Utilities in New Jersey and Maryland are fighting an attempt by a generation developer to enforce contracts that federal courts last year ruled invalid.

Competitive Power Ventures filed requests June 2 asking the Federal Energy Regulatory Commission to declare just and reasonable the contracts that would provide funding for CPV’s generating plants in Woodbridge, N.J., (ER14-2105) and Waldorf, Md. (ER14-2106).

CPV filed the requests with FERC on the same day that the Fourth Circuit Court of Appeals unanimously upheld a district court ruling throwing out the Maryland contracts (PPL EnergyPlus, LLC, et al. v. Nazarian, Civil Action No. MJG-12-1286). The court declared that the contracts violated FERC jurisdiction and were thus “illegal and unenforceable.”

CPV hopes to build a 661-MW combined cycle generator funded by 20-year “contracts for differences” with Baltimore Gas and Electric Co., Delmarva Power & Light Co. and Potomac Electric Power Co. The electric distribution companies (EDCs) were ordered to sign the contracts after CPV won a competitive solicitation by the Maryland Public Service Commission for construction of a new generating plant in the Southwest MAAC zone.

CPV also won a 2011 solicitation by the New Jersey Board of Public Utilities that resulted in 15-year “standard offer capacity agreements” (SOCA) with Rockland Electric Co., Public Service Electric and Gas Co., Jersey Central Power & Light Co. and Atlantic City Electric Co. tied to CPV’s 663-MW combined-cycle Woodbridge generation plant, now under construction.

Those contracts were struck down in October by the U.S. District Court in New Jersey (PPL EnergyPlus, LLC, et al. v. Hanna, Civil Action No. 11-0745). As in the Maryland case, the New Jersey contracts were ruled in violation of the Constitution’s Supremacy Clause and thus “void ab initio, invalid and unenforceable except for the termination provisions which any party may implement or defend.” The BPU appealed the ruling to the Third Circuit Court of Appeals.

The EDCs subject to the contracts filed protests on June 12 opposing CPV’s FERC filings. Also joining the protests were PPL, Calpine, Essential Power LLC and Lakewood Cogeneration LP. As a result of the court rulings, the protestors said, the contracts “do not exist.”

CPV’s “tactic of not only asking the commission to accept the purported `agreements’ for filing, but also to make a just and reasonable determination, is particularly curious and ill-advised in light of these preemption rulings,” the protestors wrote.

CPV Senior Vice President Braith Kelly said the company made the FERC filings to protect its interests in case it does not prevail on appeal. “If these are in fact FERC jurisdictional contracts that means FERC can rule on them,” he said in an interview.

CPV said the contracts do not threaten FERC’s jurisdiction, as the courts ruled, because they are “simply … financial settlements” based on capacity market prices and “do not require or in any way involve the delivery of capacity or energy to the EDCs.”

Contracts Explained

Under the Maryland contracts for differences, if CPV’s PJM energy and capacity revenues are less than the amount specified in the contracts, the EDCs will pay CPV the difference; if the revenues exceed the amount specified in the contracts, CPV would pay the EDCs the difference.

The New Jersey contracts are similar. CPV will receive the benchmark price it bid into the state solicitation minus revenues it receives through PJM’s capacity market. If the plant’s capacity market revenue is less than the benchmark price, the EDCs will pay CPV the difference; if capacity revenues exceed the benchmark, CPV pays the EDCs.

CPV said that while it appeals the court rulings, it was submitting the contracts to FERC “solely for the limited purpose of requesting that the commission review and determine that the rates in the SOCAs are just and reasonable and otherwise comport with the standards for rates in jurisdictional contracts under FPA Section 205.”

Other State Solicitations

CPV says the state initiatives that resulted in the contracts were “no different than the solicitations routinely mandated by state commissions for the procurement of energy to serve those loads that have not selected competitive suppliers,” called basic generation service (BGS) in New Jersey and standard offer service (SOS) in Maryland.

A FERC ruling that the CPV contracts are not just and reasonable and cannot be enforced “would call into question the reasonableness of rates charged by any jurisdictional seller participating in the BGS or in any similar state-mandated solicitations,” CPV wrote in support of the New Jersey contracts.

The fact that the EDCs entered into the contracts “under protest” is irrelevant, CPV said, because the state’s solicitation “resulted in no less an arms-length transaction than the BGS solicitations where the NJ BPU also mandated the procurement of electricity on terms it required.”

Because the contracts resulted from a competitive process, CPV said they meet the Allegheny and Edgar standards the commission applies in evaluating whether contracts awarded by EDCs to affiliates are just and reasonable.

FERC Position in Dispute

The protestors pointed to the Department of Justice’s amicus brief in the New Jersey case, which said the state-ordered contracts have a “price-suppressing and distortive effect on PJM’s wholesale capacity market prices.”

Kelly acknowledged FERC was a signatory to Justice’s brief. But he said the commission’s true position was spelled out in its approval of PJM’s revised minimum offer price rule (“MOPR 2”), which was designed to prevent state-supported generation from undercutting auction prices.

CPV said its New Jersey generator, which is about 20% complete, offered and cleared in each of the three base capacity auctions since 2012 under MOPR. The company did not disclose whether the Maryland project, for which it is attempting to secure financing, had cleared.

“In adopting MOPR 2 and doing away with the state exemption and defending that in the 3rd Circuit, FERC stated very clearly that these projects were economic,” Kelly said. “The change in the MOPR was designed to ensure these projects – these specific projects – did not adversely affect the market.”

A BPU spokesman declined to comment on the impact of a potential FERC decision on the appellate court case.