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UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT

No. 13

- 4330

PPL ENERGYPLUS, LLC; PPL BRUNNER ISLAND, LLC; PPL HOLTWOOD, LLC; PPL MARTINS CREEK, LLC; PPL MONTOUR, LLC; PPL SUSQUEHANNA, LLC; LOWER MOUNT BETHEL ENERGY, LLC; PPL NEW JER SEY SOLAR, LLC; PPL NEW JERSEY BIOGAS, LLC; PPL RENEWABLE ENERGY, LLC; CALPINE ENERGY SERVICES L.P.; CALPINE MID

- ATLANTIC GENERATION, LLC; CALPINE NEW JERSEY GENERATION, LLC; CALPINE BETHLEHEM, LLC; CALPINE MID

- MERIT, LLC; CALPINE VINELAND SOLAR, LLC; CAL PINE MID

- ATLANTIC MARKETING, LLC; CALPINE NEWARK, LLC;EXELON GENERATION COMPANY, LLC; GENON ENERGY, INC.; NAEA OCEAN PEAKING POWER, LLC; PSEG POWER, LLC; ATLANTIC CITY ELECTRIC COMPANY; PUBLIC SERVICE ELECTRIC & GAS COMPANY

v. LEE A. SOLOMON, in his offic ial capacity as President of the New Jersey Board of Public Utilities ; JEANNE M. FOX, in her official capacity as Commissioner of the New Jersey Board of Public Utilities; JOSEPH L. FIORDALISO , in his official capacity as Commission of the New Jersey Board of2 Public Utilities ; NICHOLAS V. ASSELTA, in his official capacity as Commissioner of the New Jersey Board of Public Utilities;

CPV POWER Development, Inc .; Appellant

*HESS NEWARK, LLC, Intervenor in USCA *(Pursuant to Courts order entered Novenmber 14, 2013)

______________

No. 13

- 4501

______________
PPL ENERGYPLUS, LLC; PPL BRUNNER ISLAND, LLC; PPL HOLTWOOD, LLC; PPL MARTINS CREEK, LLC; PPL MONTOUR, LLC; PPL SUSQUEHANNA, LLC; LOWER MOUNT BETHEL ENERGY, LLC; PPL NEW JERSEY SOLAR, LLC; PPL NEW JERSEY BIOGAS, LLC; PPL RENEWABLE ENERGY, LLC; CALPINE ENERGY SERVICES L.P.; CALPINE MID

- ATLANTIC GENERATION, LLC; CALPINE NEW JERSEY GENERATION, LLC; CALPINE BETHLEHEM, LLC; CALPINE MID

- MERIT, LLC; CALPINE VINELAND SOLAR, LLC; CALPINE MID

- ATLANTIC MARKE TING, LLC; CALPINE NEWARK, LLC;EXELON GENERATION COMPANY, LLC; GENON ENERGY, INC.; NAEA OCEAN PEAKING POWER, LLC; PSEG POWER, LLC; ATLANTIC CITY ELECTRIC COMPANY; PUBLIC SERVICE ELECTRIC & GAS COMPANY

v.3 LEE A. SOLOMON, in his official capacity as Presid ent of the New Jersey Board of Public Utilities; JEANNE M. FOX, in her official capacity as Commissioner of the New Jersey Board of Public Utilities; JOSEPH L. FIORDALISO, in his official capacity as Commission of the New Jersey Board of Public Utilities; NICHOLAS V. ASSELTA, in his official capacity as Commissioner of the New Jersey Board of Public Utilities;

CPV POWER DEVELOPMENT INC.; HESS NEWARK, LLC

.

LEE A. SOLOMON

, JEANNE M. FOX, JOSEPH FIORDALISO, NICHOLAS ASSELTA, Apellants

_____________

On Appe al from the United States District Court for the District of New Jersey ( D.C. No. 3

- 11

- cv

- 00 745 )

District Judge: Honorable Peter G. Sheridan

_____________ Argued : March 27 , 20144 Before: FUENTES and SHWARTZ

, Circuit Judge s , and

ROSENTHAL, District Judge

. *
( Opinion Filed: September 1 1 , 2014) Richard F. Engel [Argued] Lisa J. Morelli Jennifer S. Hsia Office of Attorney General of New Jersey Department of Law & Public Safety Division of Law Richard J. Hughes Justice Complex 25 Market Street, P.O. Box 093 Tre nton, NJ 08625

Alex Moreau Office of Attorney General of New Jersey 124 Halsey Street P.O. Box 45029 Newark, NJ 07102 Counsel for Appellants Lee A. Solomon, Jeanne M. Fox, Joseph Fiordaliso, and Nicholas V. Asselta in No. 13

- 4501

Larry F. Eisenstat Clifto n S. Elgarten [Argued] Richard Lehfeldt Jennifer N. Waters Crowell & Moring LLP

* Honorable Lee H. Rosenthal, U.S. District Judge for the Southern District of Texas, sitting by designation.5 1001 Pennsylvania Avenue, N.W. Washington, DC 20004 Counsel for Intervenor

- Appellant CPV Power Development

Justin N. Kattan Richard M. Zuckerman [Argued] Dentons US 1221 Avenue of the Americas New York, NY 10020

Brian J. Molloy Wilentz, Goldman & Spitzer 90 Woodbridge Center Drive, 8th Floor Woodbridge, NJ 07095 Counsel for Intervenor Hess Newark LLC

Paul D. Clement [Argued] Erin E. Murphy Candice Wong Bancroft PLLC 1919 M Str eet N

. W

. , Suite 470 Washington, DC 20036 Counsel for Appellees

Philip J. Passanante Pepco Holdings, Inc./Atlantic City Electric Co. 500 North Wakefield Drive Newark, DE 19714 Counsel for Atlantic City Electric Co.6 David Musselman Essential Power, LLC 150 C ollege Road West Princeton, NJ 08540 Counsel for Essential Power, LLC

Robert C. Brady William P. Deni, Jr. Lawrence S. Lustberg Justin T. Quinn Gibbons One Gateway Center Newark, NJ 07102 Counsel for Calpine Energy Services

Sarah G. Novosel Calpine Corpora tion 875 15th Street N

. W

. , Suite 700 Washington, DC 20005 Counsel for the Calpine Companies

Darryl M. Bradford Ver ó nica G ó mez Exelon Corporation 10 South Dearborn Street, 49th Floor Chicago, IL 60603

D avid W. DeBru i n Matthew E. Price Jenner & Block LLP 10 99 New York Avenue N

. W

. , Suite 900 Washington, DC 200017 Counsel for Exelon Generation Co., LLC

Jesse A. Dillon PPL Services Corp. Two North Ninth Street Allentown, PA 18101

David L. Meyer Morrison & Foerster 2000 Pennsylvania Avenue N.W., Suite 6000 Washi ngton, DC 20006 Counsel for the PPL Companies

Tamara Linde Vaughn L. McKoy PSEG Services Corp. 80 Park Plaza Newark, NJ 07102

Shannen W. Coffin Steptoe & Johnson LLP 1330 Connecticut Avenue N

. W

. Washington, DC 20036 Counsel for PSEG Power, LLC and Public Service Electric & Gas Co.

John P. Coyle Duncan & Allen 1575 Eye Street, N.W., Suite 300 Washington, DC 200058 Pamela M. Silberstein National Rural Electric Cooperative Association 4301 Wilson Boulevard Arlington, VA 22203 Counsel for Amic i Appellant s Nati onal Rural Electric Cooperative Association and American Public Power Association

Delia D. Patterson American Public Power Association 1875 Connecticut Avenue, N. W. Suite 1200 Washington, DC 20009 Counsel for Amicus Appellant American Public Power Associ ation

Susanna Chu Kaye Scholer 901 15th Street, N.W. Washington, DC 20005 Counsel for Amici Curiae Vermont Public Service Board, Vermont Department of Public Service, Rhode Island Public Utilities Commission, New England Conference of Public Utilities Com missioners Inc. , Maine Public Utilities Commission, Connecticut Public Utilities Regulatory Authority, Connecticut Officer of Consumer Counsel, Connecticut Department of Energy and Environmental Protection, California Public Utilities Commission, and Attor ney General of Connecticut

Clare E. Kindall [Argued] Office of Attorney General9 10 Franklin Square New Britain, CT 06051 C ounsel to Amicus C onnecticut Public Utilities Regulatory Authority

Jeffrey A. Lamken Martin Totaro MoloLamken 600 New Hampshire Avenue , N.W., The Watergate Washington, DC 20037 Counsel to Amicus Curiae NRG Energy Inc.

Eugene Grace American Wind Energy Association 1501 M Street Washington, DC 20005 Counsel to Amicus Appellant American Wind Energy Association

Ashley C. Parrish David G. Tew ksbury King & Spalding 1700 Pennsylvania Avenue, N.W., Suite 200 Washington, DC 20006 Counsel to Amici Curiae Electric Power Supply Association & Edison Electric Institute

Stefanie A. Brand Office of Public Defender Division of the Ratepayer Advocate 140 E ast Front Street10 4th Floor, P.O. Box 003 Trenton, NJ 08625 Counsel to New Jersey Division of Rate Counsel

Karis A. Gong John L. Shepherd, Jr. Skadden, Arps, Slate, Meagher & Flom 1440 New York Avenue, N.W., Room 10

- 6 Washington, DC 20005 Counsel to Amicus Curiae PJM Power Providers Group

Adam D. Chandler U.S. Department of Justice Appellate Section 950 Pennsylvania Avenue, N.W., Room 3312 Washington, DC 20530 Robert H. Solomon [Argued] Federal Energy Regulatory Commission 888 1st Street, N.E. Washington, DC 20426 Counsel to Amici Curiae Federa l Energy Regulatory Commission and the United States of America

James P. Melia Aspassia V. Staevska Kenneth R. Stark Pennsylvania Public Utilities Commission 400 North Street Keystone Building Harrisburg, PA 17120 Coun sel to Amicus Appellee Pennsylvania Public Utility Commission11 OPINION OF T HE COURT

FUENTES

, Circuit Judge

. Dissatisfied with the stock and reliability of power

generating facilities in New Jersey, the state adopted the Long Term Capacity Pilot Program Ac t. The Act

— known as LCAPP

— instructed New Jersey’s Board of Public Utilities to promote the construction of new power

- generating facilities in the state. Rather than pay for the construction of these plants directly, the Board of Public Utilities crafted a set of contracts, called S tandard O ffer C apacity A greements
, that assured new electric energy generators fifteen years of

revenue from local utilities and, ultimately, New Jersey ratepayers

. LCAPP guaranteed revenue to new generators by fixing the rates th ose generators w ould receive for supplying electrical capacity, that is, the ability to make energy when called upon.

T he federal government , however, has exclusive control over interstate rates for wholesales of electric capacity

. So

w hen New Jersey arra nged for LCAPP generators to receive preferential capacity rates, the state entered into a field of regulation beyond its authority. Accordingly, federal law preempt s , and thereby invalidate s , LCAPP and the related Standard Offer Capacity Agreements

. We , t herefore, affirm the District Court’s judgment. Although we affirm, we address our opinion to the field of interstate rates, and not to electric energy markets generally. Moreover, b ecause we determine that LCAPP has been field preempted, we do not reach t he conflict preemption and dormant Commerce Clause arguments rais ed by the parties.12 

### I. Background of the Case This case concerns New Jersey’s authority to arrange for the construction of new electric generators through a scheme focused on capacity prices. Ne w Jersey’s legislation, and its reasons for pursuing it, make sense only in the broader context of the regional energy market. Our analysis begins there.

A. Regulatory framework Electric energy generation and transmission occur in a complex regulatory envi ronment populated with mul tiple private and public actors operating under the supervision of both state and federal agencies. The Federal Power Act embodie s Congress’s attempt “to reconcile the claims of federal and of local authorities and to apportion fe deral and state jurisdiction over the industry.” Conn. Light & Power Co. v. Fed. Power Comm’n , 324 U.S. 515, 5 31 (1945).

1. Both the federal government and the states regulate aspects of the electric energy system.
With the Federal Power Act, Congress placed “the transmission of electric energy in interstate commerce and the sale of such energy at wholesale in interstate commerce ” under federal control. 16 U.S.C. § 824(a). Through the Act, Congress exercised its Commerce Clause prerogative to regulate matters of interstate commerce that the states could
not. Cf. Public Util. Comm’n of R.I. v. Attleboro Steam & Elec. Co. , 273 U.S. 83, 89

- 90 (1927) (holding that the regulation of wholesale energy transactions that are “fundamentally interstate from beginning to e nd” may come only from the “exercise of the power vested in Congress.”)

. And Congress further extended federal authority to those13 electric energy matters indirectly re lated to interstate

commerce that had previously been subject to state regulation. See Ne w York v. F

. E

. R

. C

. , 535 U.S. 1, 6 (2002).

But Congress preserved state authority over many aspects of the electric energy industry. The Federal Power Act disclaimed any attempt to regulate “any other sale of electric energy” and declared that federal regu lators “shall not have jurisdiction, except as specifically provided . . . over facilities used for the generation of electric energy or over facilities used in local distribution or only for the transmission of electri c energy in intrastate commerce .” 16 U.S.C. § 824(b)(1). So while the federal government has exclusive control over interstate rates and transmission, the “[n]eed for new power facilities, their economic feasibility, and rates and services, are areas that have been characteristically governed by the States.” Pac. Gas & Elec. Co. v. State Energy Res. Conservation & Dev. Comm’n , 461 U.S. 190, 205 (1983).

2. FERC has exclusive authority over inter state capacity sales and transmissions, and it has exercised that authority through regional transmissio n organizations

. With respect to electric energy sales and transmissions

, the federal government has placed one agency in charge of implementing the Federal Power Act, the Federal Energy Regulatory Commission. This agency, known as FERC, “regulates the sal e of electricity at wholesale in interstate commerce.” Entergy La

. , I nc. v. La. Pub

. Serv

. Comm’n , 539 U.S. 39 , 41 (2003). FERC’s jurisdiction over interstate wholesale rates is exclusive. Nantahala Power & Light Co. v. Thornburg , 476 U.S. 953, 966 (1986). Accordingly , FERC alone has the responsibility to “ensure that wholesale rates are14 just and reasonable.” Entergy La., Inc ., 539 U.S. at 41 (quotation marks omitted); 16 U.S.C. § 824d(a). While FERC once directly considered whether the wholesale rates sub mitted to it were “just and reasonable,” the
agency has since moved away from this approach. Now FERC favors using market mechanisms to produce competitive rates for interstate sales and transmissions of
energy

. As part of this approach , FERC oversees regi onal transmission organizations that facilitate market operations

. PJM I nterconnection LLC operates as the federally

re gulated regional transmission organization for the PJM region. PJM takes its name from “Pennsylvania ,” “Jersey,” and “Maryland,” the hom e states of the first utilities to pool their excess power and capacity in 1927. Today, t he PJ M region encompasses all or part of thirteen states and the District of Columbia, including the entirety of New Jersey. PJM operates the largest centrally dispatc hed power market in the world. As a regional transmission organization , PJM has two responsibilities of significance to this case

. First, PJM manages the flow of electric energy throughout the regional power grid, “dispatching” energy in real time t o wher e it is needed. App’x 32. Second, PJM facilitates the interstate sales of electricity products, including energy and capacity , by managing marketplaces where those products may be

ex c hanged . Electric energy is “the actual electricity that electric generato rs produce and which residential and business customers ultimately use.” App’x 35 (quotation marks o mitted). By contrast, electric capacity is “the ability to produce [energy] when called upon.” App’x 36 (quotation marks omitted) . In a system , such as PJM, where multiple power generators pool their power , capacity describes the15 total amount of el ectricity

- generating resources available for

use. In other words, capacity is to energy what parking spaces
are to cars

— a measure of how much traffic the system can accommodate.

3. New Jersey has moved away from a monopoly model for electric power generation and toward a market

- based model approach

. New Jersey once followed a traditional utility model, regulating local monopolies that both generated and distributed pow er to an exclusive service area. In 1999, however, New Jersey enacted the Electric Discount and Energy Compet ition Act, N.J. Stat. § 48:3

- 49 et seq

. The Act restructured New Jersey’s electric energy system so “customers would have the right to cho ose their electricity suppliers ” and so that energy suppliers could obtain their energy from wholesale energy markets. App’x 44 ; see also N.J. Stat. § 48.3

- 50

. To this end, New Jersey divorced the entities that generate electricity from those that supply it.

The c hange produced a delicate circuitry of interdependence between private entities and public utilities, and between New Jersey and federally

- regulated wholesale energy markets

. Generators, such as coal

- fi red or natural gas
power plants, sell their capacity a nd energy to PJM through various PJM auctions

. Load

- serving entities pay PJM for furnishing capacity and energy, and , in turn, sell energy to

consumer s. 1 Electrici ty distribution companies , acting as

1 In New Jersey, customers may choose between numerous energy suppliers. The major electricity sup pliers include Atlantic City Electric, Jersey Central Power & Light, Rockland Electric, and Public Service Electric & Gas.16 common carriers, use their networ k of power lines to tra nsfer energy from generators to consumers. Although New Jersey restructured its approach to electric energy regulation, it did not cede its “authority over th e siting and construction of power plants.” App’x 44. New Jersey’s state utility regulator, the B oard of P ublic U tilities

, re tained statutory authority for “general supervision and regulation of and jurisdiction and control over all public utilities.” N.J. Stat. § 48:2

- 13(a). Pursuant to this authority, New Jersey has, for example, asserted jurisdicti on over “[t]he charges assessed to
custome rs for basic generation service, ” id. § 48:3

- 57(a)(1), and the licensing of electric power suppliers, id. § 48:3

- 78.

B. New Jersey passe d LCAPP to encourage the construction of new power plants. Roughly a decade a fter New Jersey restructure d its electric power industry, New Jersey’s legislature foresaw crisis. The legislature found that “New Jersey is experiencing an electric power capacity deficit and high power prices.” N.J. Stat. § 48:3

- 98.2(e). The legislature warned that, “[a]s a result of a lack of new, efficient electric generation facilities, New Jersey has become more reliant on coal

- fired power plants.” Id. § 48:3

- 98.2(f). And the legislature specifically found that PJM’s capacity market “has not resulted in large additions of peaking facilities or any additions of intermediate or base load resources available to the re gion and the State.” N.J. Stat. § 48:3

- 9 8 .2(b). New Jersey concluded that it needed more electric energy generators. New Jersey’s legislatur e en acted LCAPP in January 2011 to address its concerns. See id. § 48:3

- 98.3

. L CAPP aimed to encourage power generation companies to construct new power plants in New Jersey in order to add a cumulative17 2,000 megawatts of capacity to the regional power gri d from which New Jersey obtained its electrical energy

. Id. § 48.3

- 98.3(c)(1). The legislature foster ed additional electric generation in New Jersey by furnish ing new generators with fifteen

- year contracts to supply a predetermined amount of capacity at a predetermined rate

. LCAPP authorized the Board of Public Utilities to compel electricity distribution companies to sign these contracts

. Broadly speaking, these contracts, known as Standard Off

er Capacity Agreements, guarantee d new generators a fixed leve l of revenue over a fifteen

- year contract term

. Pursuant to LCAPP, the Board of Public Utilities solicit ed bids from power generation companies willing and able to construct new electric power generation facilities

. N.J. Stat. § 48:3

- 98.3(a)

- (b). The Boar d received bids from thirty

- four companies to participate in LCAPP , and it selected the proposals of appellant CPV Power Development, Inc.

, intervenor

- appellant Hess Newark LLC , and amicus NRG Energy, Inc. The B oard then exercised it s authority to compel
t he New Jersey electricity distribution companies to sign S tandard O ffer C apacity A greement s with the LCAPP generators

. Since then, Hess’s and CPV’s projects have moved forward; NRG’s project has not.

C. Proceedings to date After New Jersey enacted LCAPP, several existing electrical energy generators and two electricity distribution companies filed suit against the Commissioners of the Board of Public Utilities . They sought both a declaration that the Federal Power Act preempted LCAPP and a n injunction proh ibiting New Jersey authorities from enforcing LCAPP

.18 CPV intervened to defend the law a few months later. The District Court denied both sides’ motions for summary judgment . Over thirteen days, the parties tried their case to the bench. Witnesses included experts on the electric energy industry , including former regulators and corporate executives. The trial concluded with a lengthy written opinion and a judgment in favor of the plaintiffs

. See PPL EnergyPlus, LLC v. Hana

, 977 F. Supp. 2d 372 (D.N.J. 2013) ; App’x 92

- 94

. The District Court determined that the Federal Power Act preempted LCAPP. The Court concluded that LCAPP infringed on FERC’s exclusive control over the price received for interstate sales of capacity. Thus, LCAPP had been field preempted. The District Court further determined that LCAPP interfered with P JM’s method of determining the price of capacity . Thus, LCAPP had been conflict preempt e d

. Finally,
t he District Court rejected the plaintiffs’ dormant C ommerce C lause attack on the grounds tha t they had not met their burden of proof. Based on its conclusions, t he District Court declared LCAPP unconstitutional, invalidated the S tandard O ffer C apacity A greement s , and enjoined New Jersey from enforcing the statute

. The Board of Public Utilities a nd CPV appealed. Hess Newark has since intervened in CPV’s appeal. 2 Each side has

2 This Court granted Hess Newark’s motion to intervene and consolidated the various proceedings. See Order dated Nov. 14, 2013, Case No. 13

- 4330 (granting Hess Newark’s motion to intervene); Order dated Dec. 13, 2013, Case No. 13

- 4330 (consolidating Cases No. 13

- 4394 and No. 13

- 4501 with Case No. 13

- 4330)19 been joined on appeal by numerous amici. At the Court’s invitati on, the United States and FERC , acting amicus curiae, also briefed the preemption questions in support of the appellees

.


### II. Jurisdiction and S tandard of R eview Because of the Constitutional claims presented in the case, the District Court properly exercised subject matter jurisdiction pursuant to 28 U.S.C. § 1331. Because the District Court e ntered final judgment, w e exercise appellate jurisdiction pursuant to 28 U.S.C. § 1291.

“ When the district court decides a constitutional claim based on a developed factual record, we exercise plena ry review of the district court’ s legal conclusion. We defer to the factual findin gs supporting that conclusion unless they are clearly erroneous. ” United States v. Voigt , 89 F.3d 1050, 1064 (3d Cir. 1996) (citation omitted)

.


### III. Discussion Congress has distinguished between those matters that belong exclusively to the federal government, such as regulation of interstate sales and transmissions of energy, and those matters that remain within the regulatory authority of the states , such as the regulation of energy generators. See 16 U.S.C. § 824(b). In the American system of federalism, fed eral law commands primacy over state law

. The “Constitution, and the Laws of the United States which shall be made in P ursuance thereof . . . shall be the supreme L aw of the L and; and the J udges in e very S tate shall be bound thereby, any T hing in the C onst itution or L aws of any S tate to the C ontrary notwithstanding.” U.S. Const. art. VI, cl. 2. As between state20 and federal law, therefore, any state law that “interferes with or is contrary to federal law

. . . must yield. ” Free v. Bland

, 369 U.S. 663, 666 (1 962) (citing Gibbons v. Ogden

, 22 U.S. (9 Wheat.) 1, 210 (1824)). Accordingly, if LCAPP intrudes into the e xclusively federal field or conflicts with valid federal regulation, federal law preempts its effect and renders it invalid. See Farina v. Nokia Inc

. , 625 F.3d 97, 115 (3d Cir. 2010). If, on the other hand, LCAPP addresses a local matter and leaves federal law unimpaired, it remains valid. See id. “Pre

- emption analysis requires us to compare federal and state law.” PLIVA, Inc. v. Mensing , 131 S. Ct. 2 567, 2573 (2011). We do so with “the basic assumption that Congress did not intend to displace state law.” Farina , 625 F.3d

. at 116 (alteration omitted) (quoting Maryland v. Louisiana , 451 U.S. 725, 746 (1981)). Only a clear and manifest conflict with fede ral law, or clear and manifest Congressional intent to override state choices, will overcome the presumption against preemption. Id. at 117.

A. Comparing LCAPP’s subject matter to the federal regulation of interstate sales and transmissions of
energy
The c ore of th is case concerns field preemption, specifically whether LCAPP has strayed into the exclusive federal area of interstate wholesale rates

. This begs the question of what the federal government and New Jersey have each regulated. Accordingly, within the broader framework describe d in Part I, we must fill in some of the details of PJM’s FERC

- approved approach to setting market prices and LCAPP’s design to incentiviz e the construction of new21 electric generators. 3 In practice, FERC, through PJM, regulate s aspects of interstate wholesale rates through a capacity auction, while LCAPP encourages the construction of new generators by arranging for a capacity price supplement. We determine that LCAPP effectively sets capacity prices and therefore regulates the same field occupied by FERC.

1. Through regional transmission organization s , FERC uses market mechanisms to price and sell electric capacity. Although the Federal Power Act speaks to interstate wholesales of electric energy, “the wholesale price for capacit y . . . is squarely, and indeed exclusively, within FERC’s jurisdiction.” N.J. Bd. of Pub

. Utils

. v. F

. E

. R

. C

. , 744 F.3d 74, 97 (3d Cir. 2014). FERC has determined that “maintaining adequate resources” bears “a significant and direct effect on” wholesale ra tes. PJM Interconnection, L

. L

. C

. , 119 FERC ¶ 61318, at 40 ( 2007). Therefore, FERC regulates interstate sales of electric capacity as part of its approach to regulating electric energy rates. See Utilimax.com, Inc. v. PPL Energy Plus, LLC , 378 F.3d 303, 305 (3d Cir. 2004).

3 We recite the factual details necessary to decide the preemption question befor e us, resting on the careful factual findings of the District Court. In a related case, our Court described the federal and state regulatory schemes in greater detail. See generally N.J. Bd. of Pub. Utils. v. F.E.R.C. , 744 F.3d 74 (3d Cir. 2014).22 FERC has approved PJM’s Reliability Pricing Model as the means to set the interstate wholesale price for electric capacity in the PJM region. The Reliability Pricing Model attempts to match supply of capacity to demand for capacity. To cal culate demand, PJM uses data from market participants and sophisticated computer models. To calculate supply, PJM
uses two mechanism s . First, PJM tabulates all generation capacity within the PJM region that has been prearranged between suppliers and users of energy. This includes, for example, capacity associated with state

- run monopolies or capacity privately exchanged between load

- serving entities and energy generators. Second, PJM uses an auction to obtain the additional capacity needed to meet projected demand. The winners of the auction agree to provide capacity to PJM. See generally PJM Capacity Market Operations, PJM Manual 1 8 : PJM Capacity Market §§ 3 (“Demand in t he Reliability Pricing Model”), 4 (“Supply Resources in the Reliability Pricing Model”) (21 st ed. 2014)

. The Reliability Pricing Model is a forward market and focuses on the capacity to be demanded and supplied for a

one

- year period beginning three years in the future. For example, the 2014

- 2015 Model settled capacity obligations for 2017

- 20 18. And i f the model has function ed properly, in three

- years’ time PJM will have contracted with enough capacity providers to satisfy the peak demand for capacity during 2017

- 2018

. Within the Reliability Pricing Model, the Base Residual Auction establish es the price capacity providers will receive for residual capacity supplied to PJM. Providers propose an amount of capacity they will offer to PJM , say 1,000 megawatt

- hours per day, and the price at which they will off er that capacity, say $500 per m egawatt per day. PJM23 orders these bids from lowest in price to highest in price. PJM then accepts bids, starting with the lowest

- price bid, until the cumulative capacity it has accepted satisf ies PJM’s auction goal. At that point, PJM rejects all other bids. The p rice of the last accepted bid becomes the price PJM will pay for all accepted auction bids. For example, i f the $500 bid is the last one needed to satisfy demand, for example, $500 becomes the auction “clearing price.” App’x 48.

2. New Jersey, through LCAPP and the Standard Offer Capacity Agreements , has legislated what rates LCAPP generators will receive for their sales of capacity. By design, LCAPP focuse s on capacity and capacity prices

. Recall that the contracts here are standard offer capacity agreemen ts contemplated by the Long Term Capacity Agreement Pilot Program. See N.J. Stat. § 48:3

- 51

. And the Standard Offer Capacity Agreement price

— referred to as the S tandard O ffer C apacity Price

— is “the capacity price that is fixed for the term of the [agreemen t] and which is the price to be received by eligible generators under a board

approved [agreement] .” Id

. New Jersey’s legislature charged the Board of Public Utilities with implementing LCAPP to achieve New Jersey’s stated policy goal of providing long

- ter m price assurance to new energy generators. See i d . § 48:3

- 98.3(c)(4). The Board did so by focus ing on capacity and capacity prices:

 First, the Board “awarded” each generator a specific amount of capacity to transact through its S tandard Offer Capacity Agr eement

.

 Second, the Board required g enerators to “participate in and clear” PJM’s annual capacity auction. N.J. Stat.24 § 48:3

- 98.3(c)(12). Thus, w hen NRG’s bid failed to clear the PJM auction, its LCAPP participation ended

.

 Third, the Board guaranteed eac h generator a fixed price for its cleared capacity. The Board achieved this by attempting to structure the Standard Offer Capacity Agreement s as contract s

- for

- differences between the price of capacity receiv ed by a generator from the PJM

a uction and a pric e fixed by the Agreement itself. If the Agreement price exceed ed the auction price, the Agreement required the electricity distribution companies to pay the difference in price, multiplied by the amount of capacity, to the LCAPP generators. If the auction price exceed ed the Agreement price, the Agreement obliged the LCAPP generators to pay the difference in price, multiplied by the amount of capacity, to the elec tricity distribution companies. In practice, t he Standard Offer Capacity Agreements offered fin ancial assurance to LCAPP generators : for a fixed amount of capacity, generators would receive a fixed price. And the Agreements extended these assurances for a fifteen

year term, with the price increasing each year

.
3. Both FERC, through PJM, and New Jersey attempt
to regulate electric capacity prices and sales

. FERC, acting through PJM, uses the Base Residual Auction to fix the capacity price electric generators will receive for the capacity they sell through PJM. At the same time, New Jersey , through LCAPP

, has legislated that LCAPP generators will both receive the federal price for interstate capacity sales and also receive an additional amount fixed by the BPU . Both efforts regulate electric capacity prices and sales.25 We determine that LCAPP, through the Standard Offer Capacity Agreements , attempts to regulate the same subject
matter that FERC has regulated through PJM’s Reliability Pricing Model. The Agreements guarantee LCAPP generators a “multiyear pricing supplement” to raise the prevailing capacity pr ice to an amount of New Jersey’s liking. App’x 59. Indeed, New Jersey regulated the Standard Offer Capacity Rates precisely because the legislature believed that PJM’s market

- based incentives had failed to encourage new electric generators to construct ade quate electric generation facilities. N.J. Stat. § 48:3

- 98 .2(b). LCAPP builds on PJM’s capacity prices

. Accordingly, New Jersey misses th e mark when it argu es that each Standard Offer Capacity Agreement represents “a contract for differ ences, functioning l ike a hedge ” and, therefore, does not transact in capacity. See, e.g. , CPV Br. 39. True, LCAPP’s price assurance insulates LCAPP generators from market volatility and thus eliminates their risk. But the Agreements provide more than risk

- hedging; they provi de for the supply and sale of capacity, as well. LCAPP commands generators to sell capacity to PJM. In return

, New Jersey’s statute ensures that the generators will receive the Standard Offer Capacity Rate for each quantity of capacity offered at auction a nd not solely the auction price they would have otherwi se received. Accordingly, we agree with the District Court that “the Board essentially sets a price for wholesale energy sales” for LCAPP generators. App’x 78; accord PPL EnergyPlus, LLC v. Nazarian , 7 53 F.3d 467, 476 ( 4th Cir. 2014) (determining that a Maryland initiative similar to LCAPP “functionally sets the rate that [a generator] receives for its sales in the PJM auction”).26 Anticipating this result, LCAPP’s defenders contend that if the S tandard O ffer Capacity Agreements set capacity prices then the law would not be preempted because the reasonableness of th e Agreement’s rates would be within FERC’s exclusive jurisdiction to review. True, FERC has jurisdiction over certain contracts that set rates between market participants. See NRG Power Mktg., LLC v. Me. Pub. Utils. Comm’n , 558 U.S. 165, 171 (2010). But t his argument conflates the inquiry into LCAPP’s field of regulation with an inquiry into the reasonableness of the Standard Offer Capacity Rates

. Here, whether the Standard Offer Capacity Agreements pick “just and reasonable” capacity prices is beside the point. What matters is that the Agreements have set capacity prices in the first place

.
B. Because New Jersey has legislated in a n exclusively federal field, its law must give way.

Because FERC has exercised control over the field of interstate capacity prices, and because FERC’s control is exclusive, New Jersey’s efforts to regulate the s ame subject matter cannot stand

. “Where Congress has deleg ated the authority to regulate a particular field to an administrative agency, the agency’s regulations issued pursuant to that authority have no less preemptive effect than federal statutes, assuming those regulations are a valid exercise of the agency’s delegated authority.” Fellner v. Tri

– Union Seafoods, L.L.C.

, 539 F.3d 237, 243 (3d Cir. 2008). Here, FERC’s use of the Base Residual Auction to set interstate capacity prices is a lawful exercise of its authority. See N.J. Bd. of Pub

. Utils

. , 744 F.3d at 9 7. Indeed, only FERC has the authority to set interstate capacity prices. Id. So the Federal Power Act, as administered by FERC, preempts and, therefore, invalidates, state intrusions into the field

. Cf. Fid. Fed. Sav. & Loan Ass’n27 v. de la Cuesta

, 458 U.S . 141, 153 (1982). New Jersey’s regulations must yield

. LCAPP’s defenders respond that New Jersey’s interference with capacity prices does not trigger preemption because it is a lawful exercise of the state’s authority to promote new generation resources. New Jersey does have authority over local energy matters, including the construction of power plants. See, e.g.

, So. Cal. Edison Co. & San Diego Gas & Elec. Co. , 71 FERC ¶ 61,269, at 3 ( 1995). But LCAPP incentivizes the construction of new power plants by regulating the rates new electric generators will receive for their capacity. New Jersey could have used other means to achieve its policy goals. 4 Because Congress has evinced its intent to occupy the entire field of interstate capacity rates, however, New Jersey’s reasons for regulating in the federal field cannot save its effort: “any state law falling within that [federal] field is preempted.” Silkwood v. Kerr

- McGee Corp.

, 464 U.S. 238, 248 (1984). That New Jersey has attempted to regulate federal matte rs for local purposes also distinguishes its situation from Northwest Central Pipeline v. State Corp. Commission of Kansas

, 489 U.S. 493, 512

- 13 (1989). There, the U.S.

4 For ex ample, permissible means may include “utilization of tax exempt bonding authority, the granting of property tax relief, the ability to enter into favorable site lease agreements on public lands, the gifting of environmentally damaged properties for brownfi eld development, and the relaxing or acceleration of permit approvals.” App’x 74. New Jersey may also directly subsidize generators so long as the subsidies do not essentially set wholesale prices.28 Supreme Court rejected the argument that Kans as overstepped its authority to regulate t he gathering of natural gas by promulgating rules that, if enforced, would indirectly affect interstate rates. Id. at 51 2

- 14

. By contrast, LCAPP does
not regulate the construction of new power plants, causing an incidental e ffect on the interstate price of capacity. Rather, LCAPP sets a price of capacity that will lead to the construction of new power plants. New Jersey cannot excuse LCAPP ’s interfere nce with capacity prices as incidental to its scheme because the statu t e’s explicit objective is to suppleme nt capacity prices

. Nor can the statut e be saved by the fact that it s design incorporates, rather than repudiates, PJM’s capacity auction clearing price

. Recall that PJM pays generators for the capacity they supply to PJM, and it charges load

- serving enti ties for the proportional share of t he capacity they obtain though PJM. LCAPP supplements what the gene rators receive from PJM with an additional payment financed by payments from electric distribution companies

, the public utilities that own local transmi ssion lines. Because electricity distribution companies do not participate in PJM’s capacity auction

, and because PJM still pays generators the auction clearing price, LCAPP artfully steps around the capacity transactions facilitated by PJM. The arrangemen t does not save the law. “ [I]f FERC has jurisdiction over a subject, the States cannot have jurisdiction over the same subject.” See Miss

. Power & Light Co. v Miss

. ex rel. Moore , 487 U.S. 354, 377 (198 8 ) (Scalia, J., concurring )

. Thus, w e agree with the F ourth Circuit that “[t]he fact that [these sorts of payments] do[] not formally upset the terms of a federal transaction is no defense, since the functional results are precisely the same.” Nazarian

, 753 F.3d at 477. T he generators receive a different29 pric e for the capacity they clear through PJM than what FERC intended.



### IV. The F ederal F ield has Limits

C ounsel to various state amici describe the District Court’s preemption decision as unprecedented :

This is the first time we have a state law to address
state long

- term energy needs under a state procurement paid for by state rate payers, [that] is nonetheless deemed to be fiel d preempted under the Federal Power Act as well as conflict preempted because it might have an effect on the market when anything a stat e does for
ge neration will have [an ] effect.

Tr. of Oral Argument at 32:02

- 09 (March 27, 2014). In particular, LCAPP’s defenders fret that a decision in favor of preemption will hamstring state

- led efforts to develop renewable and reliable electric energy resources. However broadly we might have decided this case, o ur holding today focuses instead on the field of interstate rates and

, in particular , on capacity prices. Because we agree with the District Court that LCAPP and the Standard Offer Capacity Agre ements attempt to regulate an exclusively federal field, we do not decide whether the District Court also correctly determined that LCAPP “poses as an obstacle” to30 PJM’s markets and has been conflict preempted. See App’x 86. Thus, we have no occasion to co nclude that PJM’s markets preempt any state act that might intersect a market rule.

Nor do we en dorse the argument that LCAPP has been field preempted because it affects the market clearing price by increasing th e supply of electric capacity. Cf. FERC & Un ited States Amicus Br. 11

- 17. Holding all else constant, an increase in capacity resources will cause supply to satisfy demand at a lower price. So LCAPP has the theoretical ability to influence the wholesale price of energy and capacity in PJM by enlargin g the supply of capacity. If any effect on interstate markets could trigger preemption, LCAPP would be irredeemably flawed. But the law of supply

- and

- demand is not the law of preemption. When a state regulates within its sphere of authority, the regulatio n’s incidental effect on interstate commerce does not render the regulation invalid. Nw. Cent. Pipeline Corp. , 489 U.S. at 514. Accordingly, we do not view LCAPP’s incidental effect s on the interstate wholesale price of electric capacity as the basis of it s preemption problem. Indeed, were we to determine otherwise, the states might be left with no authority what soever to regulate power plants because e very conceivable regulation would have some effect on operating costs or available supply. That is not the law. T he states may select the type of generation to be built

— wind or solar, gas or coal

— and where to build the facility. Or states may elect to build no electric generation facilities at all. See Conn

. Dep’t of Pub. Util

. Control v. F

. E

. R

. C

. , 569 F.3d 47 7, 481 (D.C. Cir. 2009). The states’ regulatory ch oices accumulate into the available supply transacted through the interstate market. The Federal Power Act grants FERC31 exclusive control over whether interstate rates are “just and reasonable,” but FERC’s a uthority over interstate rate s does not carry with it exclusive control over any and every force that influences interstate rate s

. Unless and until Congress determines otherwise, the states maintain a regulatory role in the nation’s electric energy markets

. Today’s decision does
not diminish that important responsibility.



### V. Conclusion
We affirm the District Court’s judgment. LCAPP compels participants in a federally

- regulated marketplace to transact capacity at prices other than the price fixed by the marketp lace. By legislating capacity prices, New Jersey has intruded into an area reserved exclusively for the federal government. Accordingly, federal statutory and regulatory law preempts and, thereby, invalidates LCAPP and the S tandard Offer Capacity Agreement s

. In deciding that LCAPP has been field preempted because it set s capacity rates, we do not accept the argument that field preemption will occur whenever a state’s legislation indirectly affects matters within FERC’s jurisdiction. By statute and tradition , states have a role to play in energy markets.