Federal Court Finds Maryland PSC Order Unconstitutional for Setting Wholesale Electricity Price

On September 30, 2013 the United States District Court for the District of Maryland found unconstitutional a Maryland Public Service Commission (PSC) order directing the state’s electric utilities to enter into long-term contracts that required the utilities to pay PSC-set prices for the sales of capacity and energy from a new power plant to be constructed by a State-chosen developer. This case focused on the constitutionality of the PSC-mandated contract for differences (CFD) that would have required that the developer successfully bid its new capacity and energy into the federally-regulated regional wholesale power markets of the PJM Interconnect, while the utilities would have been required to pay the developer the differences between the PJM market prices and the contract price – an out-of-market price set by the PSC. The court found that the PSC’s order unconstitutionally dictated, through the CFD, wholesale prices in interstate power markets where the doctrine of field preemption forecloses state regulation since it is a field that by law is occupied entirely by the federal government. This ruling was favorable for Compass Lexecon’s clients PPL EnergyPlus, LLC, PSEG Power, LLC and the other Plaintiffs.

The court frequently cited the testimony of Compass Lexecon affiliate Professor Robert Willig. Professor Willig’s testimony explained the economics underlying the structure of PJM’s wholesale markets for electric generation capacity and energy, and showed on the basis of the economics of the definition and functionality of pricing that the CFD would have supplanted the PJM market prices with the PSC-set contract prices.

Compass Lexecon was retained by David Meyer of Morrison & Foerster LLP and Richard Roberts of Steptoe & Johnson LLP. Professor Willig was primarily supported by Glenn Mitchell and Marc Huntley in Compass Lexecon’s Pasadena office with additional support provided by Joe Cavicchi and David Molin in our Boston office.