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

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URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385016_0312%3A26

## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 2015

## Text

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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.

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385016_0312%3A26. Public record. Not legal advice.