Maryland can’t subsidize new power plants, appeals court rules

Maryland can’t put into effect a program to subsidize new power plants in the state, a U.S. appeals court ruled, saying the proposal would circumvent the Federal Energy Regulatory Commission’s exclusive authority over interstate energy rates.

In a unanimous decision, the U.S. Court of Appeals in Richmond upheld a lower-court ruling that barred the state’s proposal. Industry critics argued that the plan was unconstitutional and preempted by federal law.

“A wealth of case law confirms FERC’s exclusive power to regulate wholesale sales of energy in interstate commerce, including the justness and reasonableness of the rates charged,” the appeals panel ruled. “Maryland has sought to achieve through the backdoor of its own regulatory process what it could not achieve through the front door of FERC proceedings.”

Maryland is among states grappling with FERC over the limits of state and federal authority to oversee power generation and wholesale market prices. A similar case is before the U.S. Court of Appeals in Philadelphia over subsidized power generation in New Jersey.

Maryland’s plan, formalized by the Maryland Public Service Commission in 2012, offered a 20-year revenue stream to bidders for the construction of a power plant in an area comprising part of the state and all of the District of Columbia.

The order granted new generators the potential to offer power at lower prices than existing competitors, with subsidies making up the difference. Payments from local electric distribution companies would make up the subsidies, according to the appeals court ruling.

Existing power providers in the state argued the plan would result in suppression of wholesale prices and a reduction in their revenue from the market. The appeals court agreed.

Maryland’s plan “compromises the integrity of the federal scheme and intrudes on FERC’s jurisdiction,” the court said.

It rejected Maryland’s argument that the generation order fell under state jurisdiction since it was designed to ensure that the state had adequate generation capacity.

While states retain substantial latitude in directly regulating generation facilities, they may not exercise that authority in a way that impinges on FERC’s power to set wholesale rates, the court said.

The case is PPL EnergyPlus LLC v. Nazarian, 13-2419, U.S. Court of Appeals for the Fourth Circuit (Richmond).

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