Below is a response by NSTAR and Northeast Utilities to Cape Wind’s request to the Department of Public Utilities that, as a condition of merger, the two utility companies buy the remaining power output of the offshore wind project in Nantucket Sound. The response also addresses a proposal from the Conservation Law Foundation (CLF) that the merged utility buy offshore wind power. The response is part of a much larger brief submitted to the Department of Public Utilities in support of the proposed merger. You can read the brief in full here. You can also read Cape Wind’s original request here.

Both CLF and Cape Wind argue for the adoption of one condition upon the merger, which is for the merged company to purchase “offshore wind energy” (CLF In. Br. at 42-43), or “the remaining output” of Cape Wind’s project (Cape Wind In. Br. at 1). As discussed in relation to DOER’s requested condition relating to the procurement of renewable power as a condition of the Proposed Merger, the Department has no authority under G.L. c. 164, or any other statutory provision to impose a requirement to enter into a long-term contract for renewable power. However, the suggestion that the Department should specify the renewable power to be procured suffers from additional legal infirmities.

A condition that is unilaterally imposed by the Department as a merger condition, which specifies that NSTAR Electric is required to purchase the power of a company located within Massachusetts could invoke concerns of a potential violation of the Dormant Commerce Clause of the U.S. Constitution.16 The doctrine of the Dormant Commerce Clause prohibits a state from engaging in actions that discriminate against out-of-state business. This anti-discrimination policy prevents states from engaging in protectionism, whereby an advantage is given to in-state industries at the expense of out-of-state competitors. Justice Stone provided a clear explanation of this aspect of the Dormant Commerce Clause by indicating that: “State regulations affecting interstate commerce, whose purpose or effect is to gain for those within the state an advantage at the expense of those without … have been thought to impinge upon the constitutional prohibition even though Congress had not acted.” South Carolina State Highway Dep’t v. Barnwell Bros., 303 U.S. 177 (1938).

In addition, the U.S. Supreme Court is particularly prone to find a state action to be unconstitutional if it discriminates against out-of state companies when it relates to energy. See e.g. Wyoming v. Oklahoma, 502 U.S. 437 (1992) (requiring in-state electric utilities with coal fired generators to purchase 10 percent of their coal needs from in-state sources); New Energy Co. of Ind. v. Limbach, 486 U.S. 269 (1988) (providing tax advantages only to ethanol produced in-state); and New England Power Co. v. New Hampshire, 455 U.S. 331 (1982) (denying a state ability’s to restrict the flow of hydro-electricity across state lines). The Department has recognized the inherent constitutional infirmities of requiring electric distribution companies to purchase power from in-state renewable energy developers when it suspended the statutory requirement in Section 83 of the GCA that renewable energy purchased by electric distribution companies be located “within the jurisdictional boundaries of the commonwealth, including state or adjacent federal waters”. Emergency Regulations for Long-Term Contracts for Renewable Energy, D.P.U. 10-58 at 5 (2010). Thus, the Department’s unilateral requirement to purchase power from an in-state renewable energy developer could constitute a state action that violates the Dormant Commerce Clause.

CLF’s recommendation is less direct in that CLF is recommending that the Department impose a condition that the merged company “be required to enter long-term contract(s) to meaningfully facilitate the financing of offshore wind energy,” asserting that the merged company should establish “a Department-approved method and timetable for the solicitation of such contracts” (CLF In. Br. at 42-43). Although Cape Wind is not the only off-shore wind developer in New England, it certainly is the furthest along in developing the largest off-shore wind farm in New England. If the “Department-approved method and timetable for solicitation” led to Cape Wind being the only qualified off-shore wind developer of the merged company’s solicitation, then the Department’s action would, in effect, discriminate against other off-shore wind developers. If the Department were to impose a condition on the Proposed Merger, along with related solicitation requirements, which resulted in Cape Wind being the only qualified bidder, legal concerns would be raised. It matters not that the condition appears facially neutral with respect to in-state or out-of-state developers, because the courts weigh whether the purpose or effect of the state action is discriminatory. Dean Milk Co. v. City of Madison, Wisconsin, 340 U.S. 349 (1951).

Even if the Department could adopt and implement CLF’s recommended condition in a manner that did not leave Cape Wind as the only qualified developer, the Department does not have the statutory authority to require the merged company to purchase offshore wind energy for the reasons stated above in relation to DOER’s proposed conditions. Both CLF and Cape Wind rely almost exclusively on a Department decision that “offshore wind will be necessary to comply with the aggressive reduction targets of the GWSA” (CLF In. Br. at 42). However, although the carbon reduction targets encompassed in the GWSA may help support a decision by the Department to approve a long-term wind contract proposed by an electric distribution company, the GWSA does not provide the Department with the authority that would be needed to require an electric distribution company to enter into a long-term contract for off-shore wind. Because the Department does not have any authority to require an electric distribution company to enter into a long-term contract for off-shore wind, the Department cannot indirectly require an electric distribution company to enter into a long-term contract for off-shore wind through a condition to merger approval. Alliance to Protect Nantucket Sound v. Energy Facilities Siting Board 457 Mass. 663, 685 (2010).

16) This legal concern would not exist if NSTAR Electric were to unilaterally decide to enter into a contract with Cape Wind pursuant to its Section 83 obligations.