PPL ENERGYPLUS, LLC et al v. SOLOMON et al

Filing 69

MEMORANDUM & ORDER denying 22 Motion to Dismiss. Signed by Judge Peter G. Sheridan on 10/19/2011. (mmh)

NOT FOR PUBLICATION
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY

PPL ENERGYPLUS, LLC, et al.,
Civil Action No.: 11-745
Plaintiffs,
v.

MEMORANDUM AND ORDER

LEE A SOLOMON, et al.,
Defendants.

SHERIDAN, U.S.D.J.
This matter comes before the Court on a motion by defendants Lee A. Solomon, Jeanne
M. Fox, Joseph L. Fiordaliso, and Nicholas V. Asselta in their official capacities as public
officers of the New Jersey Board of Utilities (collectively, “Defendants”) to dismiss Plaintiffs’
complaint pursuant to Rule 12(b)(1) and Rule 12(b)(6). Plaintiffs, a consortium of utility
companies and electric generator companies, seek declaratory and injunctive relief from a
recently enacted New Jersey law that empowers the New Jersey Board of Utilities to set certain
special guaranteed prices for wholesale electricity transactions in a market governed by the
Federal Energy Regulatory Commission (“FERC”).
For the reasons stated below, Defendants motion to dismiss is denied.

I. Facts
On January 28, 2011, the New Jersey Legislature enacted a law to foster new electric
generation and provide New Jersey with new generation capacity1 (the “Act”). N.J.S.A. 48:3-98.2
et seq. The law works as follows: First, the New Jersey Board of Public Utilities (“BPU”)
selects a limited number of electric generation companies for entry into a pilot program. The
BPU bases its selections on criteria included in the Act. Second, these electric generation
companies enter into irrevocable, long-term contracts with each of New Jersey’s electric public
utilities.2 These contracts, or standard offer capacity agreements (“SOCAs”), guarantee the stateselected electric generation companies a fixed price for electric capacity. In exchange for the
price guarantee, the Act requires the state-selected generation companies to sell the rest of their
capacity in interstate electricity auctions. The SOCAs operate to insulate the state-selected
generation companies from losses at auction because the SOCAs exist outside of the auction
process and are regulated by the BPU. Additionally, the utility companies are insulated from

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In this context, “capacity” is similar to energy “deposits” or “reserves.” Generally,
“capacity” includes commitments by generators to produce electricity when electricity is needed
to meet demand. Complaint, ¶ 32. Capacity is an important concept in the energy market due to
the enormous deviations between maximum energy demand and minimum energy demand. See
U.S. Dept. of Energy, A Primer on Electric Utilities, Deregulation, and Restructuring of U.S.
Electricity Markets, at A.4 (May 2002). Additionally, utilities are required by federal regulation
to maintain a certain amount of capacity. Complaint, ¶ 32.
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In this context, a “utility” is a company that provides electricity to the general public.
Primer, at A.49. Traditionally, an electric utility performs three functions: (1) the generation of
electricity, (2) the transmission of electricity between substations on the “bulk power system” or
“power grid,” and (3) the distribution of electricity from the bulk power system to retail
customers (i.e., customers who use electricity rather than reselling it). Id. at 2.2-2.3. In the wake
of electric utility deregulation and restructuring, very few utilities own enough generators to meet
the full demands of their retail customers. Id
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losses by a provision of the Act that requires the difference between the guaranteed price and the
auction price to be passed to the New Jersey ratepayers. According to Defendants, new in-state
electric generating facilities will not be constructed in the absence of an SOCA between an
electric generating company and utility in accordance with the pilot program.
On February 9, 2011, Plaintiffs, a consortium of utility companies (“Utility Plaintiffs”)
and electric generator companies (“Generator Plaintiffs”), filed a complaint in this Court,
alleging that the Act violates the Supremacy Clause and the Commerce Clause of the United
States Constitution. Plaintiffs’ main contention is that the Act violates Part II of the Federal
Power Act, which provides the Federal Energy Regulatory Commission (“FERC”) with exclusive
jurisdiction to regulate wholesale electricity sales.3 The Federal Power Act, ch. 285, sec. 201
(codified as amended 16 U.S.C. § 824 et seq.); Complaint, ¶¶ 85-97. Plaintiffs also claim that
the Act regulates in favor of in-state companies at the expense of out-of state companies. Id., at
¶¶ 98-112. In lieu of answering the complaint, Defendants filed a motion to dismiss under Rule
12(b)(1) and Rule 12(b)(6).
II. Standard of Review
Defendants seek to dismiss Plaintiffs’ complaint under Federal Rule of Civil Procedure
12(b)(6) for failure to state a claim and Rule 12(b)(1) for lack of Constitutional standing.
In evaluating a 12(b)(6) motion for failure to state a claim, the Court must assume that
“all the allegations in the complaint are true (even if doubtful in fact).” Bell Atl. Comp v.

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“Wholesale electricity sales” involve the resale of electricity in quantity for resale
purposes. Primer, at A.50. Likewise, “retail electricity sales” involve the sale of electricity to
customers who use the energy rather than reselling it. Id. at A.42, A.50.
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Twombly, 550 U.S. 544, 555 (2007). The complaint need only “state a claim to relief that is
plausible on its face,” alleging no more than the “factual content” necessary to “allow[] the court
to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft
v. Iqbal, 129 S. Ct. 1937, 1949 (2009) (internal quotation marks omitted).
In evaluating a 12(b)(1) motion challenging subject-matter jurisdiction on the basis of
Constitutional standing, the Court must determine whether the challenge is facial or factual. See
Danvers Motor Co., Inc. v. Ford Motor Co., 186 F.Supp.2d 530, 534 (D.N.J. 2002). A facial
challenge is challenge to the contents of the pleading. Gould Electronics v. United States, 220
F.3d 169, 176 (3d Cir. 2000). When reviewing a facial challenge, the Court must review the
allegations of the complaint and the documents referenced therein and attached thereto “in a light
most favorable to the plaintiff,” and a manner essentially the same as a 12(b)(6) motion to
dismiss. Alston v. Countrywide Fin. Corp., 585 F.3d 753, 758 (3d Cir. 2009). A factual
challenge is a challenge outside the scope of the complaint, allowing “a court may consider
evidence outside of the pleadings.” Danvers, 186 F.Supp.2d, at 534 (citing Gould, 220 F.3d at
176). In a factual challenge, plaintiffs’ allegations are not entitled to presumption of
untruthfulness. Id.
Defendants’ Rule 12(b)(1) claim is properly understood as a facial challenge. In their
moving papers, Defendants focus their standing arguments on the allegations in Plaintiffs’
complaint. Defendants’ Motion to Dismiss, at 8-10. Although not parties to this action, Rate
Counsel’s arguments are also based on the allegations in Plaintiffs’ complaint. Rate Counsel’s
Amicus Brief, at 5-12. Additionally, neither Defendants nor Rate Counsel claim that Plaintiffs
should be held to the higher pleading standard of a factual challenge. See Defendants’ Motion to
Dismiss, at 8 (discussing burden of allegation); Rate Counsel’s Amicus Brief, at 6 (same). Since
Defendants are making a facial challenge to Plaintiffs’ complaint, the standard of review for
Defendants’ claim Rule 12(b)(1) is identical to their Rule 12(b)(6) claim.

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III. Analysis
A. Standing4
For Article III constitutional standing, three elements must be met. First, a plaintiff must
establish that he has suffered an “injury in fact.” Lujan v. Defenders of Wildlife, 504 U.S. 555,
560 (1992). An injury in fact is “an invasion of a legally protected interest which is (a) concrete
and particularized, and (b) actual or imminent, not conjectural or hypothetical.” Id. (citations
omitted). Note, however, that the extent of the injury is immaterial; a plaintiff need only show an
“identifiable trifle” of harm. Gen. Instrument Corp. of Del. v. Nu-Tek Elecs. & Mfg., 197 F.3d 83,
87 (3d Cir. 1999). Second, “there must be a casual connection between the injury and the
conduct complained of.” Lujan, 504 U.S. at 560. This requirement mandates that the injury is
fairly traceable to the plaintiffs’ action and not the result of the independent action of a third
party. Id. Finally, it must be “likely” that the injury will be “redressed with a favorable
decision.” Id. at 561.
Plaintiffs’ complaint makes out a sufficient argument for standing. Regarding the injury
requirement, Plaintiffs allege concrete and particularized injuries to both the Generator Plaintiffs
and the Utility Plaintiffs. The Generator Plaintiffs allege that, by artificially depressing
wholesale prices for capacity and energy, the Act will cost Generator Plaintiffs millions of

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The New Jersey Division of Rate Counsel, as Amicus Curiae, also make an argument that
Plaintiffs’ complaint is not ripe for adjudication. Amicus Brief, at 12-15. The crux of the Rate
Division’s argument is that Plaintiffs’ alleged injuries may not come to pass. Id. When
measuring “whether the litigant has asserted an injury that is real and concrete rather than
speculative and hypothetical, the ripeness inquiry meres almost completely with standing.” Joint
Stock Society v. UDV North America, Inc., 266 F.3d 164, 174 (3d Cir. 2001). Thus, for the sake
of judicial economy, the Rate Divisions’ ripeness contentions have been folded into the standing
discussion.
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dollars. Complaint, ¶¶ 75-76, 81. Generator Plaintiffs base this claim on their interpretation of
the energy market, that Generator-Plaintiffs’ revenues depend on auction prices and the objective
of the Act is to artificially lower wholesale capacity prices. Id. at ¶¶ 71-82. The Utility Plaintiffs
allege that the Act forces New Jersey utility companies to enter into binding, long-term contracts
with state-selected generators to purchase capacity at a fixed price. Id. at ¶ 67. Utility Plaintiffs
further allege that these contracts, the SOCAs, force utilities to make payments to state-selected
electric generating companies in an amount equal to the difference between the SOCA price and
the auction clearing price. Id. at ¶ 67. According to Utility Plaintiffs, even if the price difference
is recouped from New Jersey ratepayers, by entering into the SOCAs, the Utility Plaintiffs must
pay more to service their debt while their available credit is reduced. Id. at ¶ 72. Additionally,
Utility Plaintiffs’ claim that the additional cost to New Jersey ratepayers will place the Utility
Plaintiffs at a competitive disadvantage to energy suppliers that do not bear the cost of the
subsidies. Id. Regarding the traceability and redressability requirements, Plaintiffs collectively
allege that the Act negatively affects capacity and energy prices by damping the competitive
market, thereby causing injury, and that the requested prospective remedy will remove the harm.
Id. at ¶¶ 6, 71-78, 85-112.
In their motion to dismiss Plaintiffs’ complaint for lack of standing, Defendants contend
that, since the Act has yet to be implemented, Plaintiffs have yet to be injured. Defendants’
Motion to Dismiss, at 9. Further, Defendants argue that the Act advances the ultimate goals of
the FERC and that Plaintiffs’ claims of future injury are inherently speculative. Id..5 However,

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The Rate Counsel agrees with this contention. Amicus Brief, at 5-15.
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the accuracy of Plaintiffs’ injury claims are not at issue, and as Plaintiffs correctly note, the
doctrine of standing does not require a plaintiff to wait until after they are harmed to challenge an
act. See Pacific Gas & Elec. v. State Energy Res. Conservation & Dev. Comm’n, 461 U.S. 190,
201 (1983); Danvers Motor Co., Inc v. Ford Motor Co., 186 F.Supp.2d 530, 535-36 (D.N.J.
2002). Admittedly, some anticipatory injuries are too uncertain to provide standing. See e.g.,
City of Los Angeles v. Lyons, 461 U.S. 95, 113 (1983) (denying standing in the context of
anticipatory prosecution); Danvers, 186 F.Supp.2d at 537-38 (denying standing where complaint
equivocated on the issue of injuries). Here, however, Plaintiffs have alleged their anticipated
injury with particularity, and the consequential injuries they anticipate are more than uncertain
possibilities.
Defendants also content that, even assuming that Plaintiffs will be injured by the Act,
Plaintiffs have failed to allege facts sufficient to satisfy the traceability requirement of
Constitutional standing. Reply Brief, at 6-7. According to Defendants, the wholesale and
capacity markets are affected by myriad factors, including FERC decisions, economic conditions,
politics, and regulations. Id. Additionally, Defendants claim that the complexity of the wholesale
and capacity markets prevent any party, including Plaintiffs, from pinpointing the precise effects
of a given cause. Id. at 7. Defendants conclude that, since Plaintiffs are unable to pinpoint the
precise injuries resulting from the Act as opposed to, for example, a market downturn,
Defendants claim that Plaintiffs can not trace such injuries to the Act. Id.
The traceability element of standing requires “a casual connection between the injury and
the conduct complained of” and not “the independent action of some third party not before the
court.” Lujan, 504 U.S. at 560 (internal quotation marks omitted). There is no requirement that

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the conduct complained of be the only cause of a given injury. See e.g., Pub. Interest Research
Grp. of N.J., Inc. v. Powell Duffryn Terminals, 913 F.2d 64, 72 n.8 (3d Cir. 1990). To establish
standing, Plaintiffs need not show that the Act is the sole cause, or even a direct cause, of the
threatened injury. See Toll Bros., Inc. v. Twp. of Readington, 555 F.3d 131, 142 (3d Cir. 2009).
Plaintiffs must show an “indirect casual relationship” between the Act and their alleged injuries,
and they have done so. Complaint, ¶¶ 6, 71-78, 85-112.

B. Preemption Claims
The preemption doctrine is rooted in the Supremacy Clause of the United States
Constitution. See Gade v. Nat’l Solid Waste Mgmt. Ass’n, 505 U.S. 88, 108 (1992). “Under the
Supremacy Clause, federal law may supersede state law in several different ways.” Hillsborough
County, Fla. v. Automated Med. Labs., Inc., 471 U.S. 707, 713 (1985).
Plaintiffs allege that the Act is preempted because it (1) intrudes on FERC’s exclusive
jurisdiction to regulate wholesale electricity transactions, and (2) erects obstacles to the FERC’s
achievement of its regulatory goals in the wholesale electricity markets. Complaint, ¶¶ 88-89.
These allegations correspond to the preemption doctrines of field preemption and preemption
based on state law that impedes achievement of federal objectives. See e.g., Chamber of
Commerce v. Brown, 554 U.S. 60 (2008) (field preemption); Nash v. Florida Indus. Comm’n,
389 U.S. 235 (1967) (preemption based on state law that impedes achievement of federal
objectives).
Field preemption and preemption based on state law that impedes the achievement of
federal objectives involve similar, but not identical, inquiries. Field preemption exists when
either “the nature of the regulated subject matter permits no other conclusion,” or when
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“Congress has unmistakably so ordained.” Florida Lime & Avocado Growers, Inc. v. Paul, 373
U.S. 132, 142 (1963). Preemption based on state law that impedes the achievement of federal
objectives exists when the state law “stands as an obstacle to the accomplishment and execution
of the full purposes or objectives of Congress.” Lines v. Deviates, 312 U.S. 52, 67 (1941). Either
finding requires a determination of the record and context of the challenged state and federal
laws. See e.g., Pacific Gas & Elec. v. State Energy Res. Conservation & Dev. Comm’n, 461 U.S.
190, 203-23 (1983); Perez v. Campbell, 402 U.S. 637, 644-48 (1971).
Here, Plaintiffs successfully plead both that the Act intrudes on a field that Congress
intended to be the sole province of the FERC, and that the Act erects an obstacle to FERC’s
achievement of its regulatory goals. See Complaint, ¶¶ 88-89. Regarding field preemption, both
Plaintiffs and Defendants agree that Congress, by enacting the F.P.A., has delegated exclusive
authority to regulate the transmission and sale at wholesale of electric energy in interstate
commerce. See Defendants’ Motion to Dismiss, at 12-13; Plaintiffs’ Opposition Brief, at 13. The
open question is whether the Act intrudes on FERC’s exclusive authority. See Defendants’
Motion to Dismiss, at 13. In their complaint, Plaintiffs make numerous, particularized claims
that the Act does intrude on FERC’s exclusive authority. Complaint, ¶¶ 53, 67-71, 88 (arguing
that the Act impermissibly guarantees a wholesale capacity price). Additionally, Plaintiffs
successfully claim that, even if the Act does not intrude on FERC’s exclusive authority, the Act
impedes the FERC’s policy of establishing a market-based approach to setting wholesale energy
rates in the mid-Atlantic market. Id. at ¶¶ 31-36, 40. Thus, Plaintiffs’ claims are sufficient to
withstand Defendants’ Rule 12(b)(6) motion to dismiss and the claims should go forward to
determine the scope, context, and record of the challenged state and federal laws.

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C. Dormant Commerce Clause Claim
The Commerce Clause grants Congress the power to “regulate Commerce with foreign
Nations, and among the several states . . . .” U.S. Const., Art. I, § 8, cl. 3. The Supreme Court
has long “recognized that this affirmative grant of authority to Congress also encompasses an
implicit or ‘dormant’ limitation on the authority of the States to enact legislation affecting
interstate commerce.” Healy v. Beer Institute, 491 U.S. 324, 326 n.1 (1989). In the Third Circuit,
“[t]he party challenging the statute has the burden of proving that the statute is discriminatory.”
Freeman v. Corzine, 629 F.3d 146, 158 (3d Cir.2010) (internal quotations omitted). In this
context, discrimination “simply means differential treatment of in-state and out-of-state
economic interests that benefits the former and burdens the latter.” United Haulers Ass'n, Inc. v.
Oneida–Herkimer Solid Waste Mgmt. Auth., 550 U.S. 330, 338 (2007) (internal quotations
omitted).
Plaintiffs advance a credible case that the intent and effect of the Act are to discriminate
in favor of in-state generation at the expense of out-of-state generation. Plaintiffs claim the stateselected electric generators disproportionately benefit from said agreements. Complaint, ¶ 103.
According to Plaintiffs, the eligibility requirements for the selection process are weighted
towards in-state generators. Complaint, ¶ 102 (claiming that a commercial operation deadline
favors in-state generators that are sufficiently advanced in planning and permitting), ¶ 104
(identifying pre-qualification requirements that favor in-state generators, including providing
environmental, economic, and community benefits to New Jersey). According to Plaintiffs, the
eligibility preferences for in-state generators is belied by the fact that all three of the generation

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facilities selected by the BPU are from New Jersey. See Plaintiffs’ Opposition Brief, at 26 n.9.
Furthermore, Plaintiffs identify portions of the legislative record that Plaintiffs claim illustrates
that the intent of the Act is to favor in-state generation over out-of-state. Complaint, ¶ 101.
While Defendants dispute the discriminatory affect of the Act, Defendants are unable to
identify any claims that are implausible on their face. See Defendants’ Brief in Support, at 20-24.
Thus, Defendants’ Rule 12(b)(6) motion to dismiss for failure to state a claim fails as to
Plaintiffs’ Commerce Clause claim.
IV
This Court has reviewed all submissions. For the reasons set forth in the above
Memorandum;
IT IS on this 19th day of October 2011,
ORDERED that Defendants’ First Motion to Dismiss Complaint in Lieu of Filing an Answer
(Docket Entry #22) is DENIED;

s/Peter G. Sheridan
PETER G. SHERIDAN, U.S.D.J.

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