U.S. court overrules Maryland order subsidizing new power plants

Tue Oct 1, 2013 1:20pm EDT

(Reuters) - A U.S. District Court judge in Maryland sided with Pennsylvania power company PPL Corp and others and invalidated Maryland's attempt to subsidize development of new natural gas-fired generation in the state, PPL said on Tuesday.

PPL and other electric generators brought the lawsuit because they could lose money on the power and capacity they sell if Maryland subsidizes the construction of new plants.

The Maryland Public Service Commission (PSC) in April 2012 ordered state utilities to enter long-term power supply contracts with privately held power plant developer Competitive Power Ventures (CPV) to build a 660-megawatt plant in Maryland.

U.S. District Judge Marvin Garbis said on Monday that Maryland's generation order was unconstitutional because it infringed on the U.S. Federal Energy Regulatory Commission's authority to regulate the sale of wholesale power in interstate commerce.

Under the Maryland PSC order, CPV would have received "subsidized energy and capacity prices when it sells its output, giving it an unfair advantage over other generators and allowing it to bid in artificially low prices into PJM's annual capacity auction," PPL said.

PJM Interconnection operates the power grid in parts of 13 U.S. Mid-Atlantic and Midwest states, including Maryland, and the District of Columbia.

Officials at CPV were not immediately available for comment. A spokeswoman for the Maryland PSC said the agency was reviewing the court decision and had no comment at this time.

PPL said gas-fired generation was already being built in the PJM power grid without state subsidies and there are already ample resources in the market to meet the state's and region's energy needs.

TROUBLE WITH CAPACITY

The Maryland case is just one of several power market capacity disputes currently before federal and state energy regulators and courts.

Power capacity markets provide revenue for generators to keep their existing power plants available in future years for reliability reasons and incentives to build new units.

Some generators looking to build new plants, like CPV and NRG Energy Inc, have said capacity markets do not provide enough long-term guarantees to finance the construction of new units.

Some states, like Maryland and New Jersey, have argued t capacity markets do not provide enough incentives for generators to build new plants needed to meet state renewable and other public policy goals.

New Jersey, like Maryland, also has a plan to subsidize the construction of new generation in the state, which existing generators like Public Service Enterprise Group Inc have challenged in regulatory and judicial proceedings.

Some existing generators, like Entergy Corp, have argued they do not receive enough money from capacity markets to keep some of their units, including nuclear reactors, in service.

Public power companies have argued that capacity markets prevent municipal utilities from building new plants to meet future customer demand.

(Reporting by Scott DiSavino; Editing by Dan Grebler)