Federal Court Finds Maryland’s Long-Term Contract for Differences Unconstitutional

Oct 2, 2013

Reading Time : 3 min

The Court found that the contract for differences paid CPV for wholesale sales of capacity and energy, and thus set rates for wholesale sales of electricity, an exercise that is within the exclusive jurisdiction of the Federal Energy Regulatory Commission (“FERC”).  The Court ruled that Congress had implicitly intended the Federal Power Act (“FPA”) to preempt state law with respect to ratemaking for such sales, and the Maryland PSC order directing the contract impermissibly invaded the field occupied exclusively by FERC. 

The Court acknowledged States’ authority to take a variety of actions with respect to generation facilities within their borders and the legitimate interest of States “in securing an adequate supply of electric energy for [their] residents in the present and in the future.”  Yet, the Court concluded that

[w]hile Maryland may retain traditional state authority to regulate the development, location, and type of power plants within its borders, the scope of Maryland’s power is necessarily limited by FERC’s exclusive authority to set wholesale energy and capacity prices under . . . the Supremacy Clause and the field preemption doctrine.  Based on this principle, Maryland cannot secure the development of a new power plant by regulating in such a manner as to intrude into the federal field of wholesale electric energy and capacity price-setting.”

The Court found that CPV would receive one price from bidding into and clearing the PJM centralized-capacity market (called the Reliability Pricing Model or “RPM”) and another price for these same sales under the contract for differences.  Thus, the Court found that the Maryland PSC was attempting to set the price for these wholesale sales instead of the FERC-approved market.  The Court made this finding despite CPV having bid into and cleared RPM under market mitigation rules designed to prevent state-subsidized generation from artificially depressing market prices. 

The Plaintiffs also alleged that the Maryland PSC order (1) violated the Supremacy Clause by virtue of conflict preemption, (2) violated the dormant Commerce Clause, and (3) deprived them of their federal statutory rights protected by 42 U.S.C. Section 1983.  The Court ruled that, having found field preemption, it did not need to reach the conflict preemption arguments. The Court rejected the dormant Commerce Clause claim, finding

The PSC regulated to finance indirectly the development and operation of a generation facility [], which will participate in the wholesale energy and capacity markets in the PJM region like any other generation facility.  Other than increasing the available supply of electric energy and capacity in the PJM region by adding a new generation facility [], the Order does not affect the ability of the other market participants to sell energy and capacity in the PJM Markets.  The Court does not find evidence that the addition of a state sponsored market participant [] imposes a burden, let alone an undue burden, on interstate commerce. 

Finally, the Court summarily rejected the Section 1983 claim on the grounds that the Supremacy Clause is not a source of substantive individual rights that could support and action brought pursuant to Section 1983. 

While the Court’s decision is clearly a win for the Plaintiffs, it is nonetheless a narrow ruling constrained by the facts of the case.  For example, the Plaintiffs did not contend that an act of the Maryland General Assembly or Maryland PSC related to the siting or building of a physical generation facility, the direct financing of the construction of a generating facility, or the encouragement of or limitations on certain types of generating facilities within its borders (such as environmental-related regulation) would be field-preempted by the FPA.  Those actions would have a similar price-depressing effect on RPM, and would need to be litigated in order to determine whether preempted under the Supremacy Clause. 

CPV had previously told the Maryland PSC that it needed a long-term contract to finance the plant.  In the end, the fact that CPV has already offered the plant into RPM and cleared the market may justify CPV’s construction of the plant despite the absence of such a contract. 


1 The utilities were Baltimore Gas and Electric Co., Potomac Electric Power Co., and Delmarva Power & Light Co. 

 

Share This Insight

Previous Entries

Speaking Energy

January 30, 2025

The oil & gas industry is experiencing a capital resurgence, driven by stabilizing interest rates and renewed attention from institutional investors. Private equity is leading the charge with private credit filling the void in traditional energy finance and hybrid capital instruments gaining in popularity. Family offices are also playing a crucial role, providing long-term, flexible investments.

...

Read More

Speaking Energy

January 23, 2025

Under a second Trump presidency, the U.S. is expected to consider reversal of many of the Biden administration’s climate and environmental policies, in addition to a markedly different approach to trade policy and oil & gas regulation. This includes expanding oil & gas development on public lands and offshore, lifting the pause on liquified natural gas (LNG) exports to non-Free Trade Agreement countries and repealing the methane fee.

...

Read More

Speaking Energy

January 15, 2025

We are pleased to share a recording of Akin’s recently presented webinar, “Drilling Down: What Oil & Gas Companies Can Expect from Federal Agencies During Trump’s Second Administration.”

...

Read More

Speaking Energy

January 9, 2025

On January 6, 2025, the Federal Energy Regulatory Commission (FERC) issued a Final Rule to amend its regulations governing the maximum civil monetary penalties assessable for violations of statutes, rules and orders within FERC’s jurisdiction. The Final Rule is a result of the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015, which requires each federal agency to issue an annual inflation adjustment by January 15 for each civil monetary penalty provided by law within the agency’s jurisdiction. The adjustments in the Final Rule represent an increase of approximately 2.6% for each covered maximum penalty. FERC’s adjusted maximum penalty amounts, which will apply at the time of assessment of a civil penalty regardless of the date on which the violation occurred, are set forth here and will become effective upon publication in the Federal Register.

...

Read More

Speaking Energy

January 9, 2025

Join projects & energy transition partners Ike Emehelu and Shariff Barakat as well as climate change partner Ken Markowitz at Infocast's Projects & Money, where Ike will moderate the "The State of Project Finance – View from the C-Suite" panel, and Shariff will moderate the "Capital Markets & Other Capital Sources for Project Finance & Investment" panel. Ken will moderate the “Carbon Markets Forecast for 2025” panel.

...

Read More

Speaking Energy

January 8, 2025

On December 16, 2024, the Federal Energy Regulatory Commission (FERC or the Commission) issued an Order to Show Cause and Notice of Proposed Penalty proposing to assess staggering civil penalties against American Efficient, LLC and its affiliates (collectively, American Efficient) in connection with an alleged scheme to manipulate the capacity markets operated by PJM Interconnection, L.L.C. (PJM) and the Midcontinent Independent System Operator, Inc. (MISO).1 The Order directs American Efficient to show cause as to why it should not be required to pay a civil penalty of $722 million and disgorge $253 million.2

...

Read More

Speaking Energy

December 5, 2024

On November 27, 2024, the Federal Energy Regulatory Commission issued Venture Global CP2 LNG, LLC, an order that sets aside, in part, the Commission’s prior authorization of the CP2 LNG Terminal and CP Express Pipeline Project (collectively, the CP2 Project) under sections 3 and 7 of the Natural Gas Act (NGA). 

...

Read More

Speaking Energy

December 5, 2024

On November 27, 2024, in Venture Global, CP2 LNG, LLC,1 the Federal Energy Regulatory Commission’s (FERC or Commission) explicitly overruled precedent set in Northern Natural Gas Co.,2 a 2021 decision in which FERC made an affirmative finding that an interstate natural gas pipeline project it was certificating under section 7 of the Natural Gas Act (NGA) would not make a “significant” contribution to global climate change. Northern Natural is the only FERC decision in which a so-called significance determination was made with respect to greenhouse gas emissions (GHG) arising from a FERC-regulated natural gas infrastructure project. In Venture Global, FERC rejected arguments that it needed to follow Northern Natural and assess the significance of GHG emissions in all NGA certificate proceedings to comply with the National Environmental Policy Act (NEPA). NEPA requires federal agencies, including FERC, that perform “major federal actions,” which include issuing NGA section 7 certificates, to prepare an environmental impact statement (EIS) if the action will “significantly affect[] the quality of the human environment.”3 FERC has been under pressure to fully explain why it has chosen not to apply Northern Natural’s significance analysis in subsequent cases, and that issue is currently before FERC on remand from the U.S. Court of Appeals for the District of Columbia (D.C. Circuit) in Healthy Gulf et al. v. FERC, which reviewed FERC’s approval of a liquefied natural gas (LNG) terminal under NGA section 3.

...

Read More

© 2025 Akin Gump Strauss Hauer & Feld LLP. All rights reserved. Attorney advertising. This document is distributed for informational use only; it does not constitute legal advice and should not be used as such. Prior results do not guarantee a similar outcome. Akin is the practicing name of Akin Gump LLP, a New York limited liability partnership authorized and regulated by the Solicitors Regulation Authority under number 267321. A list of the partners is available for inspection at Eighth Floor, Ten Bishops Square, London E1 6EG. For more information about Akin Gump LLP, Akin Gump Strauss Hauer & Feld LLP and other associated entities under which the Akin Gump network operates worldwide, please see our Legal Notices page.