Shapiro, Lifschitz & Schram

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Marty Saturn – Executive Vice President, Meisel Capital Partners

State Level Action to Promote New Power Plant Development Found Unconstitutional in NJ and MD Federal Courts

By George Carry

Last month, the US District Court for the District of New Jersey in PPL EnergyPlus, LLC et al. v. Hanna struck down the state of New Jersey’s Long-Term Capacity Pilot Program (LCAAP), which was designed to cultivate and promote new in-state power plant development, for violating the U.S. Constitution’s Supremacy Clause.  The LCAAP program was the second of its type to be struck down recently by a federal court on similar grounds.  In late September, the US District Court for the District of Maryland ruled in PPL EnergyPlus, LLC et al. v. Nazarian that the state of Maryland’s actions to secure new power plant development through the Public Service Commission (PSC) were also unconstitutional. The Maryland PSC and New Jersey LCAPP programs were designed to attract new power generation and transmission resources for their representative states through guaranteeing long-term contract pricing for energy and capacity resources, regardless of prices established by the PJM Interconnection LLC (PJM) markets. PJM is a regional transmission organization that is part of the Eastern Interconnection grid operating and electrical transmission system serving 13 states, including Maryland, Virginia, and Washington, D.C. For example, in Maryland, the PSC attempted to regulate the price new plants would pay in the PJM market for the next 20 years.

The Federal Power Act (FPA) gives the Federal Energy Regulatory Commission (FERC) exclusive responsibility over pricing regulations in the nation’s wholesale energy markets, including PJM. States, under the FPA, still have jurisdiction over power plant siting and construction. 

The constitutionality of the states’ respective programs was challenged so the federal courts would analyze whether the state programs violated the Supremacy Clause. State action that interferes or otherwise opposes federal law is in violation of the U.S. Constitution’s Supremacy Clause and, thus, unconstitutional. Maryland and New Jersey defended their programs, arguing that these were financial arrangements intended to secure construction and, therefore, fell within their jurisdiction under the FPA and did not violate FERC’s exclusive-price regulating “field” under the Supremacy Clause.

In both cases, the decisions relied upon the theory of “field preemption” and held that the programs did, indeed, intrude upon the federal government’s exclusive role to set wholesale prices in the nation’s energy markets because they determined the price ultimately received by the power supplier for its wholesale energy and capacity sales to PJM in the PJM wholesale energy markets.

These decisions are important to power suppliers currently operating as merchant power plants. They have prevented state action to fix prices in the PJM markets. If such state action was found, hypothetically, to be constitutional, it would consequently suppress wholesale prices in the markets by requiring execution of contracts for new power generation at non-market prices. This would, in effect, hinder the ability to make merchant investments based on estimated and anticipated pricing in the day-ahead markets or other expectations relating to future power supply-and-demand fluctuation.

Did You Know . . .

Members of the SLS trial group have tried in excess of 50 jury trials and 75 bench trials?

The SLS construction group has worked on sports stadiums across the country including Orioles Park in Baltimore and Paul Brown Stadium in Cincinnati?

The SLS construction group has worked on power plant projects across the country?

In 2007 SLS was selected for an Honorable Mention as one of the Best Places To Work in Washington DC?

Ron Shapiro, Steve Schram and Judd Lifschitz have all been selected as SuperLawyers by Law and Politics?

The SLS office building is an historic townhouse constructed in the late 1800s?

SLS has been selected by Martindale-Hubbell as a Preeminent Law Firm?

SLS trial lawyers have argued appeals in the U.S. Circuit Courts of Appeal for the 4th, 5th, 9th, D.C. and Federal Circuit?

SLS trial lawyers have been lead trial counsel in cases in Arizona, California, District of Columbia, Florida, Louisiana, Maryland, New Jersey, New York, North Carolina, Oregon, Texas, and Virginia, - to name just a few?

Virtually all the cases that SLS trial lawyers mediated have been favorably settled at mediation?

The transactional group at SLS was lead counsel on one of the largest, most complex mixed-use projects in downtown Washington, DC involving 4 lenders and 6 property owners?

In appreciation for the outstanding efforts of each of its employees during 2007, SLS gave everyone (attorneys, paralegals, and staff) a 4 day/3 night expense paid trip to Key West, Florida?

The transactional group at SLS has represented tenants in more than 200 retail leases in the Mid-Atlantic region?

Every attorney in the transactional group at SLS has at least 15 years experience?

The transactional group at SLS has represented developers in the purchase, construction, financing and/or sale of more than 75 multi-family apartment projects?

The transactional group at SLS has represented real estate investors and developers with respect to property in Pennsylvania, West Virginia, Delaware, Maryland, the District of Columbia, Virginia, North Carolina, South Carolina, Georgia, Florida, Texas, Tennessee, Michigan and the U.S. Virginia Islands?

Attorneys in the transactional group at SLS have represented eight national banks in commercial real estate loans?

Attorneys in the transactional group at SLS have represented the FDIC, the Resolution Trust Corporation and several banking institutions in loan workout transactions throughout the Mid-Atlantic region?

The transactional group at SLS has represented homebuilders and commercial real estate developers in work-outs of individual loans and also for work-outs of large portfolios involving dozens of properties in several states?

The trial lawyers of SLS have numerous reported decisions to their credit?