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Court erred in overturning New Jersey law to promote new power plants, APPA and NRECA say

From the January 31, 2014 issue of Public Power Daily

Originally published January 31, 2014

By Robert Varela
Editorial Director
A federal district court erred in overturning a New Jersey law to promote development of new power plants in the state, APPA and the National Rural Electric Cooperative Association told a federal appeals court. The district court decision was based on an erroneous reading of the Federal Power Act (FPA) and of Federal Energy Regulatory Commission policy and runs counter to the public interest, they said in a Jan. 24 brief filed with the U.S. Court of Appeals for the Third Circuit in PPL EnergyPlus v. Solomon.

The district court erroneously barred the state of New Jersey "from exercising legitimate authority reserved to it in the FPA ... and compounded that error by deciding matters entrusted to FERC’s exclusive determination," APPA and NRECA said. 

The district court failed to appreciate that there are two, parallel FERC-authorized and FERC-regulated mechanisms for the sale of capacity in the PJM region—a bilateral market, in which buyers and sellers enter into capacity sales transactions directly with one another, and PJM’s centralized capacity auction, the associations said. Throughout its existence, PJM’s capacity market has permitted long-term, bilateral contracting for capacity at prices and terms determined outside of the capacity market’s base residual auction and regulated by FERC through its oversight of utility sellers’ market-based rate tariffs, they said.

The New Jersey law "does not establish any wholesale rate in violation of any FERC-regulated tariff," APPA and NRECA said.

The Federal Power Act "does prohibit federal courts from determining in the first instance whether a wholesale electricity price established under one FERC tariff is unlawful because some other FERC tariff should govern the transaction," APPA and NRECA said. "The ‘filed rate’ doctrine holds that courts, except when reviewing a FERC order, must give binding effect to interstate wholesale electric rates established or accepted by FERC." The district court clearly overstepped by deciding for itself which wholesale price is "preferred," and by declaring any other wholesale price "void," they said.

Congress and FERC have consistently recognized that building a new power plant requires long-term financial arrangements (often in the form of long-term wholesale contracts) and supported such arrangements, APPA and NRECA said. Contrary to public policy, the district court "essentially consigns developers of new power plants in New Jersey to selling their capacity in a yearly auction run by PJM with substantial price volatility," they said. 

"Unless the district court’s decision is reversed, national energy policy may be frustrated by federal-court litigation in other states making similar baseless claims—which has already happened." While this case does not involve public power utilities or cooperatives, the decision "potentially threatens to undermine their continued ability to acquire long-term wholesale power supplies and to develop their own needed generation facilities," APPA and NRECA said. 


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Senior Vice President, Publishing 
Jeanne Wickline LaBella

Editorial Director
Robert Varela

Editor, Public Power Daily
Jeannine Anderson

Communications Assistant
Fallon W. Forbush

Manager, Integrated Media 
David L. Blaylock

Integrated Media Editor 
Laura D’Alessandro