Contrary Legal Winds At Cape Wind - Opponents Of Offshore Wind Sue Asserting Preemption

by McCarter & English: Climate Change & Renewable Energy
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Would you care to hazard a guess at how long it takes to bring online an offshore wind farm in the United States?  At the moment, it is 12+ years and counting.  A recent court filing arguing constitutional questions is certain to slow it down some more.

In 2001 Cape Wind Associates, LLC, submitted an application to the United States Army Corps of Engineers for a permit to construct an offshore wind power facility in Nantucket Sound.  About 9 years later Cape Wind finally procured the approval to move forward from the Department of the Interior.  Cape Wind then got down to work and by November 2012 had signed the first U.S. commercial offshore wind lease and long-term power purchase agreements with National Grid and NSTAR Electric Co.  Cape Wnd's Construction and Operations Plan was approved by the Bureau of Ocean Energy Management.  According to Cape Wind it is now seeking out its project financing.

But a new hurdle has surfaced.  At the end of January, various plaintiffs - the Town of Barnstable, businesses, a non-profit environmental organization, and individuals - all users within NSTAR's electric service area, sued various Massachusetts governmental entities, as well as NSTAR and Cape Wind (see Complaint attached).  Their goal is

"a declaration that the Commonwealth of Massachusetts violated both the dormant Commerce Clause and the Supremacy Clause when it used its influence over NSTAR's merger request to bring about NSTAR's entry into an above-market wholesale electricity contract with Cape Wind, a politically favored renewable energy project in Massachusetts, to buy electricity at a particular price."

The plaintiffs also seek injunctive relief to invalidate the power purchase agreement between NSTAR and Cape Wind.

Plaintiffs' theories are based on the following premise:  "Massachusetts regulators used their influence over a merger request by NSTAR ..., to bring about NSTAR's purchase of electricity from Cape Wind ..., an in-state renewable energy project, on particular terms." The legal theories are two-fold. First, the Federal Power Act gives the Federal Energy Regulatory Commission exclusive jurisdiction over wholesale electricity rates, charges and terms.  Thus, plaintiffs assert, Massachusetts' acts dictating favorable terms for wholesale electricity sales by Cape Wind to NSTAR are preempted by the Federal Power Act.  Second, because Massachusetts' acts in effect favor an in-state electricity provider over out-of-state providers, Massachusetts is unlawfully discriminating in violation of the "dormant" Commerce Clause of the Constitution. 

These theories recently are exceedingly popular in the energy space.  Although the dormant Commerce Clause has not persuaded a federal judge, in 2013 preemption was used successfully to challenge state requirements for gas-fired generation in Maryland (PPL Energy Plus LLC v. Nazarian) and New Jersey (PPL Energyplus v. Hanna).  Although both decisions are on appeal, if affirmed, they have significant implications for the viability of state renewable portfolio standards. Notwithstanding that dozens of states have RPSs, the argument will be that RPSs regulate rates, charges and terms by implication, even if the legislative, regulatory and contract drafters assiduously leave rates, charges and terms out of their writings.

One commentator, however, points out that "the FERC has never indicated that a state's RPS program that includes a directive to utilities to acquire wholesale renewable energy under long-term contracts to be a violation of the FERC's exclusive jurisdiction under the Federal Power Act."  So this may be much ado about nothing; time will tell.  In the meantime, Cape Wind continues to be delayed.

20140121 Cape Wind Complaint.pdf (253.06 kb)

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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