Hughes v. Talen Energy Mktg., LLC
578 U.S. ___ (2016)

NOTE: Where it is feasible, a syllabus (headnote) will be released, as is being done in connection with this case, at the time the opinion is issued.The syllabus constitutes no part of the opinion of the Court but has been prepared by the Reporter of Decisions for the convenience of the reader.See United States v. Detroit Timber & Lumber Co., 200 U. S. 321 .

SUPREME COURT OF THE UNITED STATES

Syllabus

HUGHES, CHAIRMAN, MARYLAND PUBLIC SERVICE COMMISION, et al. v. TALEN ENERGY MARKETING, LLC, fka PPL ENERGYPLUS, LLC, et al.

certiorari to the united states court of appeals for the fourth circuit

No. 14–614. Argued February 24, 2016—Decided April 19, 2016[1]

The Federal Power Act (FPA) vests in the Federal Energy Regulatory Commission (FERC) exclusive jurisdiction over wholesale sales of electricity in the interstate market, but “leaves to the States alone, the regulation of [retail electricity sales].” FERC v. Electric Power Supply Assn., 577 U. S. ___, ___. In Maryland and other States that have deregulated their energy markets, “load serving entities” (LSEs) purchase electricity at wholesale from independent power generators for delivery to retail consumers. Interstate wholesale transactions in deregulated markets typically occur through (1) bilateral contracting, where LSEs agree to purchase a certain amount of electricity from generators at a certain rate over a certain period of time; and (2) competitive wholesale auctions administered by Regional Transmission Organizations (RTOs) and Independent System Operators (ISOs), nonprofit entities that manage certain segments of the electricity grid.

PJM Interconnection (PJM), an RTO overseeing a multistate grid, operates a capacity auction. The capacity auction is designed to identify need for new generation and to accommodate long-term bilateral contracts for capacity. PJM predicts demand three years into the future and assigns a share of that demand to each participating LSE. Owners of capacity to produce electricity in three years’ time then bid that capacity into the auction for sale to PJM at rates the sellers set in their bids. PJM accepts bids until it has purchased enough capacity to satisfy anticipated demand. All accepted capacity sellers receive the highest accepted rate, called the “clearing price.” LSEs then must purchase, from PJM, enough electricity to satisfy their assigned share of overall projected demand. FERC extensively regulates the structure of the capacity auction to ensure that it efficiently balances supply and demand, producing a just and reasonable clearing price.

Concerned that the PJM capacity auction was failing to encourage development of sufficient new in-state generation, Maryland enacted its own regulatory program. Maryland selected, through a proposal process, petitioner CPV Maryland, LLC (CPV), to construct a new power plant and required LSEs to enter into a 20-year pricing contract (called a contract for differences) with CPV at a rate CPV specified in its proposal. Under the terms of the contract, CPV sells its capacity to PJM through the auction, but—through mandated payments from or to LSEs—receives the contract price rather than the clearing price for these sales to PJM. In a suit filed by incumbent generators (respondents here) against members of the Maryland Public Service Commission—CPV intervened as a defendant—the District Court issued a declaratory judgment holding that Maryland’s program improperly sets the rate CPV receives for interstate wholesale capacity sales to PJM. The Fourth Circuit affirmed.

Held: Maryland’s program is preempted because it disregards the interstate wholesale rate FERC requires. A state law is preempted where “Congress has legislated comprehensively to occupy an entire field of regulation,” Northwest Central Pipeline Corp. v. State Corporation Comm’n of Kan., 489 U. S. 493 , as well as “ ‘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. National Foreign Trade Council, 530 U. S. 363 . Exercising its exclusive authority over interstate wholesale sales, see 16 U. S. C. §824(b)(1), FERC has approved PJM’s capacity auction as the sole ratesetting mechanism for capacity sales to PJM, and has deemed the clearing price per se just and reasonable. However, Maryland—through the contract for differences—guarantees CPV a rate distinct from the clearing price for its interstate capacity sales to PJM. By adjusting an interstate wholesale rate, Maryland’s program contravenes the FPA’s division of authority between state and federal regulators.

That Maryland was attempting to encourage construction of new in-state generation does not save its program. States may regulate within their assigned domain 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, as Maryland has done here. See Mississippi Power & Light Co. v. Mississippi ex rel. Moore, 487 U. S. 354 ; Nantahala Power & Light Co. v. Thornburg, 476 U. S. 953 . Maryland and CPV analogize the contract for differences to traditional bilateral contracts for capacity. Unlike traditional bilateral contracts, however, the contract for differences does not transfer ownership of capacity from one party to another outside the auction. Instead, Maryland’s program operates within the auction, mandating LSEs and CPV to exchange money based on the cost of CPV’s capacity sales to PJM.

Maryland’s program is rejected only because it disregards an interstate wholesale rate required by FERC. Neither Maryland nor other States are foreclosed from encouraging production of new or clean generation through measures that do not condition payment of funds on capacity clearing the auction. Pp. 11–15.

753 F. 3d 467, affirmed.

Ginsburg, J., delivered the opinion of the Court, in which Roberts, C. J., and Kennedy, Breyer, Alito, Sotomayor, and Kagan, JJ., joined. Sotomayor, J., filed a concurring opinion. Thomas, J., filed an opinion concurring in part and concurring in the judgment.