Troutman Sanders LLP: Supreme Court Grants Certiorari of Cases Involving FERC’s Authority Over State Capacity Programs

On October 19, 2015, the United States Supreme Court (“Supreme Court”) granted certiorari for a consolidated case involving the limits of FERC’s jurisdiction when regulating state capacity programs. The cases—Hughes v. PPL EnergyPlus, LLC and CPV Maryland, LLC v. PPL EnergyPlus, LLC—seek a determination of whether FERC’s Federal Power Act (“FPA”) authority preempts a state program requiring public utilities to pay generators a fixed revenue stream when they were selected as the winning bid in PJM Interconnection, LLC’s (“PJM”) capacity market. The Supreme Court’s decision to grant certiorari comes on the heels of arguments before the court on PJM’s Demand Response program (see October 26, 2015 edition of the WER) [ subscribers may access Supreme Court briefs for these cases | Lexis Advance].

The consolidated cases involve challenges to state programs that compel utilities to enter into long-term contracts with a generation developer that is also the successful bidder in PJM’s capacity market, with the goal of providing financial certainty for the developer and to incentivize construction of new generation plants. Under these contracts, utilities pay the developer an amount for capacity regardless of the prices set by PJM’s capacity market. When the contract price is higher than the market prices, the utilities pay the difference to the developer, and the reciprocal is true when the market prices are higher than the contract prices.

A group of generators that were not awarded the fixed-revenue stream contracts because they were not the winning bidders in PJM’s capacity market challenged the state programs as unconstitutional and preempted by the FPA. The United States District Court for the District of Maryland agreed with the generators and determined that the state fixed-payment for capacity program was preempted by the FPA. On appeal before the United States Court of Appeals for the Fourth Circuit, the court upheld the district court’s opinion in determining that the state program infringed on FERC’s exclusive authority to regulate the sale of electric energy at wholesale in interstate commerce under the FPA. The Supreme Court granted certiorari, and oral argument is likely to be scheduled for the first quarter of 2016.

The consolidated cases are filed under Docket No. 14-623 with the Supreme Court, and the procedural history in this proceeding can be found here.

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