Hughes v. Talen Energy Marketing, LLC
136 S. Ct. 1288
| SCOTUS | 2016Background
- FERC has exclusive authority under the Federal Power Act (FPA) to set just-and-reasonable wholesale interstate electricity rates; states retain authority over in-state generation and retail sales.
- PJM, a FERC‑regulated RTO, runs a three‑year‑ahead capacity auction that determines a single clearing price paid to accepted capacity sellers; FERC approves this auction as the ratesetting mechanism for capacity sales into PJM.
- Maryland, concerned about insufficient in‑state generation, solicited and contracted with CPV to build a gas plant and required Maryland LSEs to enter 20‑year contracts for differences that guarantee CPV a fixed price if its capacity clears PJM’s auction.
- Under Maryland’s scheme, CPV must sell capacity into PJM’s auction, but the State guarantees CPV a rate distinct from the auction clearing price by making up shortfalls (or receiving excesses) from Maryland LSEs and passing costs to Maryland consumers.
- Incumbent generators sued Maryland officials arguing the State’s program conflicts with FERC’s exclusive authority and sets an interstate wholesale rate; district court and Fourth Circuit ruled for plaintiffs; the Supreme Court affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does Maryland's contract‑for‑differences program impermissibly set or alter an interstate wholesale rate governed by FERC? | Maryland’s program functionally sets CPV’s wholesale price and thus conflicts with FERC’s exclusive authority over wholesale rates. | Maryland/CPV contend the payments are state subsidies/consideration tied to in‑state generation conditions and akin to permitted bilateral contracts, not subject to FERC rate review. | Held: Maryland’s program displaces the FERC‑approved auction price and therefore invades FERC’s exclusive jurisdiction; program is preempted. |
| Can a State condition payment on a generator’s clearing of a FERC auction without intruding on FERC's domain? | Incumbents: conditioning payment on auction clearance ties payments to interstate wholesale sales and thus regulates wholesale rates. | Maryland: conditioning funds on in‑state generation goals is a permissible exercise of state authority over generation. | Held: Conditioning payment on clearing the auction makes the payments "in connection with" interstate wholesale sales and is preempted. |
| Is Maryland’s program saved because FERC previously accommodated state programs (e.g., exemptions, rules)? | Incumbents: FERC’s prior accommodations do not authorize a State to regulate where Congress delegated authority to FERC. | Maryland: FERC’s past accommodations (and PJM rule changes) show federal tolerance for state‑supported entry. | Held: FERC accommodation does not permit Maryland to intrude on FERC's exclusive statutory domain. |
| Does the opinion foreclose other state measures to support generation (tax incentives, direct subsidies, state‑owned plants)? | Incumbents: not at issue. | Maryland: argued its measures are within state powers. | Held: Court limited ruling to programs that tie payments to FERC wholesale market participation; other untethered state measures remain permissible. |
Key Cases Cited
- Mississippi Power & Light Co. v. Mississippi ex rel. Moore, 487 U.S. 354 (1988) (States may not second‑guess FERC‑approved wholesale rates)
- Nantahala Power & Light Co. v. Thornburg, 476 U.S. 953 (1986) (state actions that undermine FERC wholesale‑rate authority are preempted)
- Northwest Central Pipeline Corp. v. State Corporation Comm'n of Kan., 489 U.S. 493 (1989) (federal regulatory scheme may displace state rules that impede federal objectives)
- Altria Group, Inc. v. Good, 555 U.S. 70 (2008) (purpose of Congress is the ultimate touchstone in preemption analysis)
- Crosby v. National Foreign Trade Council, 530 U.S. 363 (2000) (state law may be preempted if it stands as an obstacle to federal objectives)
- Morgan Stanley Capital Group Inc. v. Pub. Util. Dist. No. 1 of Snohomish Cty., 554 U.S. 527 (2008) (presumption of reasonableness for arm’s‑length contracts; FERC may abrogate contracts harming the public interest)