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SUPREME COURT OF THE UNITED STATES
Nos. 14–614 and 14–623
W. KEVIN HUGHES, CHAIRMAN, MARYLAND PUBLIC SERVICE COMMISSION, et al., PETITIONERS
TALEN ENERGY MARKETING, LLC, fka PPL ENERGYPLUS, LLC, et al.
CPV MARYLAND, LLC, PETITIONER
TALEN ENERGY MARKETING, LLC, fka PPL ENERGYPLUS, LLC, et al.
on writs of certiorari to the united states court of appeals for the fourth circuit
[April 19, 2016]
Justice Ginsburg delivered the opinion of the Court.
The Federal Power Act (FPA),
1063, as amended,
16 U. S. C. §791a et seq.
, vests in the Federal Energy Regulatory Commission (FERC) exclusive jurisdiction over wholesale sales of electricity in the interstate market. FERC’s regulatory scheme includes an auction-based market mechanism to ensure wholesale rates that are just and reasonable. FERC’s scheme, in Maryland’s view, provided insufficient incentive for new electricity generation in the State. Maryland therefore enacted its own regulatory program. Maryland’s program provides subsidies, through state-mandated contracts, to a new generator, but conditions receipt of those subsidies on the new generator selling capacity into a FERC-regulated wholesale auction. In a suit initiated by competitors of Maryland’s new electricity generator, the Court of Appeals for the Fourth Circuit held that Maryland’s scheme impermissibly intrudes upon the wholesale electricity market, a domain Congress reserved to FERC alone. We affirm the Fourth Circuit’s judgment.
Under the FPA, FERC has exclusive authority to regulate “the sale of electric energy at wholesale in interstate commerce.” §824(b)(1). A wholesale sale is defined as a “sale of electric energy to any person for resale.” §824(d). The FPA assigns to FERC responsibility for ensuring that “[a]ll rates and charges made, demanded, or received by any public utility for or in connection with the transmission or sale of electric energy subject to the jurisdiction of the Commission . . . shall be just and reasonable.” §824d(a). See also §824e(a) (if a rate or charge is found to be unjust or unreasonable, “the Commission shall determine the just and reasonable rate”). “But the law places beyond FERC’s power, and leaves to the States alone, the regulation of ‘any other sale’—most notably, any retail sale—of electricity.” FERC
v. Electric Power Supply Assn.,
577 U. S. ___, ___ (2016) (EPSA
) (slip op., at 1) (quoting §824(b)). The States’ reserved authority includes control over in-state “facilities used for the generation of electric energy.” §824(b)(1); see Pacific Gas & Elec. Co.
v. State Energy Resources Conservation and Development Comm’n
461 U. S. 190,
(“Need for new power facilities, their economic feasibility, and rates and services, are areas that have been characteristically governed by the States.”).
“Since the FPA’s passage, electricity has increasingly become a competitive interstate business, and FERC’s role has evolved accordingly.” EPSA
, 577 U. S., at ___ (slip op., at 4). Until relatively recently, most state energy markets were vertically integrated monopolies—i.e.
, one entity, often a state utility, controlled electricity generation, transmission, and sale to retail consumers. Over the past few decades, many States, including Maryland, have deregulated their energy markets. In deregulated markets, the organizations that deliver electricity to retail consumers—often called “load serving entities” (LSEs)—purchase that electricity at wholesale from independent power generators. To ensure reliable transmission of electricity from independent generators to LSEs, FERC has charged nonprofit entities, called Regional Transmission Organizations (RTOs) and Independent System Operators (ISOs), with managing certain segments of the electricity grid.
Interstate wholesale transactions in deregulated markets typically occur through two mechanisms. The first is bilateral contracting: LSEs sign agreements with generators to purchase a certain amount of electricity at a certain rate over a certain period of time. After the parties have agreed to contract terms, FERC may review the rate for reasonableness. See Morgan Stanley Capital Group Inc.
v. Public Util. Dist. No. 1 of Snohomish Cty.
554 U. S. 527
–548 (2008) (Because rates set through good-faith arm’s-length negotiation are presumed reasonable, “FERC may abrogate a valid contract only if it harms the public interest.”). Second, RTOs and ISOs administer a number of competitive wholesale auctions: for example, a “same-day auction” for immediate delivery of electricity to LSEs facing a sudden spike in demand; a “next-day auction” to satisfy LSEs’ anticipated near-term demand; and a “capacity auction” to ensure the availability of an adequate supply of power at some point far in the future.
These cases involve the capacity auction administered by PJM Interconnection (PJM), an RTO that oversees the electricity grid in all or parts of 13 mid-Atlantic and Midwestern States and the District of Columbia. The PJM capacity auction functions as follows. PJM predicts electricity demand three years ahead of time, and assigns a share of that demand to each participating LSE. Owners of capacity to produce electricity in three years’ time bid to sell that capacity to PJM at proposed rates. PJM accepts bids, beginning with the lowest proposed rate, until it has purchased enough capacity to satisfy projected demand. No matter what rate they listed in their original bids, all accepted capacity sellers receive the highest accepted rate, which is called the “clearing price.”[1
] LSEs then must purchase from PJM, at the clearing price, enough electricity to satisfy their PJM-assigned share of overall projected demand. The capacity auction serves to identify need for new generation: A high clearing price in the capacity auction encourages new generators to enter the market, increasing supply and thereby lowering the clearing price in same-day and next-day auctions three years’ hence; a low clearing price discourages new entry and encourages retirement of existing high-cost generators.[2
The auction is designed to accommodate long-term bilateral contracts for capacity. If an LSE has acquired a certain amount of capacity through a long-term bilateral contract with a generator, the LSE—not the generator—is considered the owner of that capacity for purposes of the auction. The LSE sells that capacity into the auction, where it counts toward the LSE’s assigned share of PJM-projected demand, thereby reducing the net costs of the LSE’s required capacity purchases from PJM.[3
] LSEs generally bid their capacity into the auction at a price of $0, thus guaranteeing that the capacity will clear at any price. Such bidders are called “price takers.” Because the fixed costs of building generating facilities often vastly exceed the variable costs of producing electricity, many generators also function as price takers.
FERC extensively regulates the structure of the PJM capacity auction to ensure that it efficiently balances supply and demand, producing a just and reasonable clearing price. See EPSA
577 U. S., at ___ (slip op., at 5) (the clearing price is “the price an efficient market would produce”). Two FERC rules are particularly relevant to these cases. First, the Minimum Offer Price Rule (MOPR) requires new generators to bid capacity into the auction at or above a price specified by PJM, unless those generators can prove that their actual costs fall below the MOPR price. Once a new generator clears the auction at the MOPR price, PJM deems that generator an efficient entrant and exempts it from the MOPR going forward, allowing it to bid its capacity into the auction at any price it elects, including $0. Second, the New Entry Price Adjustment (NEPA) guarantees new generators, under certain circumstances, a stable capacity price for their first three years in the market. The NEPA’s guarantee eliminates, for three years, the risk that the new generator’s entry into the auction might so decrease the clearing price as to prevent that generator from recovering its costs.
Around 2009, Maryland electricity regulators became concerned that the PJM capacity auction was failing to encourage development of sufficient new in-state generation. Because Maryland sits in a particularly congested part of the PJM grid, importing electricity from other parts of the grid into the State is often difficult. To address this perceived supply shortfall, Maryland regulators proposed that FERC extend the duration of the NEPA from three years to ten. FERC rejected the proposal. PJM
, 126 FERC ¶62,563 (2009). “[G]iving new suppliers longer payments and assurances unavailable to existing suppliers,” FERC reasoned, would improperly favor new generation over existing generation, throwing the auction’s market-based price-setting mechanism out of balance. Ibid.
See also PJM
128 FERC ¶61,789 (2009) (order on petition for rehearing) (“Both new entry and retention of existing efficient capacity are necessary to ensure reliability and both should receive the same price so that the price signals are not skewed in favor of new entry.”).
Shortly after FERC rejected Maryland’s NEPA proposal, the Maryland Public Service Commission promulgated the Generation Order at issue here. Under the order, Maryland solicited proposals from various companies for construction of a new gas-fired power plant at a particular location, and accepted the proposal of petitioner CPV Maryland, LLC (CPV). Maryland then required LSEs to enter into a 20-year pricing contract (the parties refer to this contract as a “contract for differences”) with CPV at a rate CPV specified in its accepted proposal.[4
] Unlike a traditional bilateral contract for capacity, the contract for differences does not transfer ownership of capacity from CPV to the LSEs. Instead, CPV sells its capacity on the PJM market, but Maryland’s program guarantees CPV the contract price rather than the auction clearing price.
If CPV’s capacity clears the PJM capacity auction and the clearing price falls below the price guaranteed in the contract for differences, Maryland LSEs pay CPV the difference between the contract price and the clearing price. The LSEs then pass the costs of these required payments along to Maryland consumers in the form of higher retail prices. If CPV’s capacity clears the auction and the clearing price exceeds the price guaranteed in the contract for differences, CPV pays the LSEs the difference between the contract price and the clearing price, and the LSEs then pass the savings along to consumers in the form of lower retail prices. Because CPV sells its capacity exclusively in the PJM auction market, CPV receives no payment from Maryland LSEs or PJM if its capacity fails to clear the auction. But CPV is guaranteed a certain rate if its capacity does clear, so the contract’s terms encourage CPV to bid its capacity into the auction at the lowest possible price.[5
Prior to enactment of the Maryland program, PJM had exempted new state-supported generation from the MOPR, allowing such generation to bid capacity into the auction at $0 without first clearing at the MOPR price. Responding to a complaint filed by incumbent generators in the Maryland region who objected to Maryland’s program (and the similar New Jersey program), FERC eliminated this exemption. PJM
, 135 FERC ¶61,106 (2011). See also 137 FERC ¶61,145 (2011) (order on petition for rehearing) (“Our intent is not to pass judgment on state and local policies and objectives with regard to the development of new capacity resources, or unreasonably interfere with those objectives. We are forced to act, however, when subsidized entry supported by one state’s or locality’s policies has the effect of disrupting the competitive price signals that PJM’s [capacity auction] is designed to produce, and that PJM as a whole, including other states, rely on to attract sufficient capacity.”); New Jersey Bd. of Pub. Util.
, 744 F. 3d 74, 79–80 (CA3 2014) (upholding FERC’s elimination of the state-supported generation exemption). In the first year CPV bid capacity from its new plant into the PJM capacity auction, that capacity cleared the auction at the MOPR rate, so CPV was thereafter eligible to function as a price taker.
In addition to seeking the elimination of the state-supported generation exemption, incumbent generators—respondents here—brought suit in the District of Maryland against members of the Maryland Public Service Commission in their official capacities. The incumbent generators sought a declaratory judgment that Maryland’s program violates the Supremacy Clause by setting a wholesale rate for electricity and by interfering with FERC’s capacity-auction policies.[6
] CPV intervened as a defendant. After a six-day bench trial, the District Court issued a declaratory judgment holding that Maryland’s program improperly sets the rate CPV receives for interstate wholesale capacity sales to PJM. PPL Energyplus, LLC
, 974 F. Supp. 2d 790, 840 (Md. 2013). “While Maryland may retain traditional state authority to regulate the development, location, and type of power plants within its borders,” the District Court explained, “the scope of Maryland’s power is necessarily limited by FERC’s exclusive authority to set wholesale energy and capacity prices.” Id.,
The Fourth Circuit affirmed. Relying on this Court’s decision in Mississippi Power & Light Co.
v. Mississippi ex rel. Moore
487 U. S. 354,
, the Fourth Circuit observed that state laws are preempted when they “den[y] full effect to the rates set by FERC, even though [they do] not seek to tamper with the actual terms of an interstate transaction.” PPL EnergyPlus, LLC
, 753 F. 3d 467, 476 (2014). Maryland’s program, the Fourth Circuit reasoned, “functionally sets the rate that CPV receives for its sales in the PJM auction,” “a FERC-approved market mechanism.” Id.,
at 476–477. “[B]y adopting terms and prices set by Maryland, not those sanctioned by FERC,” the Fourth Circuit concluded, Maryland’s program “strikes at the heart of the agency’s statutory power.” Id.,
] The Fourth Circuit cautioned that it “need not express an opinion on other state efforts to encourage new generation, such as direct subsidies or tax rebates, that may or may not differ in important ways from the Maryland initiative.” Ibid
The Fourth Circuit then held that Maryland’s program impermissibly conflicts with FERC policies. Maryland’s program, the Fourth Circuit determined, “has the potential to seriously distort the PJM auction’s price signals,” undermining the incentive structure FERC has approved for construction of new generation. Ibid.
Moreover, the Fourth Circuit explained, Maryland’s program “conflicts with NEPA” by providing a 20-year price guarantee to a new entrant—even though FERC refused Maryland’s request to extend the duration of the NEPA past three years. Id.,
We granted certiorari, 577 U. S. ___ (2015), and now affirm.
The Supremacy Clause makes the laws of the United States “the supreme Law of the Land; . . . any Thing in the Constitution or Laws of any State to the Contrary notwithstanding.” U. S. Const., Art. VI, cl. 2. Put simply, federal law preempts contrary state law. “Our inquiry into the scope of a [federal] statute’s pre-emptive effect is guided by the rule that the purpose of Congress is the ultimate touchstone in every pre-emption case.” Altria Group, Inc.
555 U. S. 70,
(internal quotation marks omitted). A state law is preempted where “Congress has legislated comprehensively to occupy an entire field of regulation, leaving no room for the States to supplement federal law,” Northwest Central Pipeline Corp.
v. State Corporation Comm’n of Kan.
489 U. S. 493,
, as well as “where, under the circumstances of a particular case, the challenged state law stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress,” Crosby
v. National Foreign Trade Council
530 U. S. 363,
(brackets and internal quotation marks omitted).
We agree with the Fourth Circuit’s judgment that Maryland’s program sets an interstate wholesale rate, contravening the FPA’s division of authority between state and federal regulators. As earlier recounted, see supra,
at 2, the FPA allocates to FERC exclusive jurisdiction over “rates and charges . . . received . . . for or in connection with” interstate wholesale sales. §824d(a). Exercising this authority, FERC has approved the PJM capacity auction as the sole ratesetting mechanism for sales of capacity to PJM, and has deemed the clearing price per se
just and reasonable. Doubting FERC’s judgment, Maryland—through the contract for differences—requires CPV to participate in the PJM capacity auction, but guarantees CPV a rate distinct from the clearing price for its interstate sales of capacity to PJM. By adjusting an interstate wholesale rate, Maryland’s program invades FERC’s regulatory turf. See EPSA
, 577 U. S., at ___ (slip op., at 26) (“The FPA leaves no room either for direct state regulation of the prices of interstate wholesales or for regulation that would indirectly achieve the same result.” (internal quotation marks omitted)).[9
That Maryland was attempting to encourage construction of new in-state generation does not save its program. States, of course, may regulate within the domain Congress assigned to them even when their laws incidentally affect areas within FERC’s domain. See Oneok, Inc.
v. Learjet, Inc.
, 575 U. S. ___, ___ (2015) (slip op., at 11) (whether the Natural Gas Act (NGA) preempts a particular state law turns on “the target
at which the state law aims
] But States may not seek to achieve ends, however legitimate, through regulatory means that intrude on FERC’s authority over interstate wholesale rates, as Maryland has done here. See ibid.
(distinguishing between “measures aimed directly
at interstate purchasers and wholesalers for resale, and those aimed at subjects left to the States to regulate” (internal quotation marks omitted)).[11
The problem we have identified with Maryland’s program mirrors the problems we identified in Mississippi Power & Light
and Nantahala Power & Light Co.
476 U. S. 953 (1986)
. In each of those cases, a State determined that FERC had failed to ensure the reasonableness of a wholesale rate, and the State therefore prevented a utility from recovering—through retail rates—the full cost of wholesale purchases. See Mississippi Power & Light
, 487 U. S., at 360–364; Nantahala
, 476 U. S., at 956–962. This Court invalidated the States’ attempts to second-guess the reasonableness of interstate wholesale rates. “ ‘Once FERC sets such a rate,’ ” we observed in Mississippi Power & Light
, “ ‘a State may not conclude in setting retail rates that the FERC-approved wholesale rates are unreasonable. A State must rather give effect to Congress’ desire to give FERC plenary authority over interstate wholesale rates, and to ensure that the States do not interfere with this authority.’ ” 487 U. S., at 373 (quoting Nantahala
, 476 U. S., at 966). True, Maryland’s program does not prevent a utility from recovering through retail sales a cost FERC mandated it incur—Maryland instead guarantees CPV a certain rate for capacity sales to PJM regardless of the clearing price. But Mississippi Power & Light
make clear that States interfere with FERC’s authority by disregarding interstate wholesale rates FERC has deemed just and reasonable, even when States exercise their traditional authority over retail rates or, as here, in-state generation.
The contract for differences, Maryland and CPV respond, is indistinguishable from traditional bilateral contracts for capacity, which FERC has long accommodated in the auction. See supra,
at 4–5, and n. 3. But the contract at issue here differs from traditional bilateral contracts in this significant respect: The contract for differences does not transfer ownership of capacity from one party to another outside the auction. Instead, the contract for differences operates within the auction; it mandates that LSEs and CPV exchange money based on the cost of CPV’s capacity sales to PJM. Notably, because the contract for differences does not contemplate the sale of capacity outside the auction, Maryland and CPV took the position, until the Fourth Circuit issued its decision, that the rate in the contract for differences is not subject to FERC’s reasonableness review. See §824(b)(1) (FERC has jurisdiction over contracts for “the sale of electric energy
at wholesale in interstate commerce.” (emphasis added)).[12
Our holding is limited: We reject Maryland’s program only because it disregards an interstate wholesale rate required by FERC. We therefore need not and do not address the permissibility of various other measures States might employ to encourage development of new or clean generation, including tax incentives, land grants, direct subsidies, construction of state-owned generation facilities, or re-regulation of the energy sector. Nothing in this opinion should be read to foreclose Maryland and other States from encouraging production of new or clean generation through measures “untethered to a generator’s wholesale market participation.” Brief for Respondents 40. 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.[13
* * *
For the reasons stated, the judgment of the Court of Appeals for the Fourth Circuit is