United States: Supreme Court Invalidates Maryland Power Plant Subsidy Program And Reaffirms FERC's Exclusive Authority Over Wholesale Capacity Markets

On April 19, 2016, for the second time in three months, the Supreme Court of the United States reaffirmed the exclusive jurisdiction of the Federal Energy Regulatory Commission (FERC) over the formation of wholesale rates in organized electric generating capacity markets, invalidating a Maryland program that sought to spur construction of new natural gas-fired generation capacity in the state by providing developers with long-term capacity contracts at rates different from those established in PJM Interconnection, L.L.C. (PJM) capacity auctions.

In Hughes v. Talen Energy Marketing, LLC (No. 14-614) and CPV Maryland, LLC v. Talen Energy Marketing, LLC (No. 14-623)—the District Court and 4th Circuit cases underlying which we discussed here and here—Justice Ginsburg, writing for the unanimous Court, held that the Maryland program is pre-empted by the Federal Power Act (FPA) because it usurps FERC's exclusive authority to regulate wholesale sales of electricity. Relying both on the statutory framework and text of the FPA and on principles of field and conflict pre-emption arising from the Supremacy Clause of the Constitution, the Court affirmed the 4th Circuit's judgment that the Maryland program set a wholesale rate in contravention of the FPA's division of authority between FERC and the states and impermissibly invaded FERC's "regulatory turf."


As we explained here, the challenged Maryland program, which arose from concerns that PJM's capacity auctions were "failing to encourage development of sufficient new in-state generation," involved (1) a solicitation of proposals from developers for a new natural gas-fired powerplant at a particular location and ultimately acceptance of a bid from CPV Maryland, LLC (CPV) to build that plant and (2) a requirement for several Maryland utilities "to enter into a 20-year . . . contract . . . with CPV at a rate CPV specified in its accepted proposal." Those contracts would guarantee CPV the contract price for its capacity, rather than the price for that capacity established in PJM's three-year forward capacity auctions. Incumbent generators—competitors of CPV—sued in federal court, seeking a declaratory judgment that the Maryland program "violates the Supremacy clause by setting a wholesale rate for electricity and by interfering with FERC's capacity-auction policies" and regulatory authority.

The District Court agreed, finding that Maryland's program "improperly set[] the rate CPV [would] receive[] for interstate wholesale capacity sales," and that, while Maryland "may retain traditional state authority to regulate the development, location, and type of power plants within its borders," the scope of the state's "power is necessarily limited by FERC's exclusive authority to set wholesale energy and capacity prices." As we reported here, the 4th Circuit affirmed, holding that Maryland's program "functionally set[] the rate that CPV [would] receive[] for its sales in the PJM auction," which FERC extensively regulates, and therefore "strikes at the heart of [FERC's] statutory power."  Because Maryland's program could "seriously distort the PJM auction's price signals" and would "undermin[e] the incentive structure FERC has approved for construction of new generation" in PJM, the 4th Circuit held that it "impermissibly conflicts with FERC policies" and could not stand.

The Supreme Court's Holding

Relying on the Supremacy Clause and related doctrines of field and conflict pre-emption, the Court rejected the Maryland program, agreeing with the 4th Circuit's judgment that Maryland's program "sets an interstate wholesale rate, contravening the FPA's division of authority between state and federal regulators." The state program's guarantee to CPV of a rate for capacity different from the rate for capacity resulting from PJM's capacity auctions—which FERC, through its close regulation of the auction structure and rules, has deemed just and reasonable—adjusts an interstate wholesale rate, impermissibly "invades FERC's regulatory turf" and therefore cannot stand. According to Justice Ginsburg, the critical flaw of the contracts in the Maryland program is that they would operate "within the [PJM] auction," mandating that the Maryland utilities and CPV "exchange money based on the cost of CPV's capacity sales to PJM" through PJM's auction, unlike bilateral capacity contracts formed outside the auction, under which ownership of a generator's capacity would transfer to the buyer.

Justice Ginsburg was clear, however, that the Court's holding is limited, noting that states "may regulate within the domain Congress assigned to them [under the FPA] even when their laws incidentally affect areas within FERC's domain." But they "may not seek to achieve ends, however legitimate, through regulatory means that intrude on FERC's authority over interstate wholesale rates." Nothing in the opinion, Justice Ginsburg emphasized, "should be read to foreclose" states from "encouraging production of new or clean generation through measures 'untethered to a generator's wholesale market participation.'" As long as such programs "do[] not condition payment of funds on capacity clearing [an] auction," they "would not suffer from the same fatal defect that renders Maryland's program unacceptable."

Concurring Opinions

Justice Sotomayor wrote separately in concurrence, eschewing "talismanic pre-emption vocabulary" and emphasizing close examination of pre-emption questions involving statutes like the FPA, a collaborative federalism statute that "envisions a federal-state relationship marked by interdependence." She agreed that Maryland's program "impermissibly impeded the performance of one of FERC's core regulatory duties"—to ensure just and reasonable wholesale rates—in contravention of the goals of the FPA and thus must be preempted. But she also noted that the Court "rightly recognizes the importance of protecting the States' ability to contribute, within their regulatory domain, to the [FPA's] goal of ensuring a sustainable supply of efficient and price-effective energy."

Justice Thomas also wrote separately, concurring with the opinion in part and in the judgment. He agreed that the FPA's text and framework compel the Court's conclusion, but noted that he would have reached the same result on the text and structure of the FPA alone, without also relying on principles of implied preemption underlying the Court's opinion.


Despite Justice Ginsburg's emphasis on its limited nature, the Court's decision leaves open the question of just what state measures to incentivize new generation development would be permissible under the Supremacy Clause and the FPA, as virtually any such program could affect outcomes (i.e., the formation of rates) in wholesale markets. Justice Ginsburg mentions, as discussed in the 4th Circuit decision, direct subsidies and tax rebates, as well as land grants, construction of state-owned generation facilities or re-regulation (i.e., returning to vertical integration, where transmission and distribution utilities also own and operate the power plants necessary to serve their own load). However, like the 4th Circuit decision, the Court's decision provides little clarity regarding where the boundaries for such state programs should be drawn to avoid invalidation on grounds similar to those that doomed the Maryland program. Indeed, the Court said only that its decision regarding the Maryland program "need not and do[es] not address the permissibility of" such measures.

The Court's decision likely also sealed the fate of a New Jersey program similar to Maryland's program, which we discussed here and here. On April 25, 2016, the Court denied petitions for certiorari regarding the 3rd Circuit decision invalidating that New Jersey program on similar grounds, in Fiordaliso v. Talen Energy Marketing, LLC (No. 14-694) and CPV Power Holdings v. Talen Energy Marketing, LLC (No. 14-634).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions