## Facts

- The Federal Power Act (FPA) grants the Federal Energy Regulatory Commission (FERC) exclusive authority over interstate wholesale electricity rates, while reserving retail regulation and certain generation matters to the states.
- FERC approved PJM Interconnection, LLC’s forward “capacity” auction as a market mechanism to set wholesale capacity rates through a single clearing price paid to all successful sellers.
- Maryland concluded PJM’s FERC-approved rules did not sufficiently incentivize new in-state generation and sought other means after FERC rejected Maryland’s request to extend a long-term price adjustment for new entrants.
- Maryland’s Public Service Commission issued a “Generation Order” selecting CPV Maryland, LLC to build a new plant and requiring Maryland load-serving entities (LSEs) to enter 20-year “contracts for differences” with CPV.
- Under the program, CPV was required to sell capacity into the PJM auction; it would receive the PJM clearing price from PJM if its bid cleared.
- Separately, the contracts required LSEs and CPV to exchange payments so that CPV effectively received a fixed “contract price” instead of the PJM clearing price; if CPV failed to clear the auction, it received no contract payment.
- Incumbent generators sued, asserting the program was preempted because it interfered with FERC’s exclusive authority over wholesale rates; the district court and Fourth Circuit agreed.

## Issues

1. Whether the FPA preempts a state program that conditions payments to a generator on clearing a FERC-regulated PJM capacity auction and guarantees an effective rate different from the FERC-approved clearing price.
2. Whether a state may use contracts for differences to support new generation when the payments are tied to specific wholesale transactions in a federally regulated market.

## Decision

- The Supreme Court affirmed, holding Maryland’s program preempted under the FPA.
- The Court held Maryland “impermissibly intrude[d]” into the wholesale market by effectively setting a wholesale rate for CPV different from the PJM clearing price.
- The dispositive features were (1) conditioning payment on CPV’s capacity clearing the PJM auction and (2) guaranteeing CPV a different effective price for the resulting wholesale sales.
- The Court stated its holding was narrow and did not invalidate all state measures supporting generation; states may employ other incentives not tethered to clearing a FERC-regulated auction at a guaranteed wholesale price.

## Legal Principles

- FERC has exclusive jurisdiction under the FPA over interstate wholesale electricity rates and the rules affecting those rates; states may not set or disregard FERC-approved wholesale rates.
- State regulation is preempted when it conflicts with FERC’s rate-setting scheme by guaranteeing a generator a non-FERC rate for wholesale sales into a FERC-regulated market.
- A state may pursue legitimate generation-policy goals, including subsidies and incentives, so long as the state program does not condition benefits on participation in and clearing of a FERC-regulated wholesale auction in a way that effectively replaces the federally determined rate.

## Conclusion

Maryland’s contracts-for-differences scheme was preempted because it conditioned payment on clearing the PJM capacity auction and guaranteed the favored generator an effective wholesale rate different from the FERC-approved clearing price, thereby intruding on FERC’s exclusive authority over interstate wholesale electricity rates under the FPA.


Hughes v. Talen Energy Mktg., LLC, 136 S. Ct. 1288 (2016)