Case 3:11-cv-00745-PGS-DEA Document 203 Filed 01/18/13 Page 1 of 12 PageID: 5518 UNITED STATES DISTRICT COURT DISTRICT OF NEW JERSEY : PPL ENERGY PLUS, LLC, et al. : : Civil Action No. 11-745-PGS-DEA : Plaintiffs, : : MEMORANDUM AND ORDER v. : : SOLOMON, et al. : : Defendants. : This matter comes before the Court in connection with Plaintiffs Subpoena served on non-party PJM Interconnection, LLC ( PJM ) on October 26, 2012. Non-party intervenors Hess Newark, LLC ( Hess ) [dkt. no. 168], Gemma Power Systems, LLC ( Gemma ) [dkt. no. 172], and Marketing Analytics, LLC ( Marketing Analytics ) [dkt. no. 176] (collectively, Intervenors ) each filed motions to quash the Subpoena. 1 The Court has carefully considered the submissions of Parties and Intervenors pursuant to Fed R. Civ. P. 78 and, for the reasons set forth below, Intervenors Motions are GRANTED, in part, and DENIED, in part. I. INTRODUCTION & PROCEDURAL HISTORY The central issue in this case is whether the New Jersey Long-Term Capacity Agreement Pilot Program Act (P.L. 2011, c.9, approved Jan. 28, 2011, codified at N.J.S.A. 48:3-51,48:3-98.2-.4) ( LCAPP Act ) is preempted by the Supremacy Clause and the Commerce Clause of the United States Constitution. On September 28, 2012, U.S. District Judge Peter G. Sheridan issued 1 Non-parties NRG Engery, Inc. ( NRG ) and New Jersey Power Development LLC ( NJPD ) joined the objections to the PJM subpoena by letter dated November 30, 2011. See dkt. no. 171.
Case 3:11-cv-00745-PGS-DEA Document 203 Filed 01/18/13 Page 2 of 12 PageID: 5519 an Opinion denying the Parties cross-motions for summary judgment. See dkt. no. 151. 2 The trial of this matter is set for March 26, 2013. The instant dispute relates to Plaintiffs Subpoena to PJM. The Subpoena seeks five categories of information and documents concerning the wholesale electricity markets operated by PJM. 3 In accordance with its contractual obligations, PJM notified its market participants (the 2 The facts of this case are well known to the Parties and Intervenors. They have also been set forth in detail by Judge Sheridan in his recent summary judgment Opinion. See dkt. no. 151. As a result, the following discussion focuses only on the facts relevant to the instant dispute. 3 Specifically, the Subpoena seeks the following categories of documents and information: 1) All confidential documents and data sent to the New Jersey BPU in response to the request for confidential information from Mr. Kenneth Sheehan of the NJ BPU, which request PJM identified in an email to members from Dave Anders dated June 27, 2012. 2) All non-confidential documents and data sent to the NJ BPU concerning the LCAPP or the PJM Base Residual Auction. 3) To the extent not produced in response to item 1: (a) For each generation resource that offered into the 2012 Base Residual Auction, the offered and cleared megawatt quantities and associated prices. Such data should include supplier, and generation type... (b) For all generation capacity resources included in the response to (a), indicate the fuel source and specific type of unit... and the station/unit name and its geographic location; and the eford. (c) For generators that filed MOPR exceptions, please provide the offer price ultimately authorized for bids into the Base Residual Auction. 4) Documents and data concerning the MOPR exception submissions of Hess, NJPD, and CPV, including all information analyzing, supporting, or undermining those submissions and any revisions or modifications to those submissions. 5) Documents and data created after June 1, 2010 concerning the adequacy of the supply of generation for New Jersey or concerning the need (or lack of need) for additional generation for New Jersey. 2
Case 3:11-cv-00745-PGS-DEA Document 203 Filed 01/18/13 Page 3 of 12 PageID: 5520 Participants ) that compliance with the Subpoena would potentially disclose their confidential information. On November 27, 2012, the Court conducted a preliminary hearing to address the Amended Confidentiality Order requested by PJM and the Participants and Intervenors objections to PJM s compliance with the Subpoena. As a result of the preliminary hearing, and with the consent of all Parties, the Court granted the Intervenors leave to intervene for the limited purpose of addressing the Subpoena issues, provided they do so by November 30, 2012. Subsequently, participants Hess and Gemma, and the Independent Market Monitor, Marketing Analytics, intervened and filed respective motions to quash the Subpoena. A. PJM & Capacity Auctions PJM is an independent market administrator that operates pursuant to Federal Energy Regulatory Commission ( FERC ) regulations and has an interest in ensuring the proper operation of the energy markets that it administers. PJM serves several critical functions with respect to the energy infrastructure in its region, which is comprised of all or part of thirteen states, including New Jersey and the District of Columbia. Most significant to the issue at hand, PJM operates a number of wholesale electricity markets, collectively known as the Reliability Pricing Model ( RPM ). The RPM is a series of capacity auctions for delivery of electricity in the future. Entities that generate electric power make bids that reflect the prices at which they will deliver power in the future, making commitments to produce electricity when it is needed to meet demand. PJM s wholesale electricity markets have numerous participants, including the Plaintiffs and several Intervenors. As Judge Sheridan explained, the bids are, in turn, evaluated by PJM and Marketing Analytics, the Independent Market Monitor, to ensure they are competitive. Sheridan Opinion at 3
Case 3:11-cv-00745-PGS-DEA Document 203 Filed 01/18/13 Page 4 of 12 PageID: 5521 4. Ultimately, the price of capacity is set by the intersection of supply and demand and is referred to as the clearing price. Id. The clearing price is established by PJM and is called the MOPR (minimum offer price rule) screen. Id. Any generator that bids at or below the clearing price clears the auction, while any generator that bids above the auction fails to clear the auction. Id. B. Intervenors 1. Marketing Analytics Marketing Analytics also exists pursuant to FERC guidelines, but is an entity separate and apart from PJM. Marketing Analytics is the Independent Market Monitor charged with objectively monitoring the conduct of PJM and the Participants for compliance with the market rules and anticompetitive behavior. Marketing Analytics also reports on the performance of the markets and recommends market design improvements. Specifically, Marketing Analytics utilizes its special expertise in applied economics and the electricity industry to evaluate the levels of offers to determine whether they are competitive or whether they represent a potential exercise of market power. 2. Market Participants Hess was created by Newark Energy Holdings, LLC ( NEH ) for the purpose of obtaining and holding Standard Offer Capacity Agreements ( SOCAs ) 4 for an energy project in Newark, New Jersey. NEH is a joint venture of Hess and others formed for the purpose of obtaining approvals related to the construction of a gas-fired power plant owned by Hess in Newark. Gemma is a builder of power generation facilities for utilities, municipalities and independent power producers. As part of a proposal to join the Hess project in Newark, Gemma 4 See Sheridan Opinion at 7-9 (detailing how SOCAs function under the LCAPP Act). 4
Case 3:11-cv-00745-PGS-DEA Document 203 Filed 01/18/13 Page 5 of 12 PageID: 5522 submitted two bids to Hess. Gemma believes their bid information was among documents either selected or required to be submitted by Hess to Marketing Analytics in order to substantiate Hess bid as part of PJM s May, 2012 Base Residual Auction for capacity. II. ARGUMENT Intervenors now seek to quash Plaintiffs Request nos. 1, 2, 3, and 4 to the extent the requested documents contain generator-specific information submitted to PJM as part of the MOPR exception process or otherwise disclose the offer floors of generators. At the macro level, Marketing Analytics seeks to limit disclosure of the information sought in order to protect the integrity of the energy markets themselves. Plaintiffs Request no. 5 does not appear to be in dispute and therefore need not be addressed. Plaintiffs, in contrast, claim they should be permitted to conduct their own independent analysis of the generator-specific data in order to determine whether the bids submitted to PJM were actually economical. Plaintiffs claim this will allow them to test the factual basis of the Participants MOPR exception materials and further understand how the markets develop their prices. III. DISCUSSION A. Legal Standard FED. R. CIV. P. 45(c)(3)(A) sets forth the circumstances under which the Court must quash a subpoena. In relevant part, it provides: (c) Protecting a Person Subject to a Subpoena. (3) Quashing or Modifying a Subpoena. (A) When Required. On timely motion, the issuing court must quash or modify a subpoena that: (i) fails to allow a reasonable time to comply; (ii) requires excessive travel by a non-party; 5
Case 3:11-cv-00745-PGS-DEA Document 203 Filed 01/18/13 Page 6 of 12 PageID: 5523 (iii) requires disclosure of privileged or other protected matter, if no exception or waiver applies; or (iv) subjects a person to undue burden. An undue burden exists when the subpoena is unreasonable or oppressive. In re Lazaridis, 2011 WL 3859919, at *2 (D.N.J. Sept. 1, 2011) (Schmulovich v. 1161 Rt. 9 LLC, 2007 WL 2362598, at *4 (D.N.J. Aug. 15, 2007)). In evaluating whether a subpoena is unreasonable or oppressive, the district court must balance the relevance of the discovery sought, the requesting party's needs, and the potential hardship to the party subject to the subpoena. Pepsi-Cola Metro. Bottling Co., Inc. v. Ins. Co. of N. Am., Inc., 2011 WL 239655, at *3 (E.D. Pa. Jan. 25, 2011); see also Schmulovich, 2007 WL 2362598, at *4 (D.N.J. Aug. 15, 2007); In re Auto. Refinishing Paint, 229 F.R.D. 482, 495 (E.D. Pa. 2005). The party seeking to quash the subpoena bears the burden of demonstrating that the requirements of [FED. R. CIV. P. 45] are satisfied. Malibu Media, LLC v. John Does 1-15, 2012 WL 3089383, at *5 (E.D. Pa. Jul. 30, 2012) (citing City of St. Petersburg v. Total Containment, Inc., 2008 WL 1995298, at *2 (E.D. Pa. May 5, 2008)). This has been described as a heavy burden. Id. (citing Dexter v. Cosan Chem. Corp., 2000 U.S. Dist. LEXIS 22134, at *7-8 (D.N.J. Oct. 24, 2000)). B. Relevance & Plaintiffs Needs Intervenors primary argument is that the Subpoena seeks confidential and proprietary information that exceeds the boundaries of relevant discovery. For the reasons discussed below, the Court agrees. A Rule 45 subpoena served in conjunction with discovery must fall within the scope of proper discovery under FED. R. CIV. P. 26(b)(1). Schmulovich, 2007 WL 2362598, at *2 (citing Transcor, Inc. v. Furney Charters, Inc., 212 F.R.D. 588, 591 (D. Kan. 2003)). If a subpoena falls 6
Case 3:11-cv-00745-PGS-DEA Document 203 Filed 01/18/13 Page 7 of 12 PageID: 5524 outside the scope of permissible discovery, the Court has authority to quash or modify it upon timely motion by the party served. Id. Of course, the scope of discovery in federal litigation is broad. Parties may obtain discovery regarding any nonprivileged matter that is relevant to any party's claim or defense, and information sought by the parties need not be admissible at trial if it is reasonably calculated to lead to discoverable information. FED. R. CIV. P. 26(b)(1). While undoubtedly broad, the scope of discovery, however, is not boundless. Unicasa Mktg. Group, LLC v. Spinelli, 2007 WL 2363158, at *2 (D.N.J. Aug. 15, 2007). In order to determine the relevancy of Plaintiffs requests, it is necessary to construe the elements of their preemption claims and the legal framework which supports them. Congressional intent is the ultimate touchstone in any preemption analysis. Malone v. White Motor Corp., 435 U.S. 497, 504 (1978). Thus, Congress may explicitly pre-empt state law, see e.g., Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 95-96 (1983), or it may implicitly indicate an intent to occupy a given field to the exclusion of state law. Schneidewind v. ANR Pipeline Co., 485 U.S. 293, 300 (1988). Such an implicit purpose may be inferred where the pervasiveness of the federal regulation precludes supplementation by the States, where the federal interest in the field is sufficiently dominant, or where the object sought to be obtained by the federal law and the character of obligations imposed by it reveal the same purpose. Id. (citation omitted). Finally, state law is pre-empted when it actually conflicts with federal law or stands as an obstacle to the accomplishment of the full purposes and objectives of Congress. Id. (citations omitted). Here, the LCAPP Act is alleged to be in conflict with the purpose of the Federal energy guidelines as applied to PJM s capacity auction. As Judge Sheridan framed the issue, the question is whether the LCAPP Act, which allows the SOCA generators [such as Hess] to bid 7
Case 3:11-cv-00745-PGS-DEA Document 203 Filed 01/18/13 Page 8 of 12 PageID: 5525 below cost due to SOCA reimbursement, artificially lowers auction prices, defeating federal competitiveness concerns. Sheridan Opinion at 11. Said differently, Plaintiffs believe market prices may have been different in the absence of the LCAPP Act. Such an effect would therefore be contrary to FERC s decision to allow wholesale capacity prices to be set by organic market forces. In order to prove their claims, Plaintiffs argue they are entitled to discover how the MOPR process actually works, a point identified in Judge Sheridan s summary judgment Opinion. (Plaintiffs argument directly implicates Request nos. 1, 3, and 4 and, to a lesser extent, Request no. 2.) However, there is an important distinction between understanding how the MOPR process interacts with the LCAPP Act and whether a given unit-specific application of the process yielded competitive results. While the former would be relevant to preemption, the latter would not at least not in the manner proposed by Plaintiffs. 5 With this in mind, the Court does not believe Plaintiffs should be permitted to obtain other Participants confidential and proprietary information in order to conduct their own unit-specific MOPR analysis. Accordingly, for the reasons that follow, the Court will quash Requests nos. 1, 3, and 4. Request no. 2 will be quashed to the extent it seeks generator-specific information submitted to PJM as part of the MOPR exception process or other disclosure of the offer floors of generators. As a threshold matter, whether the LCAPP Act is preempted by federal regulations is largely a question of law. The Supreme Court has made this clear. See Matter of Reading Co., 115 F.3d 1111, 1117 (3d Cir. 1997) (citing California Federal Sav. and Loan Ass'n v. Guerra, 479 U.S. 272, 280 (1987)) ( As the Supreme Court has explained, in preemption analysis our 5 How MOPR works and protects the FERC jurisdictional capacity market would be relevant. Even Hess has conceded this point. Hess Reply, dkt. no. 189, at 16. However, the Court is not persuaded that a unit-specific application of the MOPR process would move this analysis forward. 8
Case 3:11-cv-00745-PGS-DEA Document 203 Filed 01/18/13 Page 9 of 12 PageID: 5526 sole task is to ascertain the intent of Congress. ). As a result, it is difficult to see how an independent evaluation of the MOPR submissions would tend to show how the LCAPP Act functions as an obstacle to implementation of the federal policy; or how it would inform a preemption analysis which, necessarily, must be rooted in Congressional intent. Still, Plaintiffs argument fails for additional reasons. First, application of the May, 2012 MOPR is moot. This is because the May, 2012 MOPR process has been supplanted by the Revised MOPR, effective December 17, 2012. An additional revised MOPR is proposed to be effective February 5, 2013. Therefore, any ex-post review, regardless of its findings, would not be relevant to a preemption claim based on the MOPR rules and procedures as currently constructed. Instead, it would seem Plaintiffs analysis would be more appropriately focused toward the interaction of the LCAPP Act with the revised MOPR and proposed revised MOPR. Further, Plaintiffs argument is not reconcilable with the statements of PJM, the Market Monitor and FERC. Plaintiffs claim they are entitled to see for themselves how incentives, as influenced by the LCAPP Act, interacted with the MOPR in practice. Pl. s Br., dkt. no. 184, at 7. However, as the Market Monitor points out, the purpose of the MOPR is to calculate an offer that excludes consideration of subsidies such as SOCAs afforded under the LCAPP Act. Marketing Analytics Br., dkt. no. 177, at 3. Indeed, FERC issued an order indicating as much. In FERC s April 12, 2011 order, FERC directed PJM to revise its MOPR standards so that a sell offer would be permissible when such offer is consistent with the competitive, cost-based, fixed, nominal levelized, net cost of new entry were the resources to rely solely on revenues from PJM administered markets. Pjm Interconnection, L.L.C. Pjm Power Providers Group, 135 FERC 61022 at 122 (Apr. 12, 2011) (emphasis added), aff d on reh g, 137 FERC 61,145 at 244 9
Case 3:11-cv-00745-PGS-DEA Document 203 Filed 01/18/13 Page 10 of 12 PageID: 5527 (Nov. 17, 2011) (affirming portion of Apr. 12, 2011 Order regarding MOPR standard). PJM and the Market Monitor have likewise maintained that their reviews did not consider SOCAs in any MOPR exception evaluations. Plaintiffs position in light of these facts is not persuasive. Still, even if Plaintiffs theory rests on the bids being actually economical, this Court is not an appropriate forum to discover such information. As Hess points out, any finding with respect to the specific application of the MOPR to a specific new entrant can lead to only one of two conclusions PJM did not apply the MOPR correctly or the MOPR does not do as FERC directed. Hess Reply at 8. However, it is not Plaintiffs role to determine whether the Hess and CPV projects were economical or whether their offer floors did or did not reflect the competitive cost of new entry. That is the purpose of PJM and the Market Monitor. To this end, both PJM and the Market Monitor, in allowing the bids to clear the auction, concluded they were, in fact, economical. Only FERC, moreover, has jurisdiction to consider any disputes over whether PJM and the Market Monitor followed the FERC-approved rate. 16 U.S.C. 824e. As discussed above, FERC has already issued a series of orders construing the LCAPP Act and the MOPR process. Likewise, any objections to FERC s findings must be taken up directly with the U.S. Court of Appeals. 16 U.S.C. 825l(b). Here, a number of the FERC decisions have been appealed to the Third Circuit. See, e.g., NJ Board of Public Utilities, et al v. FERC, Case Nos. 11-4245, et al. (3d. Cir. 2011). Therefore, allowing Plaintiffs to perform such an analysis would impermissibly infringe upon the authority of PJM, the Market Monitor, FERC and the Court of Appeals. Notwithstanding the above, Plaintiffs needs will not go unmet. PJM must still comply with the non-confidential portions of the Subpoena, Requests nos. 2 (as is outlined in the Order below) and 5. In addition, as of the date of this Opinion, CPV has subpoenaed PJM s Chief 10
Case 3:11-cv-00745-PGS-DEA Document 203 Filed 01/18/13 Page 11 of 12 PageID: 5528 Economist, Paul Sotkiewicz. See CPV Letter, dkt. no. 200. 6 Thus, Plaintiffs will have adequate information to demonstrate and understand how the LCAPP Act, and in particular the MOPR exception process, interacts with Federal energy regulations. C. Hardship The Court also believes compliance with the Subpoena would subject the Participants to substantial hardship. Here, the Subpoena would effectively require the Participants to disclose confidential and proprietary business information to their competitors. This fact alone presents significant hardships especially in light of the Participants non-party status in this action. Cf. Harris v. Harley-Davidson Motor Co. Operations, Inc., 2010 WL 4683776, at *5 (M.D. Pa. Nov. 10, 2010) ( [T]he proper balance between these non-party third persons' privacy interests and the discovery interests of Plaintiff is to assure that only those portions of [the discovery sought] that are clearly relevant to Plaintiff's claim be open to disclosure. ). However, as Marketing Analytics cautions, this case implicates more far-reaching concerns. Because structural market power is endemic to the organized wholesale electricity markets operated by PJM, the government relies on the PJM capacity auction to produce competitive results. In the words of Marketing Analytics, [i]f market sensitive information becomes available to competitors through a judicial process or other means, there is serious risk that market power and manipulation will taint pricing in PJM markets. Marketing Analytics Br. at 2. This is because the incentive to generate offers based on Participants own marginal costs is reduced or eliminated to the extent that a Participant knows the marginal costs of its competitors. 6 Plaintiffs have indicated that they may move to quash the Sotkiewicz Subpoena. This position is apparently tied to the Court s decision in the instant Motion and would be done to ensure consistent treatment of the two discovery requests. See Pl. s Letter, dkt. no. 201. Passing judgment on the propriety of such a motion would be premature. However, the Court nonetheless finds this position curious in light of Plaintiffs asserted concern for addressing the issues of fact identified by Judge Sheridan. 11
Case 3:11-cv-00745-PGS-DEA Document 203 Filed 01/18/13 Page 12 of 12 PageID: 5529 PJM echoed this concern. See PJM Objection, dkt. no. 156-2, at 3. ( The disclosure of this data could undermine or impair the integrity of [the energy markets]. ). Thus, releasing this data could potentially result in millions of dollars of excessive market prices per year a cost which would harm consumers as much as generators. Marketing Analytics Br. at 2. That the Market Monitor, as a neutral and objective participant in this matter, sought leave to intervene speaks to the gravity of the potential hardships. Therefore, the Court concludes any potential benefit to Plaintiffs would be outweighed by the hardships to the Participants and the public. IV. CONCLUSION & ORDER The Court having considered the papers submitted and the arguments of counsel pursuant to FED. R. CIV. P. 78, and for the reasons set forth above; IT IS on this 18 h day of January, 2013, ORDERED that Intervenors Motions to Quash the Subpoena are GRANTED in part and DENIED in part, as follows: 1. Intervenors Motion with respect to Request nos. 1, 3, and 4 of the Subpoena is GRANTED; and 2. Intervenors Motion with respect to Request no. 2 is GRANTED only to the extent the relevant documents contain generator-specific information submitted to PJM as part of the MOPR exception process or otherwise disclose the offer floors of generators; and it is further ORDERED that PJM shall otherwise comply with the Subpoena, including production of documents responsive to Request no. 5. s/ Douglas E. Arpert DOUGLAS E. ARPERT, U.S.M.J. 12