Following up on a similar decision in Maryland last month, a federal court threw out New Jersey’s attempt to spur construction of new power plants outside of PJM’s capacity auctions, saying that it was an unconstitutional state attempt to interfere with the wholesale power market.

New Jersey’s Long-Term Capacity Pilot Project (LCAPP), enacted in 2011, was intended to address potential transmission and capacity shortfalls in the state. The law was only the latest act in a long-running dispute between the New Jersey Board of Public Utilities and PJM over the best ways to address these problems. After repeatedly failing in its efforts to get PJM to revise its rules to better incentivize new capacity, the board worked with the state legislature to develop the LCAPP.

As enacted, the LCAPP empowered the board to select generators to construct up to 2,000 MW of new capacity in New Jersey. It further required New Jersey’s four utilities to enter into power purchase agreements with these generators and pay any differences between their actual costs and revenue generated from PJM’s Reliability Pricing Model (RPM) auctions.

Costs for the program were estimated at up to $3 billion over 15 years. Supporters argued the additional capacity would lower retail electricity prices for New Jersey residents by reducing congestion on the area grid and resulting price spikes. New Jersey typically experiences some of the highest electricity rates in the country.

The utilities sued to block the plan shortly after its enactment, arguing that LCAPP distorted the RPM auctions and thus constituted a state scheme to regulate wholesale power prices, an area Congress has reserved for the Federal Energy Regulatory Commission (FERC) pursuant to the Federal Power Act.

The trial was held in April and May of this year. On Oct. 11, Judge Peter G. Sheridan ruled for the utilities, agreeing that the law was an attempt to distort the RPM auctions and was thus preempted by federal regulation.

This is the second federal court decision in less than a month shooting down state efforts to boost capacity outside of PJM. In late September, Judge Marvin J. Gabbis of the U.S. District Court for the District of Maryland found that the state’s order last year for three utilities to enter into similar power purchase agreements to support construction of a combined cycle plant near Washington, DC, likewise impermissibly invaded FERC’s exclusive authority over wholesale power prices. (The prospective plant owner, CPV, was also selected to build a plant under the LCAPP.)

These two decisions represent a significant victory for PJM, although it was not a party to either lawsuit. In both cases, the courts ruled that its authority over the wholesale power market in its region, as overseen by FERC, was not subject to state interference.

Appeals are likely in both cases, though no decisions have been announced.

—Thomas W. Overton, JD, gas technology editor (@thomas_overton, @POWERmagazine)