.S. 953, 966 (1986) (quoting FPC v. S.
Cal. Edison Co., 376 U.S. 205, 215 (1964)) (internal quotation
marks omitted). Instead, “Congress meant to draw a bright line
2
Schneidewind dealt with the Natural Gas Act rather than
the FPA. However, because “the relevant provisions of the two
statutes are in all material respects substantially identical,”
the Supreme Court has adopted an “established practice of citing
interchangeably decisions interpreting the pertinent sections of
the two statutes.” Ark. La. Gas Co. v. Hall, 453 U.S. 571, 578
n.7 (1981) (internal quotation marks omitted).
15
easily ascertained, between state and federal
jurisdiction . . . . This was done in the [FPA] by making [FERC]
jurisdiction plenary and extending it to all wholesale sales in
interstate commerce except those which Congress has made
explicitly subject to regulation by the States.” Id. (quoting S.
Cal. Edison Co., 376 U.S. at 215-16) (internal quotation marks
omitted).
The federal scheme thus “leaves no room either for direct
state regulation of the prices of interstate wholesales of
[energy], or for state regulations which would indirectly
achieve the same result.” N. Natural Gas Co., 372 U.S. at 91
(citation omitted). “Even where state regulation operates within
its own field, it may not intrude indirectly on areas of
exclusive federal authority.” Pub. Utils. Comm’n v. FERC, 900
F.2d 269, 274 n.2 (D.C. Cir. 1990) (internal quotation marks
omitted). As a result, states are barred from relying on mere
formal distinctions in “an attempt” to evade preemption and
“regulate matters within FERC’s exclusive jurisdiction.”
Schneidewind, 485 U.S. at 308.
B.
Applying these principles, we conclude that the Generation
Order is field preempted because it functionally sets the rate
that CPV receives for its sales in the PJM auction.
16
The CfD payments, which are conditioned on CPV clearing the
federal market, plainly qualify as compensation for interstate
sales at wholesale, not simply for CPV’s construction of a
plant. Furthermore, the Order ensures -- through a system of
rebates and subsidies calculated on the basis of the PJM market
rate -- that CPV receives a fixed sum for every unit of capacity
and energy that it clears (up to a certain ceiling). The scheme
thus effectively supplants the rate generated by the auction
with an alternative rate preferred by the state. See Appalachian
Power Co., 812 F.2d at 904 (holding that the agreement at issue
did not “set a rate per se,” but that it nevertheless
“sufficiently resemble[d] a filed rate to come within the realm
of exclusive federal jurisdiction”). The Order thus compromises
the integrity of the federal scheme and intrudes on FERC’s
jurisdiction.
Maryland and CPV argue that the Generation Order does not
actually set a rate because it does not directly affect the
terms of any transaction in the federal market. Relevantly,
appellants contend, the Order does not fix the rate that PJM
pays to CPV for its sales in the auction; instead, it merely
fixes the rate that CPV receives for such sales. On the basis of
this asymmetry, appellants contend that the CfD payments
represent a separate supply-side subsidy implemented entirely
outside the federal market.
17
We cannot accept this argument. The case of Mississippi
Power & Light Co. v. Mississippi ex rel. Moore, 487 U.S. 354
(1988), is illustrative. There, FERC ordered a utility to
purchase a specified percentage of a particular generator’s
output. Id. at 363. The utility petitioned Mississippi to
approve an increase in its retail rates to cover the costs
imposed by the order, but the state insisted that it retained
the authority to determine whether the purchases were prudent
before acceding to the request. Id. at 365-67. The Supreme Court
rejected this argument, ruling that the state was required to
treat the utility’s FERC-mandated payments as “reasonably
incurred operating expenses for the purpose of setting” the
utility’s retail rates. Id. at 370; see also Nantahala Power &
Light Co., 476 U.S. 953 (rejecting a similar state effort to bar
a utility from passing FERC-mandated wholesale rates through to
consumers). Mississippi’s prudence review was preempted because
it denied full effect to the rates set by FERC, even though it
did not seek to tamper with the actual terms of an interstate
transaction.
As the district court recognized, see PPL EnergyPlus, LLC,
974 F. Supp. 2d at 831, the principles articulated in
Mississippi Power & Light Co. apply with equal force to this
dispute. If states are required to give full effect to FERC-
mandated wholesale rates on the demand side of the equation, it
18
stands to reason that they are also required to do so on the
supply side. Here, the contract price guaranteed by the
Generation Order supersedes the PJM rates that CPV would
otherwise earn -- rates established through a FERC-approved
market mechanism. The Order ensures that CPV receives a fixed
price for every unit of energy and capacity it sells in the PJM
auction, regardless of the market price. The fact that it does
not formally upset the terms of a federal transaction is no
defense, since the functional results are precisely the same. As
in the above-mentioned cases, Maryland has “eroded the effect of
the FERC determination and undermined FERC’s exclusive
jurisdiction.” Appalachian Power Co., 812 F.2d at 904.
Our conclusion that the Generation Order “seeks to regulate
a field that the [FPA] has occupied also is supported by the
imminent possibility of collision between” the state and federal
regimes. Schneidewind, 485 U.S. at 310. While the potential for
collision between the two schemes is discussed in detail in Part
D, a high probability of conflict tends to suggest that Congress
intended federal authority in a particular field to be uniform
and exclusive. See id. Even if “collision between the state and
federal regulation” in this case is not “an inevitable
consequence,” it is sufficiently likely to warrant invalidating
the Maryland program “in order to assure the effectuation of the
19
comprehensive federal regulation ordained by Congress.” N.
Natural Gas Co., 372 U.S. at 92.
C.
Appellants argue that this court should apply a robust
version of the presumption against preemption to save the
Maryland scheme. See, e.g., Intervenor-Appellant’s Br. at 14. As
its name suggests, this presumption militates against findings
of federal preemption, especially in areas of traditional state
authority. See Rice v. Santa Fe Elevator Corp., 331 U.S. 218,
230 (1947). However, the presumption “is not triggered when the
State regulates in an area where there has been a history of
significant federal presence.” United States v. Locke, 529 U.S.
89, 108 (2000). The presumption “is almost certainly not
applicable here because the federal government has long
regulated wholesale electricity rates.” IDACORP Inc., 379 F.3d
at 648 n.7. Nevertheless, even were we to apply the presumption,
we would find it overcome by the text and structure of the FPA,
which unambiguously apportions control over wholesale rates to
FERC.
Appellants emphasize the FPA’s decree that FERC “shall not
have jurisdiction, except as specifically provided in this
subchapter and subchapter III of this chapter, over facilities
used for the generation of electric energy.” 16 U.S.C.
§ 824(b)(1). They contend that the Generation Order falls on the
20
state side of the jurisdictional line, since it is designed to
ensure that Maryland enjoys an adequate supply of generation
capacity.
Although states plainly retain substantial latitude in
directly regulating generation facilities, they may not exercise
this authority in a way that impinges on FERC’s exclusive power
to specify wholesale rates. As the Supreme Court noted in a
similar context:
[T]he problem of this case is not as to the existence
or even the scope of a State’s power to [regulate
generation facilities]; the problem is only whether
the Constitution sanctions the particular means chosen
by [the state] to exercise the conceded power if those
means threaten effectuation of the federal regulatory
scheme.
N. Natural Gas Co., 372 U.S. at 93. Here, Maryland has chosen to
incentivize generation by setting interstate wholesale rates.
This particular choice of means is impermissible. Wholesale
energy prices “fixed by FERC must be given binding effect by
state authorities” even “in areas subject to state
jurisdiction.” California ex rel. Lockyer v. Dynegy, Inc., 375
F.3d 831, 851 (9th Cir. 2004) (internal quotation marks
omitted).
Nonetheless, it is important to note the limited scope of
our holding, which is addressed to the specific program at
issue. We need not express an opinion on other state efforts to
encourage new generation, such as direct subsidies or tax
21
rebates, that may or may not differ in important ways from the
Maryland initiative. It goes without saying that not “every
state statute that has some indirect effect” on wholesale rates
is preempted, Schneidewind, 485 U.S. at 308, for “there can be
little if any regulation of production that might not have at
least an incremental effect on the costs of purchasers in some
market,” Nw. Cent. Pipeline Corp., 489 U.S. at 514. In this
case, however, the effect of the Generation Order on matters
within FERC’s exclusive jurisdiction is neither indirect nor
incidental. Rather, the Order strikes at the heart of the
agency’s statutory power to establish rates for the sale of
electric energy in interstate commerce, see 16 U.S.C. § 824e(a),
by adopting terms and prices set by Maryland, not those
sanctioned by FERC.
D.
Appellants’ position is further complicated by the fact
that the principles of field and conflict preemption in this
case are mutually reinforcing. As relevant here, conflict
preemption applies “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. Nat’l Foreign Trade Council,
530 U.S. 363, 373 (2000) (internal quotation marks and
alterations omitted). “What is a sufficient obstacle is a matter
22
of judgment, to be informed by examining the federal statute as
a whole and identifying its purpose and intended effects.” Id.
“A state law may pose an obstacle to federal purposes by
interfering with the accomplishment of Congress’s actual
objectives, or by interfering with the methods that Congress
selected for meeting those legislative goals.” College Loan
Corp. v. SLM Corp., 396 F.3d 588, 596 (4th Cir. 2005) (emphasis
omitted).
In a system of “interlocking” jurisdiction, such as that
created by the FPA, “[i]t is inevitable that jurisdictional
tensions will arise” -- even if each sovereign formally remains
within the confines of its “assigned sphere.” Nw. Cent. Pipeline
Corp., 489 U.S. at 506, 515 & n.12 (internal quotation marks and
alteration omitted). “Thus, conflict-pre-emption analysis must
be applied sensitively in this area, so as to prevent the
diminution of the role Congress reserved to the States while at
the same time preserving the federal role.” Id. at 515. Here,
“the impact of state regulation of production on matters within
federal control is so extensive and disruptive of” the PJM
markets that preemption is appropriate. Id. at 517-18.
As an initial matter, the Generation Order has the
potential to seriously distort the PJM auction’s price signals,
thus “interfer[ing] with the method by which the federal statute
was designed to reach its goals.” IDACORP Inc., 379 F.3d at 650.
23
PJM’s price signals are intended to promote a variety of
objectives, including incentivizing new generation sources. See
PJM Interconnection, LLC, 132 FERC ¶ 61,173, at 61,870 (2010);
see also PPL EnergyPlus, LLC, 974 F. Supp. 2d at 813. Market
participants necessarily rely on these signals in determining
whether to construct new capacity or expand existing resources.
The signals appear to be serving their purpose; according to
FERC, the evidence “suggests that RPM has in fact succeeded in
securing sufficient capacity to meet reliability requirements
for the PJM region.” PJM Interconnection, LLC, 137 FERC
¶ 61,145, at ¶ 3 (2011).
Maryland’s initiative disrupts this scheme by substituting
the state’s preferred incentive structure for that approved by
FERC. See PPL EnergyPlus, LLC v. Hanna, No. 11-745, 2013 WL
5603896, at *36 (D.N.J. Oct. 11, 2013) (describing the
distorting impact of a similar New Jersey program on the
business decisions of private participants in the PJM auction).
Two features of the Order render its likely effect on federal
markets particularly problematic. First, as noted, the CfDs are
structured to actually set the price received at wholesale. They
therefore directly conflict with the auction rates approved by
FERC. Second, the duration of the subsidy -- twenty years -- is
substantial.
24
The Order is preempted for the further reason that it
conflicts with NEPA, which represents an exception to PJM’s
otherwise steadfast commitment to a uniform market clearing
price. In order to stimulate plant construction, NEPA carves out
a three-year period during which certain new generators are
eligible to receive a fixed price for the capacity they sell in
the PJM markets. See PJM Interconnection, LLC, 128 FERC
¶ 61,157, at ¶ 92 (2009). CPV petitioned FERC to extend the NEPA
period to ten years on the grounds that the three-year period
was insufficient to achieve its objective. Id. at ¶ 93. FERC
rejected CPV’s request, stating that “[b]oth new entry and
retention of existing efficient capacity are necessary to ensure
reliability and both should receive the same price so that the
price signals are not skewed in favor of new entry.” Id. at
¶ 102.
The Generation Order represents an effort by the state to
directly override this explicit policy choice. As a functional
matter, the CfDs extend the NEPA period for CPV to twenty years,
a duration vastly exceeding the current NEPA term and double the
term that CPV unsuccessfully requested FERC to institute.
Maryland has sought to achieve through the backdoor of its own
regulatory process what it could not achieve through the front
door of FERC proceedings. Circumventing and displacing federal
rules in this fashion is not permissible.
25
Appellants assert that no conflict is present because FERC
explicitly accommodated -- via the MOPR -- the participation of
subsidized plants in its auction. See, e.g., Intervenor-
Appellant’s Reply Br. at 23. The fact that FERC was forced to
mitigate the Generation Order’s distorting effects using the
MOPR, however, tends to confirm rather than refute the existence
of a conflict. Furthermore, FERC’s own comments on the subject
belie appellants’ claim that the agency has affirmatively
approved the Generation Order. See PJM Interconnection, LLC, 137
FERC at ¶ 3 (“Our intent is not to pass judgment on state and
local policies and objectives with regard to the development of
new capacity resources . . . .”).
As was the case with our field preemption holding, our
conflict preemption ruling is narrow and focused upon the
program before us. Obviously, not every state regulation that
incidentally affects federal markets is preempted. Such an
outcome “would thoroughly undermine precisely the division of
the regulatory field that Congress went to so much trouble to
establish . . . , and would render Congress’ specific grant of
power to the States to regulate production virtually
meaningless.” Nw. Cent. Pipeline Corp., 489 U.S. at 515. The
Generation Order, however, is simply a bridge too far. It
26
presents a direct and transparent impediment to the functioning
of the PJM markets, and is therefore preempted. 3
III.
For the foregoing reasons, we hold the Generation Order
preempted under federal law and affirm the judgment of the
district court.
AFFIRMED
3
Our conclusion that the Generation Order is preempted
renders it unnecessary for us to reach plaintiffs’ dormant
Commerce Clause arguments, which were rejected by the district
court. See Schneidewind, 485 U.S. at 311 (“Because we have
concluded that Act 144 is pre-empted by the NGA, we need not
decide whether, absent federal occupation of the field, Act 144
violates the Commerce Clause.”).
27