State-Mandated Power Contracts

State-Mandated Power Contracts

June 11, 2014

State-mandated power contracts remain under a cloud after a US appeals court said in early June that Maryland cannot force utilities to sign long-term power contracts at different prices than the wholesale power prices in PJM, the regional wholesale power market.

The decision was in a case called PPL EnergyPlus, LLC v. Nazarian.

A federal district court reached the same conclusion last fall about a similar capacity auction in New Jersey. The New Jersey decision has been appealed to a different US appeals court than the one that heard the Maryland case.

According to the courts, the state actions violate the supremacy clause of the US constitution because they effectively establish a price for electricity sold at wholesale. The Federal Energy Regulatory Commission has exclusive jurisdiction to regulate the prices for such electricity.

A decision in the New Jersey appeal is expected imminently. The issue could end up before the US Supreme Court, although the court has discretion whether to hear appeals.

The cases are significant beyond Maryland and New Jersey because they may raise questions about the enforceability of other state programs that require utilities to sign long-term power contracts to the extent they affect the price at which utilities must buy wholesale power. The issue is whether any such effects on pricing are so great as to require federal preemption.

by Robert Shapiro