Amicus Curiae Brief — Nazarian v. PPL Energyplus, LLC, 135 S. Ct. 1582 (2015) (No. 14-614)

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Nos. 14-614, 14-623

Supreme Court of the Unites States

W. KEVIN HUGHES, ET AL.,

Petitioners,

Vv.

PPL ENERGYPLUS, LLC, ETAL,

Respondents.

CPV MARYLAND, LLC,

Petitioner,

Vv.

PPL ENERGYPLUS, LLC, ET AL.,

Respondents.

On Writs of Certiorari to the

United States Court of Appeals

for the Fourth Circuit

BRIEF OF AMICUS CURIAE

NATIONAL ASSOCIATION OF REGULATORY

UTILITY COMMISSIONERS IN SUPPORT OF

PETITIONERS

JAMES BRADFORD RAMSAY*

JENNIFER M. MURPHY

National Association of

Regulatory Utility

Commissioners

1101 Vermont Ave., N.W

Washington, DC 20005

(202) 898-1350

jramsay@naruc.org

*Counsel of Record

WILSON-EPES PRINTING Co., INC. — (202) 789-0096 -— WasnincTon, D. C. 20002

QUESTIONS PRESENTED

The Federal Power Act (FPA) splits authority

among states, utilities, and the Federal Energy

Regulatory Commission (FERC). States regulate

generation facilities and retail utility power

purchases, but may not set wholesale rates.

Wholesale energy sellers set their own rates. FERC

has exclusive jurisdiction to review them and

determine their legality.

In much of the country, independent system

operators run multi-state transmission systems and

wholesale energy markets. PJM Interconnection,

LLC (PJM), an operator whose region includes

Maryland, procures by auction the generation

capacity it expects the region to need for a one-year

period beginning three years later. Looking beyond

that horizon and concerned that facility retirements

could degrade reliability, Maryland decided it

needed new generation. It solicited offers, and

required retail utilities to accept the winning bid.

The resulting contracts obligate the bidder to build a

plant and make it available to PJM for twenty years,

while the retail utilities pay (or receive) the

difference between the contract and PJM auction

prices. The Fourth Circuit held Maryland's actions

field and conflict preempted—contrary to the FPA's

structure and decisions of this Court, the D.C.

Circuit, and FERC.

The questions presented are:

1. When a seller offers to build generation and

sell wholesale power on a fixed-rate contract

basis, does the FPA field-preempt a state

order directing retail utilities to enter into the

contract?

2. Does FERC's acceptance of an annual regional

capacity auction preempt states from

requiring retail utilities to contract at fixed

rates with sellers who are willing to commit to

sell into the auction on a long-term basis?

TABLE OF CONTENTS

QUESTIONS PRESENTED .................cccccssesesseeeseeeees i

TR CE REPRE SEED cvensxsevrecssseesoersssvemanninann iv

INTEREST OF AMICUS CURIAB .............cccccsceseeees 1

SUMMARY OF ARGUMENT...................c:cccceceeeeeees 5

RETEETE cnenmnemmnanmanmnemnmiiiiiabiidl 6

I. Field Preemption Cannot Apply Where

Congress Has Specified State Jurisdiction. ......7

A. State authority over generation,

siting, and retail utilities predate the

FUUR, cxesesesnnevesscsssenilancinnnncinniiticiasiasiininiaaialnatie 7

B. The FPA preserves State authority

over generation and retail utility

SEPURIED. ceemenvmenemmnncenninnnianiindiiin 10

II. There is No Conflict Between the FERC-

mandated Capacity Auction and the

Maryland-approved §_ Contract for

IID, <covesscesvvssccnecncenssetnnnemsentncnmnenenieniiniiiaia 12

aE censcsnevsscorssesssviniisarennnsiemanniinn 16

APPENDIX: NARUC Resolution on Preserving

State Authority Over New Electric

ie cunccricsncecesicnscomiinneistdicmimmanaianaial la

iv

TABLE OF AUTHORITIES

Cases

Conn. Dep’t of Pub. Util. Control v. FERC,

569 F.3d 477 (D.C. Cir. 2009) ....................00eeeees 5, 6

Nazarian v. PPL EnergyPlus, LLC, 753 F.3d

CE 2, 10, 15, 2a

Indianapolis Power and Light Co. v. ICC,

587 F.2d 1098 (7th Cir. 1982) ............ccccccccccereeeeeeee 1

La. Pub. Serv. Comm'n v. FCC, 476 U.S. 355

SE 15

N.J. Bd. of Pub. Utils. v. FERC, 744 F.3d 74

I semanas 15

New York v. FERC, 535 U.S. 1 (2002)......... 4, 6, 7, 2a

Rice v. Santa Fe Elevator Corp., 331 U.S. 218

siete dite aap er etitrptnemmeengncnsenenennssssecees 10

United States v. S. Motor Carrier Rate

Conference, et al., 467 F.Supp. 471 (N.D. Ga.

ES ee 1

Wash. Utils. & Transp. Comm'n v. FCC, 513

LR 1

Statutes

Ee 5

i 10

ae 3, 10

tc nrecsnietnicinimennsnsreesenntie 17

ee OE ciccnccccccznccuscsuscssnscecetecsccessecssceess 1

Federal Administrative Regulations

Carbon Pollution Emission Guidelines for

Existing Stationary Source : Electric Utility

Generating Units, 80 Fed. Reg. 64,662

(October 23, 2015) (to be codified at 40

STE TT ES ‘aaideeennencnnascnddtiniaiiniisbadnendenmaimicaiiiiens 17

Agency Decisions

ISO New England, Inc., 135 FERC 4 61,029

TITERS ARSC Se EE ROLE Saar 6

PJM Interconnection, LLC, 137 FERC 4

61,145 (2011), reh’g denied, 138 FERC §

61,160, and reh’g denied, 138 FERC 4

61,194 (2012), review denied sub nom. N.2J.

Bd. of Pub. Utils. v. FERC, 744 F.3d 74 (3d

SESE SPS COT a SCOTT 15

PJM Interconnection, LLC, 135 FERC ¥

61,022 (2011), on reh'g, 137 FERC § 61,145

(2011), reh’g denied, 138 FERC § 61,160,

and reh’g denied, 138 FERC ¥ 61,194

(2012), review denied sub nom. N.J. Bd. of

Pub. Utils. v. FERC, 744 F.3d 74 (3d Cir.

IESE SESE ECE ree eee Aken ee 6, 15

PJM Interconnection, LLC, 128 FERC ¥

ERNEST Ses 5 14

PJM Interconnection, LLC, 115 FERC §

SRR I SE aE 4

PJM Interconnection, LLC, 107 FERC 4

61,112, (2004), on reh’g, 110 FERC 4 61,053,

on reh’g, 112 FERC § 61,031 (2005), on

reh’g, 114 FERC 4 61,302 (2006). ..............0.00.002. 16

Miscellaneous

American Public Power Association, Power

Plants Are Not Built on Spec—2014 Update ...... 12

Brief for Petitioner CPV Maryland, LLC,

Hughes et al. v. PPL EnergyPlus, LLC, No.

14-623, (U.S. docketed Dec. 8, 2015). .................. 11

Brief for Petitioners Hughes et al., Hughes et

al. v. PPL EnergyPlus, LLC, No. 14-623,

(U.S. docketed Dec. 8, 2015). ..............:.:cccccceeeeeees 13

FERC Office of Enforcement, Energy Primer:

A Handbook of Energy Market Basics

(2015), http://perma.cc/U9AG-K4M6. ................. 14

NARUC Resolution on Preserving State

Authority Over New Electric Generation .... 3, la-4a

Regulatory Assistance Project, Electricity

Regulation in the US: A Guide (2011),

www.raponline.org/docs/RAP_ Lazar Electri

cityRegulationInTheUS_Guide_2011_03.pdf

Robert L. Swartwout, Current Utility

Regulatory Practice From A Historical

Perspective, 32 Nat. Resources J. 289

SUTIN: Siicpudesintpdiebabaiuatintettabpsiniaaainhiasttlaeiaiadinaniainmaenimaies 7, 8

Werner Troesken, Regime Change and

Corruption: A History of Public Utility

Regulation, in Corruption and Reform:

Lessons from America's Economic History

(Edward L. Glaeser and Claudia Goldin,

eds., 2006),

http://www.nber.org/chapters/c9986. .................... 7

INTEREST OF AMICUS CURIAE!

The National Association of Regulatory Utility

Commissioners (NARUC) is a quasi-governmental

nonprofit organization founded in 1889. NARUC

represents the government officials in the fifty

States, the District of Columbia, Puerto Rico, and

the Virgin Islands, charged with, among other

things, ensuring the provision of safe, affordable

and reliable electric service to the citizens within

their respective borders.2 NARUC’s member

commissions are directly impacted by the decision

below.

1 In accordance with U.S. Sup. Ct. Rule 37.2(a),

28 U.S.C.A., all parties have provided blanket consent to the

filing of amicus curiae briefs, which the Clerk of the Court has

noted on the docket. Pursuant to U.S. Sup. Ct. Rule 37.6,

28 U.S.C.A., NARUC states the following: (1) NARUC counsel

authored this brief; (2) no counsel for a party to the decision

below, or other entity, authored this brief in whole or in part;

and (3) no person or entity other than NARUC made a

financial contribution to the preparation or submission of this

brief.

2 Both the United States Congress and federal courts

have recognized that NARUC is a proper party to represent

the collective interest of State regulatory commissions. See

e.g., 47 U.S.C. § 410 (1986), where Congress calls NARUC "the

national organization of the State commissions" responsible

for economic and safety regulation of the intrastate operation

of carriers and utilities. See also United States v. S. Motor

Carrier Rate Conference, et al., 467 F.Supp. 471 (N.D. Ga.

1979), aff. 672 F.2d 469 (5th Cir. Unit "B" 1982); aff. en banc,

702 F.2d 632 (65th Cir. Unit "B" 1983, rev'd, 471 U.S. 48 (1985).

See also Indianapolis Power and Light Co. v. ICC, 587 F.2d

1098 (7th Cir. 1982); Wash. Utils. & Transp. Comm'n v. FCC,

513 F.2d 1142 (9th Cir. 1976).

The Fourth Circuit in Douglas R.M. Nazarian v.

PPL EnergyPlus, LLC, 753 F.3d 467 (4% Cir. 2014),

impermissibly constrains crucial State functions

necessary to ensure the long-term reliability of the

electric grid.

The case concerns a State-mandated long-term

contract for differences between Maryland utilities

and a developer, CPV Maryland, LLC (CPV), to

construct a power plant that the Maryland found

necessary to maintain electric reliability. CPV set

the contract price with its winning bid in the

underlying competitive procurement process. As

part of the contract, CPV was required to bid into

PJM Interconnection, LLC’s (PJM) Federal Energy

Regulatory Commission (FERC)-administered

regional capacity market and clear the auction in

order to receive its contract payment. The contract

specifically left the determination of the capacity

price to the PJM market. The Fourth Circuit held

that the FERC-administered market prohibits the

use of such contracts because it determined that

Maryland set wholesale rates through the contract.

By effectively holding that buy-side long-term

contracts for new generation exceed State authority

by setting wholesale prices, the decision opens the

door for attacks on all State-directed mechanisms to

assure adequate generation capacity. This could

include support offered directly (e.g., in the form of a

subsidy payment) or indirectly (e.g., in the form of a

tax rebate).

The Federal Power Act (FPA) expressly

preserves State authority over facilities used for the

generation of electric energy. NARUC’s member

commissions play a crucial role in long-term energy

resource planning. The decisions below eviscerate

State authority to ensure timely construction of new

generation. Thus, in response to the Fourth

Circuit’s decision, in July 2014, NARUC passed a

Resolution on Preserving State Authority Over New

Electric Generation ‘ effectively mandating the

association’s participation in this proceeding to:

protect and preserve States’ authority

to decide the type, amount and timing

of new or existing generation facilities

that will be constructed or maintained

within the State to achieve legitimate

State policy objectives [and] to

safeguard and guarantee States’

:

procure new generation or maintain for we

oe labili —-

purposes through use of long-term

contracts or any State statutory or

regulatory actions.5

8 See 16 U.S.C. § 824(b)(1).

4 See Resolution on Preserving State Authority Over New

Electric Generation (July 16, 2014), attached hereto at

Appendix.

5 Id. (emphasis added).

Only States can maintain diverse generation

resource options through, inter alia, ordering of

long-term integrated resource planning,

construction of new facilities, or contracts with

generation developers that include terms necessary

to ensure such _ construction. Even FERC

acknowledges that States continue to have

authority to create incentives “for the construction

of new capacity by entering into long-term bilateral

agreements.”®

FERC itself has no authority to order the

construction or siting of new generation; nor the

resources to handle the task; nor the authority to

require that the need for such construction be

determined exclusively by a FERC-supervised short-

term market.

Recent and pending federal environmental

regulations have placed even more pressure on

States’ ongoing plans to adjust generation sources

while maintaining reliability. If the decision below

stands, it can only significantly undermine State

authority to ensure reliable electric service and invite

countless needless lawsuits over any related State

programs that have a similar impact. Delay in

bringing new generation resources online can

6 PJM Interconnection, LLC, 115 FERC ¥ 61,079 at

P172 (2006). See aleo New York v. FERC, 536 U.S. 1, 24

(2002) (quoting FERC Order No. 888 at 31,782 n.644) (the FPA

protects State authority over “integrated resource planning

and utility buy-side” decisions and “utility generation and

resource portfolios.”).

threaten the reliability of the electric grid. The

Court should vacate the decision below.

SUMMARY OF ARGUMENT

Congress, in the FPA, expressly preserved

State’s authority over electric generation as well as

local utilities. 7 The Fourth Circuit decision

undermines States’ FPA-preserved authority to

assure reliable electric service. It raises the

prospect of additional challenges to States’

integrated resource planning, utility procurement

decisions, utility generation, and resource portfolios.

The decision improperly applies the “field

preemption” doctrine where Congress has expressly

acknowledged States’ exclusive jurisdiction. It

applies “conflict preemption” where even the

responsible agency, FERC, finds none.

The practical impact is to hamstring States’

ability to engage in the long-term planning required

to ensure safe and reliable electric service.

7 16 U.S.C.S 824 et seq.; compare, Conn. Dep't of Pub.

Util. Control v. FERC, 569 F.3d 477, 481 (D.C. Cir. 2009)

(“State.. authorities retain the right to forbid new entrants

from providing new capacity, to require retirement of existing

generators, to limit new construction to more expensive,

environmentally-friendly units, or to take any other action in

their role as regulators of generation facilities without direct

interference from the Commission. Of course, those choices

affect| | the market clearing price for capacity.”).

ARGUMENT

Congress preserved States’ exclusive regulatory

responsibility for assuring generation resource

adequacy for retail customers.* Under the FPA,

States may even limit new construction to more

expensive, environmentally—friendly units. Even

FERC recognizes that States, in pursuing legitimate

policy goals, can procure new generation capacity,

even when short-term market prices may suggest

new capacity is not needed.!° The decision below

unlawfully constrains States’ ability to ensure

resource adequacy and will have significant

practical consequences.

NARUC specifically endorses the arguments

presented in both Petitioner briefs. However, we

respectfully supplement those arguments to aid the

Court in fully understanding the national impact of

the Fourth Circuit decision on State FPA-sanctioned

8 See New York v. FERC, 535 U.S. 1, 24 (2002)

(enumerating areas of State authority to include: reliability of

local service, administration of integrated resource planning

and utility buy-side and demand-side decisions, including

demand-side management, authority over utility generation

and resource portfolios, and authority to impose distribution or

retail stranded cost charges).

8 Conn. Dep't of Pub. Util. Control v. FERC, 669 F.3d

477, 481 (D.C. Cir. 2009).

10 JSO New England, Inc., 135 FERC ¥ 61,029, P20

(2011).

responsibility to assure reliable, safe, and affordable

electric services.

I. Field Preemption Cannot Apply Where

Congress Has Specified State

Jurisdiction.

A. State authority over generation,

siting, and retail utilities predate

the FPA.

State authority, either directly or through local

subdivisions, over generation matters predate the

FPA. In the mid to late 1800s, electric utilities were

regulated by municipal franchises which, inter alia,

set price ceilings and service thresholds through

twenty- to fifty-year contracts. |! State-level

regulation began around 1910 with the

establishment of public utility commissions

(PUCs).'2 Generally, the laws governing these

11 Werner Troesken, Regime Change and Corruption: A

History of Public Utility Regulation, in CORRUPTION AND

REFORM: LESSONS FROM AMERICA'S ECONOMIC

HISTORY 260-61 (Edward L. Glaeser and Claudia Goldin,

eds., 2006), http://www.nber.org/chapters/c9986.

12 Although States had commissions that regulated

railroads and other matters starting with Rhode Island in

1839, Masaachusetts created the first statewide commission to

regulate public utilities (gas and electric) in 1887. Id. at 262;

Robert L. Swartwout, Current Utility Regulatory Practice

From A Historical Perspective, 32 Nat. Resources J. 289, 300

(1992). In 1907, New York and Wisconsin established the first

State utility regulatory commissions with full regulatory

footnote cont. on next page

commissions charge them with the duty to protect

(1) utility customers; (2) utility investors; and

(3) the general public.'* New Mexico's statute is

typical:

It is the declared policy of the state

that the public interest, the interest of

consumers and the interest of

investors require the regulation and

supervision of such public utilities to

the end that reasonable and proper

services shall be available at fair, just

and reasonable rates, and to the end

that capital and investment may be

PUCs have several functions. The functions vary

somewhat among the states, but the “first and best

established functions of the state commission are to

footnote cont.

authority. Swartwout at 300-301. By 1920, nearly every State

had established a utility commission. /d. at 301.

13 Id. at 303.

14 Id. at 303 (emphasis added).

determine a utility's revenue requirement and to

establish prices or rates for each customer class.” !5

Along with setting a _ utilitys revenue

requirement and customer rates, PUCs also have

authority over a utility’s resource acquisitions,

which can take several of forms. It can include:

(1) examining the amount of resources necessary

through long-term planning processes referred to as

integrated resource planning to determine the

target for future investments in_ generation,

transmission, distribution and energy efficiency;

(2) regulating the type of generation through

mechanisms like renewable energy portfolio

standards, which require utilities to meet a certain

percentage of their demand with designated types of

renewable resources; (3) requiring an alternative to

meeting demand through new resources’ by

mandating energy efficiency standards;

(4) reviewing proposed plans for power plants and

approving, rejecting or modifying those plans; or

(5) conducting prudence reviews of new construction

or other capital projects.!®

To date, States have met their mandate to

ensure reliable service through a variety of tools.

Long-term contracts have been the mainstay of non-

15 Regulatory Assistance Project, Electricity Regulation

in the US: A Guide, 25 (2011),

www.raponline.org/docs/RAP_Lazar_ElectricityRegulationInT

heUS_Guide_2011_03.pdf.

16 Jd. at 25-26.

10

utility power development for three decades, never

questioned on Constitutional or other grounds.

B. The FPA preserves State authority

over generation and retail utility

services.

Where State regulation exists, this Court has

required a clear showing of congressional intent to

preempt in any subsequent federal enactment. !’

Prior to the FPA, States unequivocally possessed

authority over resource adequacy as part of their

traditional police powers. That authority included

jurisdiction to order utilities to construct or procure

new generation.

In the FPA, Congress preserved States’ authority

over resource adequacy. The FPA expressly

excludes FERC from matters traditionally regulated

by the States and expressly preserves State

authority over generation!® by including a “specific

grant of power to the States to regulate

production.”!9

The rise of regional transmission organizations

did not change State authority over purchasing

decisions of regulated electric distribution utilities.

States continue to regulate and approve contracts to

17 See Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 230

(1947).

18 16 U.S.C. § 824(a) & (b)(1).

19 See Nazarian, 753 F.3d 467, 480 (citing NW Cent.

Pipeline Corp, 489 U.S. 493, 615 (1989)).

11

ensure resource adequacy. Because this is precisely

the task Congress left to States, field preemption is

simply not applicable. There is no explicit statutory

text that precludes the actions taken by Maryland

in the case below.

This misapplication of the field preemption

doctrine to generation procurenient, an area where

States have clear authority, can only undermine

States’ ability to act in related areas. If the Fourth

Circuit did correctly apply the field preemption

doctrine, any State effort to allow a generator to

earn more money than it otherwise would through

wholesale capacity sales would always be

preempted if such additional income is determined

to be a rate received for their capacity.” Until this

decision, State authority over integrated resource

planning, utility procurement decisions, utility

generation, and renewable generation portfolios was

reserved unequivocally by Congress. But, under the

Fourth Circuit's rationale, these crucial tasks are all

subject to the same legal challenge.

In the FPA, Congress recognized that continued

oversight of generation and retail utility rates and

practices should remain at the State level.

2% Jd. at 476. As discussed by Petitioners, even if these

contracts are FERC-jurisdictional, preemption is still not

warranted because FERC could review them to determine if

they set just and reasonable rates. See Brief for Petitioner

CPV Maryland, LLC at 12 n9, Hughes et al. v. PPL

EnergyPlus, LLC, No. 14-623, (U.S. docketed Dec. 8, 2015).

12

Il. There is No Conflict Between the FERC-

mandated Capacity Auction and the

Maryland-approved Contract for

Differences.

New power plants cost billions. A reasonable

financier could require assurances like a dedicated

income stream prior to breaking ground. That is

why long-term contracts are an essential option to

the financing and construction of new power

plants.2! It is also why it is common practice for

States to conduct procurements to develop new

power plants. The Fourth Circuit decision

eliminates the States’ Congressionally-sanctioned

ability to ensure resource adequacy by preventing

utilities from entering into competitively-procured

long-term power plant construction contracts if the

winning bidder earns a single dollar more than it

would from its wholesale capacity sales. This

inhibits development of new generation and

disrupts one of the major functions of a PUC, which

is risk management.

Here, Maryland determined, after receiving

reports regarding reliability concerns, that the risk

to providing reliable service was greater than the

investment risk of entering a long-term contract. In

a wholesale capacity market, the risk involved with

investment decisions is borne by the independent

21 See American Public Power Association, Power Plants

Are Not Built on Spec—2014 Update at 2 and Table 1 (2014),

http://goo.gl/t62QuS.

13

power producers. A contract for differences like the

one used by Maryland shifts some of the risk back to

the utilities and ratepayers from the independent

power producers. Maryland trades the risk, on

behalf of utilities and ratepayers, that they will pay

more through a long-term contract than they would

have through the market for the assurance of

reliability for a twenty-year period. CPV trades off

the risk that price volatility would prevent it from

earning a suitable return on its investment with the

risk of losing out on possibly higher returns.

Maryland mitigated some of the financial risk of the

contract for its interest groups by requiring as part

of the contract that CPV clear the PJM capacity

auction. Under the PJM market rules, without this

requirement, the utilities and the ratepayers “could

have had to pay twice for the capacity—once to CPV

and again to PJM-—with no offsetting revenue.” 2

The current market structure alone was not

allowing Maryland to fulfill its obligation to manage

the risk of unreliable service to the groups whose

interests it protects because the market could not

provide a way to secure the reliable service that

Maryland needed.25 In this case, reliable service

22 Brief for Petitioners Hughes et al. at 21, 42-43, Hughes

et al. v. PPL EnergyPlus, LLC, No. 14-623, (U.S. docketed Dec.

8, 2015). Bearing this kind of risk would be an acceptable

condition for a willing seller like CPV because if it did not

clear the market, then it would not be under a capacity

obligation and it would not have to make the investment in the

new power plant.

23 FERC-supervised capacity markets offer the

footnote cont. on next page

14

required a long-term investment in a specific area.

By entering a long-term contract for differences

involving the capacity market, Maryland was able

to address the risk to reliable service.

This is entirely consistent with both the express

text of the FPA and existing FERC regulations.

Maryland’s acceptance of a contract for differences

between CPV and its utilities for twenty years does

not conflict with FERC’s autaority to conduct

wholesale capacity markets or the functioning of the

PJM capacity auction. The contract for differences

required CPV to submit a bid into the auction and

clear the auction. PJM evaluated CPV’s bid under

the cost-based minimum offer price rule (MOPR).

After an adjustment, PJM allowed CPV to submit

its bid. CPV’s PJM-approved bid cleared the

auction.

Conflict preemption occurs “when there is

outright or actual conflict between federal and state

footnote cont.

participants the opportunity to sell or purchase electric

capacity in the short-term, e.g., a month, season, year; the

PJM auction that is the most forward looking is one that is for

one year of capacity three years in the future. FERC Office of

Enforcement, Energy Primer: A Handbook of Energy Market

Basics 61 (2015), http://perma.cc/U9AG-K4M6. This approach

promises generators and utilities still only relatively short-

term assurances, though in the PJM market some new

entrants can lock-in their initial clearing price for a three-year

period. See PJM Interconnection, LLC, 128 FERC 4 61,157, at

P 92 (2009).

15

law, e.g., where compliance with both federal and

state law is in effect physically impossible ... ."™

FERC has stated that even in circumstances where

resources receive discriminatory subsidies, if the

resource clears with a MOPR bid, “then it is a

competitive resource and should be permitted to

participate in the auction regardless of whether it

also receives a subsidy.”25 Moreover, on rehearing,

FERC affirmed the MOPR and found that it

reconciled the “tension” between State policies

seeking to construct specific resources and FERC’s

obligation to ensure the justness and

reasonableness of the wholesale market prices.

There can be no conflict if the federal agency

charged with implementing the federal law

acknowledges that the two can coexist.

The Fourth Circuit also found that the length of

the contract for differences created a conflict with

the PJM market because of PJM’s New Entry Price

Adjustment (NEPA).2”7 This is a non-sequitur. The

NEPA is a mechanism within the market that

allows certain new generators to lock in their initial

*% La. Pub. Serv. Comm'n v. FCC, 476 U.S. 355, 368

(1986) (citations omitted).

2% PJM Interconnection, LLC, 135 FERC 4 61,022, P 177

(2011), on reh’g, 137 FERC 4 61,145 (2011), reh’g denied, 138

FERC J 61,160, and reh’g denied, 138 FERC 4 61,194 (2012),

review denied sub nom. N.J. Bd. of Pub. Utils. v. FERC, 744

F.3d 74 (3d Cir. 2014).

2% ©=PJM, 137 FERC § 61,146, P 4.

27 Nazarian, 753 F.3d at 479.

16

clearing bid for three years. The Fourth Circuit

concluded that because the contract for differences

was for a twenty-year period, it was in direct

conflict with this mechanism and FERC policy.

Generators receiving the NEPA are selling a

different product into the market, namely short-

term capacity, where both their pricing and their

obligation to provide capacity are short term. In

contrast, in the contract for differences, CPV is

selling its capacity indirectly to the utility at a set

rate for a twenty-year obligation. As with a finding

of field preemption, a finding of conflict preemption

also puts at risk a whole range of other activities

currently within State authority. Furthermore,

FERC has affirmed the right of parties to contract

for longer time periods.”

CONCLUSION

Elimination of the ability of States to procure

new generation through long-term contracting

eliminates a major long-term planning and risk

management tool. Any curtailment of a State’s

ability to engage in long-term resource adequacy

planning will necessarily reduce reliability of

generation sources. Moreover, FERC does not stand

in a position to substitute for States in terms of

long-term resource adequacy planning. FERC

cannot order generation, even to compel generating

% PJM Interconnection, LLC, 107 FERC ¥ 61,112, P 20

(2004), on reh’g, 110 FERC ¥ 61,053, on reh’g, 112 FERC

{ 61,031 (2005), on reh’g, 114 FERC 4 61,302 (2006).

17

facilities as a means of remedying insufficient

service.29 Eliminating this tool will also have an

impact on States’ ability to comply efficiently with

federal environmental programs such as the US.

Environmental Protection Agency’s Clean Power

Plan.® States need all the regulatory tools possible

to respond to resource adequacy concerns and

federal environmental requirements.

7 =6See 16 U.S.C. § 824f.

% The Clean Power Plan is the U.S. Environmental

Protection Agency’s name for the final rule titled “Carbon

Pollution Emission Guidelines for Existing Stationary Sources:

Electric Utility Generating Units.” 80 Fed. Reg. 64,662

(October 23, 2015) (to be codified at 40 C.F.R. pt. 60).

18

For the reasons set forth, supra, NARUC urges

the Court to reverse the decision of the court of

appeals.

December 15, 2015

Respectfully submitted,

JAMES BRADFORD RAMSAY*

JENNIFER M. MURPHY

National Association of

Regulatory Utility

Commissioners

1101 Vermont Ave., N.W.

Washington, DC 20005

(202) 898-1350

jramsay@naruc.org

*Counsel of Record

APPENDIX

la

APPENDIX

Resolution on Preserving State Authority

Over New Electric Generation

WHEREAS, The National Association of

Regulatory Utility Commissioners (NARUC) is a

national organization representing State

Commissions statutorily responsible for regulating

utilities that provide energy services; and

WHEREAS, State Commissions have a

statutory obligation to ensure that the electric

utilities they regulate provide safe and reliable

service to retail customers at just and reasonable

rates; and

WHEREAS, State Commissions have long had

exclusive regulatory responsibility for assuring

generation resource adequacy for retail electric

customers; and

WHEREAS, In Section 201 of the Federal Power

Act (FPA), Congress specifies that federal

regulation under the FPA "extend[s] only to those

matters that are not subject to regulation by the

States”; and

WHEREAS, The FPA reserves to the States

authority over facilitics used in the generation of

electric energy; and

WHEREAS, The FPA protects State authority

over “integrated resource planning and utility buy-

2a

side” decisions and “utility generation and resource

portfolios,” New York v. FERC, 535 U.S. 1, 24 (2002)

(quoting FERC Order No. 888 at 31,782 n.544); and

WHEREAS, Over the last several years, storms

and periods of extraordinary weather events have

challenged the existing generation infrastructure;

and

WHEREAS, Numerous States have enacted or

are considering the enactment of statutes and their

commissions have implemented or may consider

implementing programs designed to address the

States' need to ensure the construction of new

generation, to maintain existing generation, and to

address environmental concerns; and

WHEREAS, The U.S. Court of Appeals for the

Fourth Circuit, in its published decision in PPL

EnergyPlus, LLC v. Nazarian, __ F.3d __, 2014 WL

2445800 (4th Cir. June 2, 2014), has ruled that

Maryland's programs providing for regulated retail

utilities to contract with new generators are

preempted by the FPA; and

WHEREAS, The U.S. District Court for the

District of New Jersey, utilizing the same reasoning

as adopted by the 4th Circuit, ruled that New

Jersey's statute which is similar to Maryland’s

program, is also preempted by the FPA, PPL

EnergyPlus, LLC v. Hanna, 977 F. Supp. 2d 372

(D.N.J. 2013), appeal pending, Nos. 13-4330 et al.

(argued Mar. 27, 2014); and

WHEREAS, The application of broad and

sweeping field preemption doctrine in these two

decisions has the potential to adversely impact the

3a

States’ FPA-protected authority over integrated

resource planning, utility procurement decisions,

utility generation, distribution, and resource

portfolios; and

WHEREAS, The two decisions’ application of

broad and sweeping field preemption doctrine to

prohibit or invalidate State-sanctioned contracts

supporting mew generation undermines and

conflicts with the State Commissions' jurisdictional

authority to ensure clean, affordable and reliable

electric energy; now, therefore be it

RESOLVED, That the Board of Directors of the

National Association of Regulatory Utility

Commissioners, convened at its Summer Meeting in

Dallas, Texas, continues to support legal and

legislative actions to protect and preserve States’

authority to decide the type, amount and timing of

new or existing generation facilities that will be

constructed or maintained within the State to

achieve legitimate State policy objectives; to

promote such new development through State

supervision of retail utility contracting; to safeguard

and guarantee States' continued right to operate

programs to procure new generation or maintain

existing generation for reliability, affordability and

environmental purposes through use of long-term

contracts or any State statutory or regulatory

actions; and to ensure that nothing in the Federal

4a

Power Act be deemed to preempt or prohibit such

activity by the States.

Passed by the Committees on Electricity and on

Energy Resources and the Environment.

Adopted by the Board of Directors, July 16, 2014.