Eight Supreme Court Justices held that state-mandated contracts that pegged prices to PJM wholesale market prices are preempted by the Federal Power Act (FPA). Justice Ginsburg’s opinion, joined by six Justices, concludes that “Maryland’s program sets an interstate wholesale rate, contravening the FPA’s division of authority between state and federal regulators.”

The Court rejected Maryland’s argument that the mandated contracts between state-regulated utilities and a power plant developer were permissible bilateral sales, finding that the contracts do not transfer ownership of capacity but dictate a transfer of money based on the developer’s sales to PJM. Prices for those sales to PJM are made exclusively through the FERC-approved auction. By adjusting that rate, “Maryland’s program invades FERC’s regulatory turf.”

The opinion specifies that the Court’s “holding is limited” and “do[es] not address the permissibility of various other measures States might employ to encourage development of new or clean generation. . . . So long as a State does not condition payment of funds on capacity clearing the auction, the State’s program would not suffer from the fatal defect that renders Maryland’s program unacceptable.” The opinion does not address competing generators’ arguments that Maryland’s order is preempted because it conflicts with PJM’s price signals and requires contracts that are longer in duration than PJM capacity awards.

Justice Sotomayor, who joined the opinion, wrote separately to “clarify [her] understanding of the pre-emption principles that should guide this Court’s analysis of the Federal Power Act and that underpin its conclusion in these cases.” Importantly, Justice Sotomayor noted that the FPA is a “collaborative federalism statute,” and courts must therefore take care not to “confuse the congressionally designed interplay between state and federal regulation” for “impermissible tension” that must be preempted. In this case, rather than relying on generic preemption doctrines, such as field or conflict preemption, the Court “use[s] the purpose of the FPA as the ‘ultimate touchstone’ of its preemption inquiry.” Maryland “contravened the goals of the FPA” by guaranteeing a rate different than FERC’s just and reasonable rate, and therefore its actions “must be preempted.”

Justice Thomas concurred in the judgment but wrote separately because he concluded that Justice Ginsburg’s opinion relied in part on principles of implied preemption. He joined the opinion “only to the extent that it rests on the text and structure of the Federal Power Act.”

The decision, briefs, and lower court opinions are available on the case page.
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