On April 16, 2010, TransCanada Power Marketing, Ltd. (“TransCanda”) filed suit in the U.S. District Court for the Central District of Massachusetts arguing that Massachusetts is unconstitutionally discriminating against out-of-state renewable energy producers. TransCanada purchases energy from generators and resells it to distribution companies and retail customers in the northeast United States. It is a U.S.-based subsidiary of TransCanada Corporation, a Canadian entity that, among other things, owns significant pieces of energy infrastructure in Canada and the United States, including power generation facilities. TransCanada’s suit challenges two Massachusetts programs that it claims benefit in-state economic interests while burdening out-of-state interests in violation of the U.S. Constitution’s Commerce Clause. It is seeking declaratory and injunctive relief as well as damages under 42 USC § 1983.

The two Massachusetts programs at issue involve the Commonwealth’s attempt to spur in-state renewable energy resources.

  • First, in 2008, Massachusetts adopted Section 83 of the Green Communities Act, which mandates that energy distribution companies (i.e., TransCanada’s customers) “solicit proposals from renewable energy developers and, provided reasonable proposals have been received, enter into cost-effective long-term contracts to facilitate the financing of renewable energy generation within the jurisdictional boundaries of the Commonwealth of Massachusetts . . . .” Referencing this law, in early 2010, Massachusetts issued a Request for Proposals for Long-Term Contracts for Renewable Energy Projects (the “RFP”), noting that generation facilities must be locate within Massachusetts. TransCanada contends that Section 83 and the RFP impermissibly and facially discriminate against out-of-state renewable energy producers.
  • Second, although Massachusetts has long had a broad renewable energy portfolio standard which included the purchase of Renewable Energy Certificates (“RECs”), in 2008 it adopted Section 32 of the Green Communities Act, which required retail energy suppliers (such as TransCanada) to provide a “portion of the required minimum percentage of kilowatt-hours sales from new on-site renewable energy generated sources located in the Commonwealth . . . .” And in 2010, the state added to the existing REC requirements a “solar carve-out” that requires retail electricity suppliers to purchase a portion of its required RECs from solar generators located within Massachusetts. TransCanada contends that these laws and requirements impermissibly and facially discriminates against out-of-state renewable energy generation.

According to TransCanada, these actions create significant harms: (1) Section 83 prevents bids on long-term contracts using renewable energy produced outside Massachusetts (such as energy from TransCanada’s affiliate that is developing the Kibby Wind Power Project in Maine), harms TransCanda’s business opportunity at the Kibby Wind Power Project, and increases prices for renewable energy; and (2) Section 32 and the RFP slows development of solar RECs in a broader geographic area and inflates their cost, and they encourage TransCanada and other retail suppliers to make Alternative Compliance Payments, because there are insufficient solar RECs that qualify under the law.

Because TransCanada has just recently filed its complaint, the Commonwealth has not yet filed any response. We expect that Massachusetts will vigorously defend the Green Communities Act as being constitutional because its interests in promoting in-state renewable energy generation are an important policy choice. The outcome of this case could have far-reaching effects on other state’s renewable portfolio standards (RPSs). Twenty-nine states currently have RPSs, and an additional six have renewable portfolio goals (RPGs). The details of the these RPSs and RPGs vary, but several include incentives for in-state or regional renewable energy generation. If TransCanada is successful with its claims, then these states may have to modify their standards so that they are not discriminating against out-of-state renewable energy generators. The RPSs with regional preferences may not be as much at risk, depending on the court’s decision. A key question will be whether the RPSs and RPGs create protectionist barriers to interstate trade. Check here for regular updates as this groundbreaking case moves forward.