2014 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

9-11-2014

PPL EnergyPlus, LLC v. Lee Solomon

Precedential or Non-Precedential: Precedential

Docket No. 13-4330

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"PPL EnergyPlus, LLC v. Lee Solomon" (2014). 2014 Decisions. Paper 948.

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PRECEDENTIAL

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 

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 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 official 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 of 
2

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 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.
3

LEE A. SOLOMON, in his official 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 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 Appeal from the United States District Court

for the District of New Jersey

(D.C. No. 3-11-cv-00745)

District Judge: Honorable Peter G. Sheridan

_____________

Argued: March 27, 2014
4

Before: FUENTES and SHWARTZ, Circuit Judges, and 

ROSENTHAL, District Judge.

*

(Opinion Filed: September 11, 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

Trenton, 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

Clifton 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 Street 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 College 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 Corporation

875 15th Street N.W., Suite 700

Washington, DC 20005

Counsel for the Calpine Companies

Darryl M. Bradford

Verónica Gómez

Exelon Corporation

10 South Dearborn Street, 49th Floor

Chicago, IL 60603

David W. DeBruin

Matthew E. Price

Jenner & Block LLP

1099 New York Avenue N.W., Suite 900

Washington, DC 20001
7

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

Washington, 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 20005
8

Pamela M. Silberstein

National Rural Electric Cooperative Association

4301 Wilson Boulevard

Arlington, VA 22203

Counsel for Amici Appellants National 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 

Association

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 Commissioners 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 

Attorney General of Connecticut

Clare E. Kindall [Argued]

Office of Attorney General
9

10 Franklin Square

New Britain, CT 06051

Counsel to Amicus Connecticut 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. Tewksbury

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 East Front Street
10

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 Federal 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

Counsel to Amicus Appellee Pennsylvania Public Utility 

Commission
11

OPINION OF THE COURT

FUENTES, Circuit Judge.

Dissatisfied with the stock and reliability of powergenerating facilities in New Jersey, the state adopted the Long 

Term Capacity Pilot Program Act. 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 Standard Offer Capacity Agreements, 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 those generators would receive for supplying

electrical capacity, that is, the ability to make energy when 

called upon. 

The federal government, however, has exclusive control 

over interstate rates for wholesales of electric capacity. So 

when New Jersey arranged for LCAPP generators to receive 

preferential capacity rates, the state entered into a field of 

regulation beyond its authority. Accordingly, federal law 

preempts, and thereby invalidates, LCAPP and the related 

Standard Offer Capacity Agreements. We, therefore, 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, because we determine that LCAPP has been field 

preempted, we do not reach the conflict preemption and 

dormant Commerce Clause arguments raised 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. New 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 environment populated with multiple 

private and public actors operating under the supervision of 

both state and federal agencies. The Federal Power Act 

embodies Congress’s attempt “to reconcile the claims of 

federal and of local authorities and to apportion federal and 

state jurisdiction over the industry.” Conn. Light & Power 

Co. v. Fed. Power Comm’n, 324 U.S. 515, 531 (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 end” may come 

only from the “exercise of the power vested in Congress.”). 

And Congress further extended federal authority to those
13

electric energy matters indirectly related to interstate 

commerce that had previously been subject to state 

regulation. See New 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 regulators “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 

electric 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 interstate 

capacity sales and transmissions, and it has 

exercised that authority through regional 

transmission 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 sale of electricity at wholesale in interstate 

commerce.” Entergy La., Inc. 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 are 
14

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 submitted 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 regional 

transmission organizations that facilitate market operations. 

PJM Interconnection LLC operates as the federally 

regulated regional transmission organization for the PJM 

region. PJM takes its name from “Pennsylvania,” “Jersey,” 

and “Maryland,” the home states of the first utilities to pool 

their excess power and capacity in 1927. Today, the PJM 

region encompasses all or part of thirteen states and the 

District of Columbia, including the entirety of New Jersey. 

PJM operates the largest centrally dispatched 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 to where 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 

exchanged. Electric energy is “the actual electricity that 

electric generators produce and which residential and 

business customers ultimately use.” App’x 35 (quotation 

marks omitted). 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 the 
15

total amount of electricity-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 power to an exclusive service area. In 1999, 

however, New Jersey enacted the Electric Discount and 

Energy Competition 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 choose 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 change 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-fired or natural gas 

power plants, sell their capacity and energy to PJM through 

various PJM auctions. Load-serving entities pay PJM for 

furnishing capacity and energy, and, in turn, sell energy to 

consumers.

1

Electricity distribution companies, acting as 

 

1

In New Jersey, customers may choose between numerous 

energy suppliers. The major electricity suppliers include 

Atlantic City Electric, Jersey Central Power & Light, 

Rockland Electric, and Public Service Electric & Gas. 
16

common carriers, use their network of power lines to transfer

energy from generators to consumers. 

Although New Jersey restructured its approach to electric 

energy regulation, it did not cede its “authority over the siting 

and construction of power plants.” App’x 44. New Jersey’s 

state utility regulator, the Board of Public Utilities, retained 

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 jurisdiction over “[t]he charges assessed to 

customers for basic generation service,” id. § 48:3-57(a)(1),

and the licensing of electric power suppliers, id. § 48:3-78. 

B. New Jersey passed LCAPP to encourage the 

construction of new power plants.

Roughly a decade after New Jersey restructured 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 region and the State.” 

N.J. Stat. § 48:3-98.2(b). New Jersey concluded that it needed 

more electric energy generators.

New Jersey’s legislature enacted LCAPP in January 2011 

to address its concerns. See id. § 48:3-98.3. LCAPP aimed to 

encourage power generation companies to construct new 

power plants in New Jersey in order to add a cumulative 
17

2,000 megawatts of capacity to the regional power grid from 

which New Jersey obtained its electrical energy. Id. § 48.3-

98.3(c)(1). 

The legislature fostered additional electric generation in 

New Jersey by furnishing 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 Offer Capacity Agreements, guaranteed new 

generators a fixed level of revenue over a fifteen-year 

contract term.

Pursuant to LCAPP, the Board of Public Utilities solicited

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 Board 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 Board then exercised its authority to compel

the New Jersey electricity distribution companies to sign 

Standard Offer Capacity Agreements 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 an injunction 

prohibiting 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 PJM’s method of determining the price of 

capacity. Thus, LCAPP had been conflict preempted. Finally, 

the District Court rejected the plaintiffs’ dormant Commerce 

Clause attack on the grounds that they had not met their 

burden of proof. Based on its conclusions, the District Court 

declared LCAPP unconstitutional, invalidated the Standard 

Offer Capacity Agreements, and enjoined New Jersey from 

enforcing the statute.

The Board of Public Utilities and CPV appealed. Hess 

Newark has since intervened in CPV’s appeal.2Each 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 

invitation, the United States and FERC, acting amicus curiae, 

also briefed the preemption questions in support of the 

appellees.

II. Jurisdiction and Standard of Review

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 entered final judgment, we 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 plenary 

review of the district court’s legal conclusion. We defer to the 

factual findings 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, federal law 

commands primacy over state law. The “Constitution, and the 

Laws of the United States which shall be made in Pursuance 

thereof . . . shall be the supreme Law of the Land; and the 

Judges in every State shall be bound thereby, any Thing in the 

Constitution or Laws of any State to the Contrary 

notwithstanding.” U.S. Const. art. VI, cl. 2. As between state 
20

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 (1962) (citing Gibbons v. Ogden, 22 U.S. 

(9 Wheat.) 1, 210 (1824)). 

Accordingly, if LCAPP intrudes into the exclusively 

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. 2567, 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 federal 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 core of this 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 

described 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 incentivize the construction of new 
21

electric generators.3In practice, FERC, through PJM, 

regulates 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 organizations, 

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 

capacity . . . 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 rates. 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 before 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 calculate demand, PJM uses data from market participants 

and sophisticated computer models. To calculate supply, PJM 

uses two mechanisms. 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 18: 

PJM Capacity Market §§ 3 (“Demand in the Reliability 

Pricing Model”), 4 (“Supply Resources in the Reliability 

Pricing Model”) (21st 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 2017-2018. And if the model has functioned 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 establishes 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 

offer that capacity, say $500 per megawatt per day. PJM 
23

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 satisfies PJM’s auction 

goal. At that point, PJM rejects all other bids. The price of the 

last accepted bid becomes the price PJM will pay for all 

accepted auction bids. For example, if 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 focuses on capacity and capacity 

prices. Recall that the contracts here are standard offer 

capacity agreements 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 Standard Offer Capacity Price—is “the capacity 

price that is fixed for the term of the [agreement] and which is 

the price to be received by eligible generators under a boardapproved [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-term price assurance to 

new energy generators. See id. § 48:3-98.3(c)(4). The Board

did so by focusing on capacity and capacity prices:

 First, the Board “awarded” each generator a specific 

amount of capacity to transact through its Standard 

Offer Capacity Agreement. 

 Second, the Board required generators to “participate 

in and clear” PJM’s annual capacity auction. N.J. Stat. 
24

§ 48:3-98.3(c)(12). Thus, when NRG’s bid failed to 

clear the PJM auction, its LCAPP participation ended.

 Third, the Board guaranteed each generator a fixed 

price for its cleared capacity. The Board achieved this 

by attempting to structure the Standard Offer Capacity 

Agreements as contracts-for-differences between the 

price of capacity received by a generator from the PJM 

auction and a price fixed by the Agreement itself. If the 

Agreement price exceeded 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 exceeded the Agreement price, the

Agreement obliged the LCAPP generators to pay the 

difference in price, multiplied by the amount of 

capacity, to the electricity distribution companies. 

In practice, the Standard Offer Capacity Agreements

offered financial assurance to LCAPP generators: for a fixed 

amount of capacity, generators would receive a fixed price. 

And the Agreements extended these assurances for a fifteenyear 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 price 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 adequate electric generation facilities. 

N.J. Stat. § 48:3-98.2(b). LCAPP builds on PJM’s capacity 

prices.

Accordingly, New Jersey misses the mark when it argues 

that each Standard Offer Capacity Agreement represents “a 

contract for differences, functioning like 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 provide 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 and not solely the auction price they would have 

otherwise 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, 753 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 Standard Offer Capacity Agreements set capacity prices 

then the law would not be preempted because the 

reasonableness of the 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 this 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 an 

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 same subject 

matter cannot stand. “Where Congress has delegated 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 97. 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’n 
27

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 matters 

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 example, 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 brownfield 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 Kansas

overstepped its authority to regulate the gathering of natural 

gas by promulgating rules that, if enforced, would indirectly 

affect interstate rates. Id. at 512-14. By contrast, LCAPP does 

not regulate the construction of new power plants, causing an 

incidental effect 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 interference with capacity prices as incidental to its 

scheme because the statute’s explicit objective is to 

supplement capacity prices. 

Nor can the statute be saved by the fact that its 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 

entities for the proportional share of the capacity they obtain 

though PJM. LCAPP supplements what the generators 

receive from PJM with an additional payment financed by 

payments from electric distribution companies, the public 

utilities that own local transmission 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 arrangement 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 (1988) (Scalia, J., concurring). Thus, we agree with the 

Fourth 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. The generators receive a different 
29

price for the capacity they clear through PJM than what 

FERC intended. 

IV. The Federal Field has Limits

Counsel 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 

field preempted under the 

Federal Power Act as well 

as conflict preempted 

because it might have an 

effect on the market when 

anything a state does for 

generation 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, our 

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 Agreements attempt to regulate an exclusively 

federal field, we do not decide whether the District Court also 

correctly determined that LCAPP “poses as an obstacle” to 
30

PJM’s markets and has been conflict preempted. See App’x 

86. Thus, we have no occasion to conclude that PJM’s 

markets preempt any state act that might intersect a market 

rule.

Nor do we endorse the argument that LCAPP has been 

field preempted because it affects the market clearing price by 

increasing the supply of electric capacity. Cf. FERC & United 

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 enlarging 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 regulation’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 effects on the interstate wholesale price 

of electric capacity as the basis of its preemption problem. 

Indeed, were we to determine otherwise, the states might be 

left with no authority whatsoever to regulate power plants 

because every conceivable regulation would have some effect 

on operating costs or available supply. That is not the law. 

The 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 477, 

481 (D.C. Cir. 2009). The states’ regulatory choices 

accumulate into the available supply transacted through the 

interstate market. The Federal Power Act grants FERC
31

exclusive control over whether interstate rates are “just and 

reasonable,” but FERC’s authority over interstate rates does 

not carry with it exclusive control over any and every force

that influences interstate rates. 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 

marketplace. 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 

Standard Offer Capacity Agreements.

In deciding that LCAPP has been field preempted because 

it sets 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.