From our colleagues Beverly Pearman and Jeremy Sacks:

Massachusetts Department of Public Utilities (“DPU”) has modified the two programs challenged by TransCanada Power Marketing Ltd. (“TransCanada”) in a federal law suit. TransCanada filed its complaint on April 16, 2010, alleging that portions of the Green Communities Act that were intended to increase in-state renewable energy resources were unconstitutional because they favor Massachusetts producers in violation of the Commerce Clause. The Commerce Clause generally prohibits states from enacting laws that burden out-of-state businesses in order to give a competitive advantage to in-state businesses.

The first modification came in early June as a result of settlement negotiations. Massachusetts modified the Solar Carve-Out program to grandfather in rates for Alternative Compliance Payments (“ACP”) that were contractually committed or renewed before January 1, 2010. ACP are paid by electric companies that do not hold the required amount of Solar Renewable Energy Credits (“SRECs”) that must be produced only by facilities located in Massachusetts. In exchange for this rule change, TransCanada dismissed its claims challenging the Solar Carve Out on June 9, 2010, but continued to press forward with its Commerce Clause challenge to a Request for Proposals for Long-Term Contracts for Renewable Energy Projects (the “RFP”) issued by the Massachusetts Department of Energy Resources (“DOER”) this year.

As part of that challenge, TransCanada asked the federal court in Massachusetts on June 1, 2010, to issue a preliminary injunction excising the provision in the RFP that requires electrical distribution companies to enter long-term contracts with only renewable energy generators located in Massachusetts. That motion is now on hold. On June 9, 2010, the Department of Public Utilities addressed the second modification when it issued emergency regulations suspending that requirement and “allow[ing] solicitations for long-term contract proposals for renewable energy generation that is not limited to within the Commonwealth of Massachusetts, its state waters, or adjacent federal waters.” The agency will hold a public hearing on the emergency regulations and is expected to issue final regulations within 90 days of June 9, 2010.

Now that the geographic limitation for renewable energy generation is suspended, TransCanada and other out-of-state generators can participate in the RFP. The order directs the distribution companies, in consultation with the DOER, to re-open the RFP for a reasonable period of time to allow eligible out-of-state generators to submit proposals. DOER and electrical distribution companies have said they will issue a new RFP to DPU for approval on or before July 14. Companies that had previously submitted bids had expected the long-term contracts to be approved by July 21, 2010. It is extremely unlikely that deadline will be met, because the pool of bidders for the long-term contracts is expected to increase now that out-of-state generators can participate. The DPU emphasized in its order that, when evaluating the bids, distribution companies “should be mindful of the express language of the statute, which calls upon distribution companies to ‘enter into cost-effective long-term contracts to facilitate the financing of renewable energy generation.’ St. 2008, c. 169, § 83 (emphasis added).”

The DPU referenced the TransCanada lawsuit in its order issuing the emergency regulations, but did not comment on the validity of TransCanada’s claims. Rather, it stated that suspension of the challenged provisions was necessary to achieve the public purpose of the Green Communities Act and that “[t]hese emergency regulations are needed to provide certainty concerning the ability of electric distribution companies to enter into long-term contracts with renewable energy developers to facilitate the financing of renewable energy generation sources.” State officials must have perceived some risk in continuing with the litigation. At a minimum, it appears they concluded that it was better to suspend the challenged provisions rather than leave the validity of the soon to be entered long-term contracts at issue.

On July 21, 2010 all parties in the litigation submitted a motion to extend the deadlines for completion of the preliminary injunction briefing to October 2010. If the parties ultimately resolve this matter through settlement, then the question of the constitutionality of geographic limitations in renewable portfolio standards will remain unresolved.