State regulators in New Jersey and Maryland are appealing federal court decisions that have challenged the constitutional authority of the states to subsidize the construction of new power generation in their jurisdictions.

The New Jersey Board of Public Utilities (BPU) appealed on Nov. 20 to a federal appellate court in Philadelphia an October district court ruling that had deemed unconstitutional a New Jersey law that allowed the state to subsidize construction of 2,000 MW of natural gas-fired power plants.

Board President Robert Hanna would not comment on the appeal because the agency does not comment on pending litigation, said Greg Reinert, a spokesman.

The lower court had claimed that the New Jersey law intrudes on the Federal Energy Regulatory Commission (FERC) authority to set wholesale prices through PJM Interconnection’s reliability pricing model auction process and violates the Constitution's supremacy clause of the Constitution. It declared the law null and void.

New Jersey legislators had enacted the law in 2011, contending that the reliability pricing model failed to encourage the construction of generation in the state. The law required the state’s utilities to enter into long-term capacity contracts with new generation projects selected by the BPU.

BPU argued that FERC’s authority is limited to sales of the actual physical capacity to a buyer. The contracts mandated by the law were purely financial and therefore unrelated to the reliability pricing model auction and beyond FERC’s oversight, the BPU said.

But the lower court agreed with plaintiffs that BPU essentially sets a price for wholesale energy sales and therefore regulates in a field that is reserved exclusively for FERC and places a burden on interstate commerce.

PPL, Calpine Energy Services, Exelon Generating, GenOn Energy, NAEA Ocean Peaking Power, Public Service Enterprise Group and Atlantic City Electric filed a complaint against the law in federal court soon after it was signed by Gov. Chris Christie (R).

BPU had chosen projects proposed by Competitive Power Ventures, Hess and NRG Energy to receive utility contracts. The Hess and CPV projects cleared PJM’s capacity auction and are under construction. NRG’s did not, and the utility company has since decided not to build the originally planned 680-MW plant. In addition, LS Power has a 738-MW plant under construction.

Glen Thomas, president of PJM Power Providers, said that the reasons New Jersey wanted to subsidize generation are no longer issues. “There are about 2,000 MW under construction without subsidies, and there are no longer congestion charges in the region,” he said in a Nov. 22 interview. 

In Maryland, the Public Service Commission on Nov. 22 appealed to the federal appellate court in Richmond, Va., a lower court’s decision nullifying its requirement that utilities sign contracts with Competitive Power Ventures. The commission had chosen the CPV project in response to a request for proposals.

The commission in 2012 required Baltimore Gas & Electric, Pepco and Delmarva Power & Light to sign contracts for the difference between the price that CPV bid into the request for proposals and the amount that the 725-MW unit will receive from the PJM capacity auction.

“In essence, the contract for difference provided that regardless of the price set by the federally regulated wholesale market, the Maryland utilities would assure that CPV received a guaranteed price fixed by a contractual formula,” the lower court said.

FERC has exclusive authority to determine the reasonableness of wholesale rates, and state regulation of such matters is void under the supremacy clause, the court said.