Cadwalader Clients & Friends Memo: U.S. District Court Denies Dismissal of Constitutional Challenge to Maryland Public Service Commission Orders

 On August 3, 2012, the United States District Court for the District of Maryland denied two motions to dismiss plaintiffs' complaint in PPL Energyplus, LLC v. Douglas R. M. Nazarian.1 The complaint seeks to enjoin the Maryland Public Service Commission ("PSC") from enforcing certain of its orders that require Maryland-based public utilities to contract with CPV Maryland, LLC ("CPV") for capacity and energy in the PJM control area. Members of the PSC (named in their official capacity ("PSC Defendants"))2 and CPV filed the motions to dismiss.

The underlying complaint relates to an April 12, 2012 PSC order (in conjunction with associated orders, "PSC Order") which "required Maryland-based public utilities to enter into contracts with CPV that, in effect, guaranteed the price that CPV would receive for its energy and capacity delivered into the PJM market regardless of the clearing price fixed by the PJM auction process."3

Plaintiffs contend that the PSC Order disadvantages out-of-state generators and, moreover, intrudes upon FERC's exclusive authority to regulate the wholesale transmission and sale of electric energy in interstate commerce, in violation of the Supremacy Clause and the dormant aspect of the Commerce Clause of the U.S. Constitution. Defendants sought dismissal of all claims presented in plaintiffs' complaint, arguing that the PSC Order provides a legitimate incentive to business in the state of Maryland. Defendants also relied upon the market participation exception to the Commerce Clause to justify the incentives extended to CPV.

Plaintiffs submitted for the court's consideration the Superseding Memorandum and Order in PPL Energyplus, LLC v. Solomon,4 which except for certain New Jersey specific facts, the court concluded, "presents essentially the same claims as [the PSC complaint]."5 Relying significantly on the Solomon order, the court concluded that plaintiffs' allegations, when viewed in the light most favorable to them, evinced plausible claims that the PSC Order violates the Supremacy Clause and the Commerce Clause. Specifically, the court concluded that plaintiffs adequately plead plausible claims of:

1. Field Preemption

Advancing from the premise that "[i]t appears at least plausible, if not undeniable, that Congress, by enacting the Federal Power Act, delegated exclusive authority to FERC concerning regulations of the transmission and sale at wholesale of electric energy in interstate commerce"6, the court found plaintiffs' contention sufficiently plausible that "the PSC Order . . . can be viewed as setting the price to be received by CPV and, thus, encroaching a field within the exclusive authority of FERC."7

2. Conflict Preemption

The court found that plaintiffs adequately plead a plausible claim of conflict preemption by alleging that the PSC Order allows CPV to submit clearing bids in the PJM auction that are not appropriately market-based, contrary to FERC policy. Specifically, plaintiffs alleged that "CPV can submit an artificially low bid that will clear the auction and will drive down the PJM fixed price to the detriment of all generators, except, of course, Maryland-based CPV."8

3. Violation of the Dormant Commerce Clause

The court concluded that plaintiffs adequately alleged "that the intent and effect of the [PSC Order] are to discriminate in favor of in-state generation at the expense of out-of-state generation." 9

On the basis of these findings, the court denied in full the motions to dismiss of both the PSC Defendants and CPV. In making its findings, the court also recognized that the defendants' views of the facts and legal theories in this case could ultimately prevail.

* * * *

1 No. MJG-12-1286 (D. Md. Aug. 3, 2012) ("Nazarian").

2 The named PSC members are: Douglas R. M. Nazarian, Harold Williams, Lawrence Brenner, Kelly Speakes-Backman and W. Kevin Hughes.

3 Nazarian, slip op. at 4.

4 No. 11-745, 2011 WL 5007972 (D. N.J. Oct. 20, 2011) ("Solomon").

5 Nazarian, slip op. at 7.

6 Id. at 10.

7 Id.

8 Id. at 11.

9 Id. at 12 (citing Solomon, slip op. at 10) (brackets in original).

Please feel free to contact any of the following Cadwalader attorneys if you have any questions about this memorandum.

Kenneth W. Irvin +1 202 862 2315 ken.irvin@cwt.com

Joseph B. Williams +1 202 862 2480 joseph.williams@cwt.com

Terence T. Healey +1 202 862 2335 terence.healey@cwt.com

Ryan C. Norfolk +1 202 862 2482 ryan.norfolk@cwt.com 

For more information about LexisNexis products and solutions, connect with us through our corporate site.