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Court rules Maryland actions to get power plant built are unconstitutional


From the October 7, 2013 issue of Public Power Daily

Originally published October 7, 2013

By Robert Varela
Editorial Director

The state of Maryland's use of a "contract for differences" to secure the development of a new power plant in the state violated the Supremacy Clause of the Constitution by intruding on federal jurisdiction over wholesale energy and capacity price-setting, a federal court ruled Sept. 30. "While there exist legitimate ways in which states may secure the development of generation facilities, states may not do so by dictating the ultimate price received by the generation facility for its actual wholesale energy and capacity sales in the PJM markets without running afoul of the Supremacy Clause," ruled Judge Marvin Garbis of the U.S. District Court for the District of Maryland.

At issue in the case is a 2012 Maryland Public Service Commission order directing the state’s investor-owned utilities to sign 20-year contracts for differences with CPV Maryland, which submitted the winning bid to build a new 661-MW natural gas-fired power plant in response to a PSC competitive procurement process. The contracts set a specific price for capacity. If that price is higher than the prices in PJM’s market, the utilities pay the difference to CPV; if the market prices are higher, CPV would pay the difference to the utilities.

The state argued that the PSC order does not set wholesale prices because it is a purely financial arrangement that secured the construction of a new power plant in Maryland. However, Judge Garbis ruled that the PSC effectively set the wholesale prices that CPV will receive for its capacity sales into the PJM markets. "CPV will ultimately realize or be compensated according to the ‘contract price’ set by the PSC ... and not according to the market-based rates set in the FERC-approved PJM markets."

The court rejected claims that the PSC’s order violates the Constitution’s Commerce Clause.

The 149-page opinion in PPL EnergyPlus, LLC et al. v. Nazarian is available online.

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