CURRENT TOPICS IN
ELECTRICITY LAW 2016
The Double Struggle:
Federal vs. State, Monopoly vs. Competition
Due to generation shortages in transmission-constrained areas, PJM capacity auctions were producing high wholesale prices in Maryland. The Maryland Commission designed a three-part solution: (1) Select through competition a wholesale generator to serve in the constrained area. (2) Order Maryland's retail utilities to contract for long-term capacity from the winning generator, at the price offered by that generator in that competition. (3) Draft the contract so that the utility, using retail ratepayer dollars, will pay the generator any difference between the FERC-authorized PJM price and the generator's contract price—with the payment conditioned on the generator being selected in the PJM capacity auction. New Jersey passed a statute mandating a similar solution.
Federal district courts and circuit courts struck both efforts, holding that the Federal Power Act preempted the state actions. Maryland appealed to the U.S. Supreme Court.
In April 2016, the Supreme Court invalidated Maryland's order. By guaranteeing the wholesale generator a level of compensation different from PJM's FERC-authorized compensation, Maryland had "disregard[ed] an interstate wholesale rate required by FERC." Because under the Federal Power Act, Congress had made wholesale rate-setting FERC's exclusive domain, the state order was invalid under the doctrine of "field preemption." The Court's vote was 8-0.