ENERGY MARKETS: Supreme Court to hear major grid case without Scalia

Robin Bravender, E&E reporter
Greenwire: Monday, February 22, 2016
A consequential energy case is on the Supreme Court’s docket this week as the justices hear their first arguments since the death of Justice Antonin Scalia.

On Wednesday, the court will hear the second high-profile case of this term where justices must weigh the divisions of state versus federal authority over electricity markets.

At issue: Does a Maryland program providing incentives for new power generation improperly veer onto federal regulators’ turf?

Lower courts said it does. The Richmond, Va.-based 4th U.S. Circuit Court of Appeals upheld a decision to knock down the state program, finding that Maryland’s efforts to spur new natural gas generation infringed on the Federal Energy Regulatory Commission’s jurisdiction over “wholesale” rates for electricity and transmission that crosses state lines.

At least four justices on the high court voted to take on the case, despite objections from the Obama administration, signaling that several justices might be interested in reversing the lower court’s findings. The Supreme Court case involves two consolidated appeals — Hughes v. Talen Energy Marketing and CPV Maryland LLC v. Talen Energy Marketing.

The stakes are high. States argue that their ability to ensure appropriate power generation is in jeopardy, while some utilities contend that the program is illegal and unfairly distorts costs.

Appealing the lower court’s decision are Maryland Public Service Commission Chairman W. Kevin Hughes and CPV Maryland LLC, the company that submitted the winning bid to construct a new natural gas power plant. Their backers include a broad coalition of states — including Connecticut, Iowa and Mississippi — the American Wind Energy Association, the National Governors Association, the National Association of Regulatory Utility Commissioners, the American Public Power Association and the National Rural Electric Cooperative Association.

In urging the high court to hear the case, Maryland officials said the issues are “exceptionally important.” The lower court’s decision “imperils dozens of state laws under which private parties are investing billions in needed generation plants, from clean-coal facilities in Illinois to offshore wind in Massachusetts.”

They noted that another appeals court, the 3rd Circuit, followed the 4th Circuit’s lead by striking down a New Jersey law to encourage new gas-fired generation. “Going forward,” they said, “the attacks leveled by this decision and its progeny will sow uncertainty, stifle investment in needed facilities, and open a dangerous generation planning vacuum.”

On the other side: Talen Energy Marketing LLC. It’s supported by the Electric Power Supply Association, the PJM Power Providers Group, American Electric Power Co. and others.

They argue that Maryland’s program improperly treads into FERC’s territory by mandating that a generator receive a different price than one approved by FERC for electricity on the wholesale market.

The Obama administration urged the high court not to review the case, arguing in a brief last September that the lower courts correctly found that Maryland and New Jersey incentive programs were pre-empted.

“Both courts explicitly limited their preemption holdings to the specific circumstances of the programs at issue and noted non-preempted ways (both economic and non-economic) in which States can support particular forms of generation,” Solicitor General Donald Verrilli wrote.

Two related cases on a similar New Jersey program have been put on hold at the Supreme Court, pending a decision in the Maryland case.

3rd in a string of FERC cases

This is the third high-profile case on FERC’s jurisdiction over electricity markets in the last few years, and the three opinions combined are expected to help clarify the boundaries for FERC and states.

“I think we will look back on these series of decisions decades from now as foundational and landmark decisions that allocate responsibility for governing the grid in a very different way than the bright line split of the Federal Power Act would seem to imply,” said Joel Eisen, a law professor at the University of Richmond.

He compared it to early decisions in telecommunications law when courts were grappling with the “rapid evolution of technology and a legal framework that wasn’t designed for the modern technology.”

Last year, the court decided a case looking at whether state antitrust lawsuits against major energy companies were “field pre-empted” by Congress, meaning FERC’s authority over some of the practices broadly barred states from wading into the issue.

In the case, Oneok Inc. v. Learjet Inc., the court ruled 7-2 that the state lawsuits weren’t pre-empted (Greenwire, April 21, 2015).

Earlier this term, the court issued another major decision in two combined cases over FERC’s jurisdiction, FERC v. Electric Power Supply Association and EnerNOC Inc. v. Electric Power Supply Association.

In that 6-2 opinion, the high court upheld FERC’s so-called demand-response rule for energy conservation, finding that it hadn’t stepped on states’ authority even though it affected states’ domain of “retail” electricity sales.

Lawyers tracking that case saw the opinion as a recognition of FERC’s broad regulatory authority, but didn’t see it as a clear signal that the justices will determine that FERC’s authority eclipses that of the state in the Maryland cases (Greenwire, Jan. 26).

The empty chair

For this third energy market case, the late Justice Scalia won’t be on the bench.

He was a vocal participant in the past two cases, penning the dissents in both.

In the Oneok case, Scalia — joined by Chief Justice John Roberts — interpreted the Natural Gas Act to mean that if the government “may regulate a subject, the States may not.” In the majority opinion, he wrote, “the Court smudges this line.”

And in this term’s demand-response case, Scalia said in his dissent that the Federal Power Act barred FERC’s demand-response rule because it waded into states’ authority over retail markets.

Given the lopsided votes in the past two cases and the fact that Scalia was in the minority in both, “I expect that the court should be able to find a majority to decide this case even after Justice Scalia’s death,” Eisen said.

Taken together, “I think these cases suggest that the court is taking a very functionalist approach to these statutes,” said Matthew Christiansen, an energy fellow at New York University School of Law. The justices are looking at energy laws from the 1930s and saying, “What are the basic goals behind these statutes?” and wondering how to “make the statute work in light of the changed industry.”

“I think all four liberals seem to be on board with the functionalist side,” Christiansen said, adding that he thinks the court’s four liberal justices — and perhaps some of the others — will find that the state program isn’t broadly “field pre-empted.” It’s less clear how the court will handle the issue of “conflict pre-emption,” he said, determining whether state laws interfere with federal rules.

Eisen said the case could shake out in a number of different ways.

To say that the state program is broadly pre-empted “would appear to give FERC complete authority over the wholesale markets, and that would be inconsistent” with the demand-response ruling, Eisen said.

A narrow holding could “find that state laws that directly target the prices in the wholesale markets are pre-empted, but would leave room for other state laws.”

Ultimately, Eisen added, “this case is going to go a very long way toward deciding what states can do, what FERC can do.”

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