Hydro contract ruling offers clarity in clean energy law

Massachusetts
Massachusetts_could_receive_Hydro_power__0_20190222234659

BOSTON (SHNS) – There have been many hurdles in the quest to get Canadian hydroelectricity into Massachusetts, but the state’s highest court last month cleared one from the project’s path — a legal challenge to the contracts that intend to facilitate the delivery of about 17 percent of the state’s electricity demand.

NextEra Energy Resources, which owns and operates gas-, nuclear- and oil-powered generating plants in addition to wind and solar operations, filed suit against the Massachusetts Department of Public Utilities claiming that it improperly approved power purchase agreements between Massachusetts utilities and Hydro-Québec. DPU approved the contracts in June 2019 and said they would reduce Massachusetts electric bills between 2 and 4 percent each year, saving ratepayers $3.9 billion over the 20-year life of the contracts.

The Massachusetts Supreme Judicial Court heard arguments in April and ruled unanimously Sept. 3 that the DPU properly applied its expertise and was right to approve the PPAs. Though the case revolved around fairly technical language in the underlying law and contracts, two attorneys who represented the DPU said the SJC’s ruling is important for future clean energy projects and contracts requiring DPU review and approval.

“Big picture, what’s most important and in many respects most helpful as you look forward is that this validates the department’s handling of that review process and the application of its reasonable judgment in approving this contract, deciding that it met the requirements of the statute,” Jerry Petros, a partner at Hinckley Allen who leads the firm’s environmental group, said. “I think that is crucial in making sure that this process properly functions with respect to future transactions.”

Between the contracts for Canadian hydropower and those related to the two offshore wind projects expected to generate power for Massachusetts, the state is on track to source about half of its electrical supply from clean sources, officials have said. And with the executive branch and Legislature working with a shared goal of getting to net-zero greenhouse gas emissions by 2050, DPU is sure to have more clean energy contracts to review in the coming years.

“There is a real benefit to this decision in that some of the things that the petitioner was challenging here challenged, I think, some of the fundamental understandings of players in the industry as to what the requirements would be for this type of contract,” Adam Ramos, a partner at Hinckley Allen, said. He said the crux of the case was the tension between the common uses of certain words and “the practical realities of how those terms are used in the electric industry.”

NextEra argued in its suit that the contracts were inconsistent with the 2016 clean energy law that authorized them, particularly provisions of that law that require the contracts to provide for “firm service” generation and for that generation to be solely hydroelectric.

In the energy world, a contract for firm service means that an energy supplier has committed to sell a specific amount of energy to the buyer and cannot decide instead to sell any amount of that energy to another buyer, Petros said. The opposite of firm service is “as-available service” or “non-firm service” which is when a supplier can unilaterally decide to sell the energy to a buyer willing to pay a higher price.

But NextEra essentially argued that the contracts did not sufficiently provide for firm service because they include clauses that would allow Hydro-Québec to interrupt service for specific reasons, like force majeure events, scheduled maintenance and regulatory actions.

“What I think the plaintiff in this case kind of tried to confuse is making interruption the antithesis of firm service, which it is not,” Petros said. “So even if I agree to provide you with firm service, if there is a blizzard or some natural disaster that precludes me from selling you that 100 megawatts for a day or for a week, I haven’t violated my commitment to provide you with firm service.”

But the 2016 clean energy law that calls for “firm service hydroelectric generation from hydroelectric generation alone” also defines firm service hydroelectric generation as “hydroelectric generation provided without interruption for 1 or more discrete periods designated in a long-term contract…”.

“That particular drafter probably didn’t understand the distinction between firm service and interruption,” Petros said. “I think in this case the plaintiff tried to seize on that language to say, ‘oh, no, no, here firm service means something quite different because of this add-on language’ and that is what the Supreme Judicial Court rejected.”

Justice Scott Kafker, writing for the court, said that NextEra’s idea of firm service “would amount to an otherworldly, unrealistic interpretation of the statute” and said that DPU properly used its expertise in the energy field to interpret “without interruption” to mean that the availability of the energy must be maximized with contingencies in place to minimize the impact of unavoidable disruptions.

“The department’s interpretation is a commonsense reading of the statute: the real world is unpredictable, especially over twenty years, and this court properly defers to the department’s view that at least some shortfalls are inevitable,” Kafker wrote in the decision.

NextEra also argued that the PPAs should not have been approved because they conflict with the clause of the 2016 clean energy law that requires the contracts to provide for power “from hydroelectric generation alone.” Petros and Ramos said the company argued that Massachusetts utilities cannot know for certain that the power they receive comes from hydroelectric generation only because Hydro-Québec also generates a small amount of power through fossil fuels.

NextEra argued that unless it verifies that every electron of the energy transmitted onto the regional grid is from hydroelectric generation only, Massachusetts would be paying for clean energy used elsewhere and that the New England Power Pool Generation Information System (NEPOOL GIS) is not an appropriate mechanism for tracking generation and greenhouse gas emissions reductions.

But electricity cannot be transmitted through a regional grid in such a way that specific electrons can be delivered from the point of generation to specific end sources — electrons follow the laws of physics and not the terms of contracts. So while the NEPOOL GIS system keeps track of who puts how much energy into the grid and how that energy was generated, it is not possible to trace a single electron already on the grid back to its source.

“Let’s say we had to fill up an Olympic-sized swimming pool and have 10 people doing it. I could measure how much each of the 10 people put into the swimming pool … but when it’s going the other way, if we started to extract water from that Olympic-sized swimming pool and someone pulled out a gallon, I couldn’t possibly tell them who put that gallon in,” Petros said. “Indeed, it’s likely that to some degree everybody put the gallon in, depending on where you scooped it from.”

If someone were to pull out a set of electrons from the grid and try to determine their source, “just like the swimming pool they almost certainly came from many multiple sources,” he said.

Kafker determined that the situation NextEra theorized in which Massachusetts would be paying for clean energy used elsewhere “is a fiction so long as the Commonwealth is paying for what is being generated, what is being generated is actually clean energy, and the Commonwealth maintains ownership of the environmental attributes associated with that energy.”

With the SJC having removed the hurdle presented by NextEra’s suit, the plan to deliver clean power from Hydro-Québec to the Massachusetts and New England power grid is poised to take a significant step forward by the end of this year.

New England Clean Energy Connect is a planned 145-mile transmission project of Central Maine Power Company that would link Hydro-Québec to the regional grid. The CEO of CMP parent company Avangrid said the transmission project is “on track to start construction in Q4 2020, once we receive the approval of the U.S. Army Corps of Engineers, which we expect by the end of this month.”

When DPU approved the contracts for Quebec hydroelectricity, NECEC was expected to come online by Dec. 13, 2022.

Copyright 2020 Nexstar Inc. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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