Supreme Court leery of state power incentives

By Robin Bravender | 02/24/2016 01:04 PM EST

A Maryland program providing new incentives for power generation appears to be in peril as the Supreme Court weighs its fate.

A Maryland program providing new incentives for power generation appears to be in peril as the Supreme Court weighs its fate.

Several members of the high court seemed skeptical of the state program today, with several justices indicating they plan to find it illegal and were only debating how exactly to do so.

The case pits Maryland officials and a broad coalition of state supporters against a group of power producers backed by the Obama administration.


Maryland is defending its efforts to spur new natural gas generation, while challengers argue that the program improperly treads into federal territory by mandating that a generator receive a different price than one approved by government regulators for electricity on the wholesale market (Greenwire, Feb. 22).

Justice Sonia Sotomayor asked the lawyer challenging the state program during oral arguments this morning to clarify for her how she could write an opinion finding the states had improperly stepped into federal regulators’ territory.

"I’m not sure how this is field pre-emption," said Sotomayor, an Obama appointee.

The challengers contend that the state program is broadly pre-empted, or "field pre-empted," because it impinges on the Federal Energy Regulatory Commission’s power to regulate "wholesale" rates for electricity and transmission that crosses state lines. They also say the program is "conflict pre-empted," meaning it directly interferes with FERC’s market-based system for setting wholesale electricity rates, unfairly distorting costs.

Sotomayor added, "I think it’s conflict pre-emption," signaling she’s inclined to knock down the program on narrower grounds.

Justice Stephen Breyer, a Clinton appointee, asked an attorney representing the government in the case what specific wording could be used to describe how the Maryland program is pre-empted.

Ann O’Connell, assistant to the solicitor general, responded that the justices could find the program illegal because it is "directly targeting" the auction prices.

Several other justices also suggested they may agree that states were stepping on FERC’s authority to set fair and reasonable electricity rates on the wholesale market.

"If it doesn’t suppress prices, why did Maryland do it?" asked Chief Justice John Roberts, a George W. Bush appointee.

Justice Elena Kagan, an Obama appointee, suggested that the program interfered with FERC’s ability to set wholesale rates. "That’s for FERC to do," she said. Despite "the fact that Maryland" allowed an auction to set rates, "they’re still Maryland’s rates."

Kagan asked the government attorney, if the court were to find in its favor, whether it would prefer to win on the issue of field or conflict pre-emption.

And Justice Anthony Kennedy, a Reagan appointee, asked whether Maryland’s impact on the electricity markets was "inconsistent with FERC’s policy."

The justices appeared to also be looking for ways to allow state actions to encourage new power generation that don’t impinge on federal authority.

Roberts asked whether there would be any conflict if Maryland decided to directly subsidize new plants without stepping into wholesale energy markets.

As long as a state stays in its sphere, "that’s fine," O’Connell said.

As the justices dove into their second complicated case this term over state versus federal jurisdiction over energy markets, they joked about how confusing the cases are.

"I am not quite on top of how this thing works," Breyer said, after he attempted to lay out a broad hypothetical situation about generation incentives.

Sotomayor echoed her colleague’s thoughts: "I’m not quite sure how everything’s working."

The eight-member court will now weigh how to handle a lower court’s decision that knocked down the state program. The death earlier this month of conservative Justice Antonin Scalia is expected to affect some cases where votes would be close, but some energy experts have predicted this case will be decided by a large margin and that Scalia’s absence won’t affect the outcome. A 4-4 split in this case would uphold the lower court’s decision that struck down the Maryland program.

A decision in the consolidated cases — Hughes v. Talen Energy Marketing and CPV Maryland LLC v. Talen Energy Marketing — is due before the court’s term ends in June.