Supreme Court Ruling on Wholesale Electricity Market Prices

In April 2016 the Supreme Court of the United States affirmed the judgment of the Court of Appeals for the Fourth Circuit in holding that an order by Maryland’s Public Service Commission (PSC) impermissibly intrudes upon the wholesale electricity market, a domain Congress reserved to FERC alone. The prior U.S. District Court for the District of Maryland decision had found that the Maryland PSC order directing the state’s electric utilities to enter into long-term contracts with a power plant developer was unconstitutional because the long-term contracts required payment of PSC-set prices for the sales of capacity and energy from a new power plant to be constructed by a state-chosen developer.

The PSC mandated contracts for differences (CFD) would have required the developer successfully to bid its new capacity and energy into the federally-regulated regional wholesale power markets of the PJM Interconnect, while the utilities would have been required to pay the developer the differences between the PJM market prices and the contract price – an out-of-market price set by the PSC. The Court found that the PSC’s order unconstitutionally dictated, through the CFD, wholesale prices in interstate power markets where the doctrine of field preemption forecloses state regulation since it is a field that by law (the Federal Power Act) is occupied entirely by the federal government. The Supreme Court affirmed the decision finding that “[b]y adjusting an interstate wholesale rate, Maryland’s program contravenes the FPA’s division of authority between state and federal regulators.”

This ruling favored Compass Lexecon clients PPL EnergyPlus, LLC (now Talen Energy), PSEG Power, LLC and the other Plaintiffs. In connection with this Supreme Court case, Compass Lexecon Senior Consultant Professor Robert Willig led the development of the Brief of Leading Economists as Amici Curiae in Support of Respondents (Plaintiffs in the district court case), and among the other signatories on the brief were Compass Lexecon’s Joseph Cavicchi and Senior Consultants Professors Richard Gilbert, Joseph Kalt and Janusz Ordover.