NextEra Energy Resources, LLC v. Department of Public Utilities ( 2020 )

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SJC-12886
NEXTERA ENERGY RESOURCES, LLC vs. DEPARTMENT OF PUBLIC
UTILITIES & others.1
Suffolk. April 9, 2020. - September 3, 2020.
Present: Gants, C.J., Gaziano, Lowy, Budd, Cypher,
& Kafker, JJ.
Electricity. Electric Company. Public Utilities, Electric
company, Electrical transmission line, Sale of electric
power. Administrative Law, Agency's interpretation of
statute, Agency's interpretation of regulation.
Civil action commenced in the Supreme Judicial Court for
the county of Suffolk on July 22, 2019.
The case was reported by Lowy, J.
Donald E. Frechette for the petitioner.
Gerald J. Petros, Special Assistant Attorney General, for
the respondent.
Jared S. des Rosiers, of Maine, Andrew O. Kaplan, Joshua D.
Dunlap, Jed M. Nosal, & Jesse S. Reyes, for Central Maine Power
Company, intervener, submitted a brief.
1 Central Maine Power Company, intervener; NSTAR Electric
Company, doing business as Eversource Energy, intervener;
Massachusetts Electric Company and Nantucket Electric Company,
each doing business as National Grid, interveners; and Fitchburg
Gas and Electric Light Company, doing business as Unitil,
intervener.
2
John K. Habib, Matthew S. Stern, Danielle C. Winter,
Matthew Campbell, & Patrick H. Taylor, for NSTAR Electric
Company & others, interveners, submitted a brief.
Mark C. Kalpin, Brett D. Carroll, & Christopher M.
Iaquinto, for New England Power Generators Association, Inc.,
amicus curiae, submitted a brief.
KAFKER, J. This case concerns recent legislation intended
to facilitate the development of hydroelectric and other clean
energy sources by requiring electricity distribution companies
in the Commonwealth to contract for the purchase of electricity
generated through environmentally friendly means. The
challenged power purchase agreements (PPAs) would allow
electricity distribution companies to purchase clean electricity
generated hydroelectrically by Hydro-Québec Energy Services
(U.S.), Inc. (HQUS); this electricity would be supplied to New
England via a transmission line running from Québec to Maine.
According to the petitioner, NextEra Energy Resources, LLC, the
PPAs at issue are inconsistent with statutory requirements that
such agreements provide for "firm service" hydroelectric
generation -- a term referring to hydroelectric power that is
provided without interruption -- and that such generation be
solely hydroelectric. Additionally, the petitioner objects to
the PPAs' use of the New England Power Pool (NEPOOL) Generation
Information System (GIS), a tracking system intended to account
for each unit of electricity transmitted, claiming the tracking
system is inadequate to ensure statutory compliance.
3
In its order, the Department of Public Utilities
(department) concluded that the PPAs allowed for electricity
delivery to be interrupted only in limited circumstances, and
that provisions requiring HQUS to cure delivery shortfalls or
pay damages create an appropriate incentive for HQUS to deliver
energy and fulfill firm service requirements. Shortfalls were
carefully circumscribed by the agreements, encompassing only a
narrow set of circumstances outside HQUS's control. The
department also concluded that the PPAs provide for delivery of
energy generated by sixty-two specified hydroelectric generating
facilities operated by HQUS, and the NEPOOL GIS tracking system
was sufficient as it was the industry standard.
We affirm the department's order approving the PPAs. We
conclude that the department reasonably and realistically
interpreted the firm service requirement. We also uphold the
department's conclusions that the PPAs guarantee electricity
generated solely from hydroelectric generation and that the
NEPOOL GIS tracking system is an adequate means to ensure the
required accounting. These rulings were supported by
substantial evidence and sufficient rationale.2
2 We acknowledge the amicus brief submitted by New England
Power Generators Association, Inc. As is "[u]sually" the case,
amicus argument "is limited to only those issues addressed by
the parties" (citation omitted). Teamsters Joint Council No. 10
v. Director of the Dep't of Labor & Workforce Dev., 447 Mass.
100, 100 n.2 (2006). We therefore decline to address the
4
1. Background. In 2008, the Legislature passed St. 2008,
c. 169, entitled "An Act relative to green communities," to
"provide forthwith for renewable and alternative energy and
energy efficiency in the commonwealth."3 In 2016, the
Legislature passed St. 2016, c. 188, entitled "An Act to promote
argument that the power purchase agreements (PPAs) did not
contract for incremental clean energy, i.e., more energy than is
otherwise available to the market in the Commonwealth, as this
argument was raised only by the amicus. See Finch v.
Commonwealth Health Ins. Connector Auth., 459 Mass. 655, 669
n.13 (2011); General Mills, Inc. v. Commissioner of Revenue, 440
Mass. 154, 167 n.7 (2003), cert. denied, 541 U.S. 973 (2004).
3 The Legislature passed this act the same year that it
passed St. 2008, c. 298, the Global Warming Solutions Act
(GWSA). "Each act addresses a separate but related piece of the
clean energy economy," and both "provide policymakers with a
broad array of tools, including 'targeted and technology-
specific policies[,] . . . economy-wide and market-based
mechanisms,' and renewable energy portfolio standards and energy
efficiency improvements, to advance a clean energy economy while
reducing emissions and addressing the unique threats that
climate change poses to the Commonwealth." Kain v. Department
of Envtl. Protection, 474 Mass. 278, 282 (2016), quoting Report
of the Senate Committee on Global Warming and Climate Change, No
Time to Waste, at 10 (Feb. 13, 2015); Executive Office of Energy
and Environmental Affairs, Massachusetts Clean Energy and
Climate Plan for 2020, Executive Summary, at 7 (Dec. 29, 2010).
The GWSA was "designed to make Massachusetts a national,
and even international, leader in the efforts to reduce the
greenhouse gas emissions that cause climate change," and
"establishes significant, ambitious, legally binding, short- and
long-term restrictions on those emissions" (quotation omitted).
New England Power Generators Ass'n, Inc. v. Department of Envtl.
Protection, 480 Mass. 398, 399 (2018). The GWSA mandates a
twenty-five percent reduction from 1990 greenhouse gas emission
levels by 2020 and an eighty percent reduction by 2050. G. L.
c. 21N, §§ 3, 4. Statute 2018, c. 169, and the provisions at
issue in this case play an essential role in achieving these
objectives by requiring the generation of clean energy.
5
energy diversity," which, among other changes, amended St.
2008, c. 169, by setting up a competitive bidding process for
contracts to finance the production of clean energy. St. 2016,
c. 188, § 12. This amendment was effectuated by adding §§ 83B
and 83D to St. 2008, c. 169 (Sections 83B and 83D). Id.
Section 83D required electric distribution companies to
jointly and competitively solicit proposals for eligible clean
energy generation resources no later than April 1, 2017, and,
provided reasonable proposals had been received, to enter into
cost-effective, long-term contracts -- known as PPAs -- to
facilitate the financing of clean energy generation resources
equal to approximately 9.45 million megawatt-hours (MWh) per
year by December 31, 2022. As required by statute, the
department must approve a PPA before it can become effective.
See Section 83D (e); 220 Code Mass. Regs. § 24.03 (2017).
"Clean energy generation" includes "firm service hydroelectric
generation," which Section 83B defines as "hydroelectric
generation provided without interruption for [one] or more
discrete periods designated in a long-term contract."4 The
4 Regulations promulgated by the Department of Public
Utilities (department) define firm service hydroelectric
generation as "hydroelectric generation provided without
interruption for one or more discrete periods designated in a
long-term contract, including but not limited to multiple
hydroelectric run-of-the-river generation units managed in a
portfolio that creates firm service though the diversity of
multiple units." 220 Code Mass. Regs. § 24.02 (2017). That
6
phrase "without interruption" is not defined by statute or the
accompanying regulations.
On July 23, 2018, NSTAR Electric Company, doing business as
Eversource Energy; Massachusetts Electric Company and Nantucket
Electric Company, each doing business as National Grid; and
Fitchburg Gas and Electric Light Company, doing business as
Unitil (companies), filed separate petitions with the
department, pursuant to Section 83D and 220 Code Mass. Regs.
§§ 24.00 (2017), for approval of individual PPAs for the
purchase of hydroelectric generation and associated
environmental attributes from HQUS. The PPAs were negotiated
and submitted to the department after the companies and the
Department of Energy Resources (DOER) selected a project
submitted jointly by Hydro Renewable Energy, Inc., an HQUS
affiliate, and Central Maine Power Company (CMP) after a three-
stage bidding process.5
Under the PPAs, the power will be delivered to New England
over a transmission line that starts at a substation in Thetford
description applies here, as Hydro-Québec Energy Services
(U.S.), Inc. (HQUS), will provide the energy guaranteed under
the PPAs from sixty-two specified hydroelectric generating
facilities.
5 The three-stage bidding process, initiated by a request
for proposals, met the requirements of St. 2008, c. 169, § 83D,
as inserted by St. 2016, c. 188, § 12 (Section 83D), and is not
at issue in this appeal.
7
Mines, Québec, and runs sixty-five miles to the Canada-Maine
border. The power would then be transmitted by means of a new
transmission line owned by CMP, named New England Clean Energy
Connect, that travels another 145 miles to a substation in
Lewiston, Maine. The PPAs specifically provide for a twenty-
year service term beginning on the commercial operation date.
The material terms of the three PPAs are nearly identical.
We describe those terms only as they relate to this appeal. The
PPAs provide that HQUS's obligations to sell and deliver
hydroelectric-generated energy, and the companies' obligations
to buy the same, "are firm and not subject to interruption
except to the extent caused by Force Majeure, excused under
Section 4.2(a)[6] or cured in accordance with Section 4.3(c)
[governing curable delivery shortfalls]."
"Curable delivery shortfalls" under section 4.3(c) of the
PPAs are shortfalls that result from (1) nonexcused outages,
i.e., outages or reductions in total transfer capacity other
than outages or reductions caused by force majeure, scheduled
maintenance, regulatory decisions, or outages in the
transmission line from Québec to the Canada-Maine border; or
(2) outages or reductions in that same transmission line due to
6 Outages or reductions below capacity caused by force
majeure, scheduled maintenance, regulatory decisions, or outages
in the transmission line from Québec to the Canada-Maine border
are referred to as "excused outages" in the PPAs.
8
a physical condition affecting its transfer ability. The PPAs
allow HQUS to cure these shortfalls by delivering qualified
shortfall energy7 during the shortfall cure period.8
Under the PPAs, "uncured delivery shortfalls" are delivery
shortfalls HQUS has not cured by the delivery of qualified
shortfall energy. Shortfalls that are not cured must be
remedied by cover damages. These damages include any penalties
or additional costs incurred by the companies as a result of
having to purchase replacement energy. Additionally, under
section 9.2(f) of the PPAs, if "[t]he aggregate Uncured Delivery
Shortfalls in any Shortfall Cure Period are more than twenty
percent (20%) of the Guaranteed Qualified Clean Energy for such
Shortfall Cure Period (a 'Defaulted Delivery Shortfall')," HQUS
has defaulted on the PPAs. Only shortfalls due to transmission
line failures are counted when calculating the ratio of
defaulted delivery shortfalls. In other words, section 9.2(f)
7 Qualified shortfall energy is hydroelectric energy
delivered over any transmission line to the companies during the
twenty-year term of the PPAs. This energy must also be tracked
in GIS to ensure it is hydroelectric-generated energy.
8 A shortfall cure period is defined in the PPAs as "the
same Contract Year in which the Curable Delivery Shortfall
occurred or in the immediately succeeding Contract Year."
9
does not encompass any decision by HQUS to sell the power to a
third party.9
The PPAs further provide that HQUS is responsible for
maintaining participation in NEPOOL GIS "to register, monitor,
track, and transfer Environmental Attributes" in order to
demonstrate that the energy delivered is qualified clean energy.
NEPOOL is an industry association of energy market participants
in the New England region. See 310 Code Mass. Regs. § 7.75(2)
(2020). NEPOOL GIS is a database and certificate system
operated by NEPOOL. See id.; Jones, James, & Huebner, Do You
Know Who Owns Your Solar Energy? The Growing Practice of
Separating Renewable Attributes from Renewable Energy
Development and Its Impact on Meeting Our Climate Goals, 28
Fordham Envtl. L. Rev. 197, 216-217 (2017) (Jones). The NEPOOL
GIS tracking system has been employed and relied on by State and
Federal regulators and generators for nearly twenty years to
track renewable energy generation and its environmental benefits
in New England. The system accounts for the environmental
attributes associated with each MWh of electricity produced.
Jones, supra. Those attributes are recorded in the form of a
certificate, which may be used to substantiate and track
9 Instead, a decision by HQUS to sell the power to a third
party would constitute a breach of the agreements, and would not
constitute a delivery shortfall remediable by cover damages.
10
compliance with environmental regulations.10 Id. See 310 Code
Mass. Regs. § 7.75(2).
The department held a joint public hearing and procedural
conference for the companies' petitions on August 15, 2018. It
granted the petitioner's petitions to intervene as a full party
in each of the three dockets. The department held joint
evidentiary hearings on the three dockets in February 2019. It
received testimony from fourteen witnesses at the hearings,
including three witnesses called by the petitioner.
10These certificates, also referred to as credits, function
as an independent form of property right and may be sold to
third parties separately from the electricity to which the
certificates relate: the certificates have value to these third
parties because they may use those certificates to comply with
environmental regulations or qualify for legal benefits. See,
e.g., Indeck Me. Energy LLC v. Comm'r of Energy Resources, 454
Mass. 511, 512–513 (2009) (explaining that certificate, "once
purchased, is counted toward [an] electricity supplier's
compliance" with environmental laws); Jones, James, & Huebner,
Do You Know Who Owns Your Solar Energy? The Growing Practice of
Separating Renewable Attributes from Renewable Energy
Development and Its Impact on Meeting Our Climate Goals, 28
Fordham Envtl. L. Rev. 197, 197–198 (2017) (Jones).
NEPOOL GIS users are bound by a complex set of operating
rules that, among other things, govern how certificates are
created, how certificates may be transferred, and how the
department, DEP, and other regulatory agencies may access
information on the system's database. See, e.g., New England
Power Pool Generation System Operating Rules, Rules 2.1, 3.1,
5.3 (Jan. 1, 2020). The department (formerly the Department of
Telecommunications and Energy Resources) helped develop these
rules. New England Generation Information System, D.T.E. 03-62-
A, at 9, 24 n.14 (2004).
11
On June 25, 2019, the department issued its order approving
the PPAs. It concluded that the PPAs provide firm service
hydroelectric generation without interruption from hydroelectric
generation alone as required by Section 83D. It further found
that the PPAs included "a schedule of guaranteed qualified clean
energy to be delivered from HQUS on a monthly basis for each
year of the contract term."
The department determined that the PPAs allowed electricity
delivery to be interrupted in only three circumstances: (1)
force majeure; (2) deliveries excused during negative locational
marginal pricing (LMP) periods11; and (3) curable delivery
shortfalls. The department explained that the provisions in the
PPAs requiring HQUS to cure delivery shortfalls were consistent
with Section 83D's firm service requirement. It reasoned that,
"[g]iven the nature of electricity transmission, delivery
11Locational marginal pricing (LMP) is a method of pricing
electricity based on its value at different times and locations.
See Sacramento Mun. Util. Dist. v. Federal Energy Regulatory
Comm'n, 616 F.3d 520, 524-525 (D.C. Cir. 2010) ("LMP consists of
three components: [i] the cost of generation; [ii] the cost of
congestion; and [iii] the cost of transmission losses").
Negative LMP periods are periods in which the supply of
electricity is greater than demand. The department concluded
that the delivery of electricity generated in such periods would
be wasteful. Cf. Barton Windpower, LLC vs. Northern Ind. Pub.
Serv. Co., U.S. Dist. Ct., No. 13-CV-5329 (N.D. Ill. June 18,
2018) ("When the LMP is negative, market participants . . . can
stop generating power, or they can continue to generate power
and sell it to [the system operator] at the negative price
[i.e., pay [the system operator] to take the power]").
12
shortfalls will occasionally happen," and therefore "any long-
term contract for renewable energy generation requires
reasonable provisions to address them." The department found
that the PPAs' curable delivery shortfall provisions
appropriately "allow HQUS to fulfill its firm delivery
obligations while reasonably accommodating transmission outages
that are not within its direct control."
Relatedly, the department also found that the cover damages
provisions requiring HQUS to pay damages in the event that it
fails to cure a shortfall "reasonably support the PPAs' firm
energy delivery provision by (1) providing an appropriate
incentive for HQUS to deliver energy during the winter months
(and otherwise)[12] and (2) making ratepayers financially whole in
the event that an uncured delivery shortfall should occur."
The department also concluded that the PPAs require HQUS to
deliver, and the companies to purchase, energy derived solely
from hydroelectric generation, as required under Section 83D.
12The PPAs contain provisions that guarantee energy
delivery on a year-round basis, including in winter months. The
department rejected the petitioner's argument that the delivery
shortfall provisions would allow HQUS to curtail delivery during
winter months because it found that the PPAs "limit the delivery
of qualified shortfall energy to the same season-peak period as
when the curable delivery shortfall occurred, in [either] the
same year or the immediately succeeding contract year."
Additionally, the PPAs provide a method for reconciling
differences in the economic value of the energy that was to be
delivered when the shortfall occurred and the energy actually
delivered to cure the shortfall.
13
It based this finding on the fact that the PPAs require all
energy deliveries to derive from "energy produced by a
hydroelectric generating resource," particularly the sixty-two
specified hydroelectric generating facilities operated by HQUS.
Although the PPAs describe these facilities as "consist[ing]
predominantly of low-carbon and renewable hydro-electric energy"
(emphasis added), the department dismissed the petitioner's
argument that the use of the term "predominantly" would leave
HQUS free to deliver energy from non-hydroelectric sources. It
rejected this argument because the PPAs "unambiguous[ly]"
require that any energy sold be from clean, hydroelectric
generation.
Finally, the department concluded that the PPAs provide the
energy generated must "be tracked in the NEPOOL GIS to ensure a
unit-specific accounting" of the delivery of qualified clean
energy (footnote omitted).13 The department therefore concluded
that the PPAs complied with Section 83D (j)'s requirement of
unit-specific accounting for clean energy delivery. The
department also found that NEPOOL GIS, "a well-established power
13"Unit energy" is energy imported into New England that is
generated by specifically identified generation units assigned
certificates for their respective, specific environmental
attributes. "System energy," on the other hand, is power
imported into New England without specifically identifying the
specific generation unit. For such energy, NEPOOL GIS assigns
the characteristics of the over-all mix of the fuel source and
emissions of the source control area.
14
generation and associated environmental attribute tracking
system used in the New England region," adequately ensured that
"the Companies purchase clean energy generation as defined by
statute, and not system energy that contains non-clean energy
generation."
After the department issued its order, the petitioner
appealed to a single justice of this court. The department and
the intervening parties moved to reserve and report the matter
to the full court, which the petitioner did not oppose. The
matter was reserved and reported to the full court on January
27, 2020.
2. Discussion. a. Standard of review. This court may
set aside or modify an agency's decision if it violates the
Constitution, is in excess of the statutory authority or
jurisdiction of the agency, is based upon an error of law, is
made upon unlawful procedure, is unsupported by substantial
evidence, is unwarranted by the facts found on the record as
submitted, or is arbitrary and capricious, an abuse of
discretion, or otherwise not in accordance with the law. G. L.
c. 30A, § 14 (7).
To enable this court to carry out its judicial review
function, the agency must provide adequate subsidiary findings
and reasoning to support its decision: although the agency may
"evaluate evidence in light of its expertise, it cannot simply
15
use its expertise as a substitute for evidence in the record"
(citation omitted). Fitchburg Gas & Elec. Light Co. v.
Department of Pub. Utils., 460 Mass. 800, 812 (2011).
Nevertheless, the agency decision is supported by substantial
evidence so long as the record contains "such evidence as a
reasonable mind might accept as adequate to support a
conclusion." Id., quoting G. L. c. 30A, § 1 (6). See G. L.
c. 30A, § 11 (5) ("Agencies may utilize their experience,
technical competence, and specialized knowledge in the
evaluation of the evidence presented to them").
When reviewing an administrative decision, "we must
apply all rational presumptions in favor of the validity of the
administrative action and not declare it void unless its
provisions cannot by any reasonable construction be interpreted
in harmony with the legislative mandate." New England Power
Generators Ass'n, Inc. v. Department of Envtl. Protection, 480
Mass. 398, 408 (2018), quoting Consolidated Cigar Corp. v.
Department of Pub. Health, 372 Mass. 844, 855 (1977). In
analyzing the legislative mandate, we first determine whether
the Legislature has spoken with certainty on the topic in
question by using conventional tools of statutory
interpretation. New England Power Generators Ass'n, Inc., supra
at 404. If the statute is unambiguous, we give effect to the
Legislature's intent. Id. "[I]f the Legislature has not
16
addressed directly the pertinent issue, we determine whether the
agency's resolution of that issue may 'be reconciled with
the governing legislation.'" Id., quoting Goldberg v. Board of
Health of Granby, 444 Mass. 627, 633 (2005). In making this
determination, "we afford 'substantial deference' to agency
expertise," and will uphold the agency decision "unless a
statute unambiguously bars the agency's approach." New England
Power Generators Ass'n, Inc., supra at 405, quoting Goldberg,
supra.
b. Firm service. The first issue is whether the PPAs
include provisions that contradict Section 83D's "firm service"
requirement. The petitioner argues that they do, pointing to
certain clauses in the PPAs that, under the petitioner's
reading, permit HQUS to interrupt service. Specifically, it
points to (1) the contract provision allowing HQUS to cure
delivery shortfalls; (2) the provision relating to cover
damages; and (3) the provision allowing HQUS to decline to sell
electricity during negative LMP periods. The department and the
interveners counter that these provisions are necessary to deal
with unforeseen shortfalls and other developments beyond its
control, and that including these clauses in the PPAs is
therefore consistent with the purpose of St. 2016, c. 188. We
agree with the interpretation of the department and the
interveners.
17
In reaching this conclusion, we emphasize that an
interpretation of firm service without interruption to require
no interruptions whatsoever, even if those interruptions are
outside the parties' control, would amount to an otherworldly,
unrealistic interpretation of the statute. See Wallace W. v.
Commonwealth, 482 Mass. 789, 793 (2019). These are twenty-year
contracts; some interruptions over twenty years are unavoidable.
Further, the contingencies in place are reasonable, reflecting
industry practices and practical realities, including the need
to provide electricity during periods of inevitable interruption
and strong disincentives against noncompliance or gamesmanship.
At issue is the meaning of the phrase "without
interruption" in Section 83B's definition of firm service. We
begin by recognizing that this court gives "great deference" to
the department's expertise in cases involving "interpretation of
a complex statutory and regulatory framework." Alliance to
Protect Nantucket Sound, Inc. v. Department of Pub. Utils., 461
Mass. 166, 178 (2011), quoting Cambridge v. Department of
Telecomm. & Energy, 449 Mass. 868, 875 (2007). We must also be
"careful to 'avoid any construction of statutory language which
leads to an absurd result, or that otherwise would frustrate the
Legislature's intent.'" Wallace W., 482 Mass. at 793, quoting
Bellalta v. Zoning Bd. of Appeals of Brookline, 481 Mass. 372,
378 (2019).
18
While Section 83B defines "firm service," it does not
define "without interruption." Here, the department drew on its
specialized expertise when it explained that, "[g]iven the
nature of electricity transmission, delivery shortfalls will
occasionally happen," and as a result, "any long-term contract
for renewable energy generation requires reasonable provisions
to address them." In essence, the department has interpreted
"without interruption" to mean that energy must have guaranteed
availability to the maximum extent feasible, with contingencies
in place to minimize the impact of unavoidable disruptions, as
opposed to reading the phrase literally to mean without any
interruption whatsoever for any reason at all, even if outside
of the parties' control. 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. "Firm service" (or "firm power") is
a common term in the energy industry and among regulators: the
United States Court of Appeals for the District of Columbia
Circuit has explained that "[f]irm service is contractually
guaranteed; non-firm service is scheduled on an 'as available'
basis and is subject to interruption." Sacramento Mun. Utils.
Dist. v. Federal Energy Regulatory Comm'n, 428 F.3d 294, 295 n.3
(D.C. Cir. 2005). See North Star Steel Co. v. United States, 58
19
Fed. Cl. 720, 723 n.2 (2003) (firm service means power that is
guaranteed to always be available, while non-firm service may be
interrupted for any reason at any time).
In contrast, it would be absurd, or at least unrealistic,
to force clean energy providers to guarantee that their service
will never be interrupted for any reason: even the petitioner
acknowledges that "occasional delivery shortfalls may occur in a
force majeure context."14 Thus, all the parties understand that
a literal interpretation of "without interruption" is
inappropriate.
The question then becomes whether the particular
contingencies provided in the PPAs to deal with potential
interruptions facilitate the firm service requirement rather
than frustrate it. We examine each in turn.
i. Cure of delivery shortfalls. In ruling that the
delivery shortfall provisions of the PPAs were consistent with
Section 83D's firm service requirement, the department focused
on the fact that the events triggering this clause are outages
and reductions in transmission capacity outside the parties'
control. The department also cited several contract provisions
that minimize opportunities for HQUS or the companies to profit
14Force majeure is defined in section 10.1 of the PPAs, and
includes (among other circumstances) mechanical or equipment
breakdown caused by hurricanes, floods, blizzards, terrorism,
and the like.
20
from interrupting delivery of electricity through use of the
shortfall delivery clause. For example, the PPAs require any
shortfall deliveries to be made "in the same Contract Year in
which the Curable Delivery Shortfall occurred or in the
immediately succeeding contract year," and any shortfall
occurring in a winter or summer month may only be cured by a
shortfall delivery in another winter or summer month,
respectively.15 The PPAs also provide a formula for reconciling
price differences in the electricity that was supposed to be
delivered and the electricity that was actually delivered,
meaning that any profits that could be made through an
opportunistic breach of the PPAs are likely to be reallocated.
Together with the exclusivity provision, which bars HQUS
from selling energy guaranteed to the companies under the PPAs
to a third party, these requirements restrict the ability of any
party to the PPAs to take advantage of seasonal or time-of-day
price differences. This comports with the department's
interpretation of the firm service requirement. The PPAs
therefore do not contradict the requirement; nor do they create
a "right" for HQUS to interrupt delivery in any period, as the
petitioner contends.
15The PPAs further specify that shortfall energy that was
to be delivered between 8 A.M. and 11 P.M. must be delivered
during this same time frame in such a winter or summer month.
21
ii. Cover damages. Provisions in the PPAs governing cover
damages also do not permit HQUS to simply not deliver energy and
pay damages instead, as the petitioner argues. On the contrary,
the cover damages clauses provide incentive for HQUS to fulfill
its firm service requirements and to cure any delivery
shortfalls. They are typical of long-term contracts like the
ones before us, as experts for the companies testified in the
departmental proceedings.
Cover damages are triggered by shortfalls outside HQUS's
control, such as those caused by a physical condition of the
transmission line. As the department found in its order, cover
damages help make the companies whole, and also minimize
situations in which the companies are in a position where they
need to purchase power elsewhere. Cover damages are also not
only compensatory: they include penalties. Thus, even if HQUS
could theoretically charge a higher price for its energy
elsewhere, this benefit could be financially outweighed by
having to pay penalties to the companies on top of the value of
the electricity HQUS was to deliver. And as with the shortfall
delivery clause, this portion of the contract must be understood
in light of the exclusivity portions of the PPAs, which restrict
HQUS from selling its hydroelectric generation to other buyers.
The cover damages provisions thus create a favorable
economic outcome for the companies, as HQUS is financially
22
responsible for any favorable price differences resulting from
the shortfall and any later make-up delivery. It is therefore
unrealistic to assume that HQUS would first commit a breach of
the agreement by selling the power guaranteed the companies
elsewhere, charge a higher price to the third-party buyer, and
still make a profit after both compensating the companies and
paying them penalties.16 Instead, we conclude that the cover
damages provisions in the PPAs further guarantee firm service by
providing a strong incentive for HQUS to deliver energy and
fulfill firm service requirements.
The petitioner also argues that section 9.2(f) of the PPAs
-- which it claims allows for interruptions of up to twenty
percent of the annually contracted-for energy delivery -- goes
beyond the occasional outage to which the department referred in
its order, and cannot comport with the firm service requirement.
The petitioner contends that the department does not support its
conclusion that this provision addresses only what the
department calls "occasional outages" with adequate subsidiary
findings.
16Moreover, it is not the role of this court to read a
contract under the assumption that the parties will shirk their
respective obligations. See Rigs v. Sokol, 318 Mass. 337, 343
(1945) (court's assumption in interpreting contracts is that
parties ordinarily contemplate contract will be performed and
provisions for penalties are "intended as security for
performance and not as a price for the privilege of
nonperformance").
23
The petitioner's interpretation of section 9.2(f) of the
PPAs is misguided. The petitioner argues that this provision
allows for interruption of service for twenty percent of every
contract year -- i.e., seventy-three days a year for the twenty-
year term of the PPAs -- so long as HQUS remedies the
interruption by way of cover damages. This interpretation reads
this clause in isolation, ignoring all of the other provisions
requiring compliance and penalizing noncompliance. The
petitioner's interpretation of section 9.2(f) denies the reality
that HQUS reaps no benefit from having to pay cover damages
under the agreements, as discussed supra. The twenty percent
figure does not identify a target performance measure, but a
figure identifying a contractual default, triggering all kinds
of other consequences, including those related to financing.17
We therefore reject the petitioner's arguments and conclude
that these provisions are in line with Section 83D's firm
service requirement.
17As the department states in its order, "Section 83D
requires an electric distribution company to demonstrate that
any proposed long-term contract will facilitate the financing of
the clean energy generation resource. To satisfy this
requirement, an electric distribution company need not
demonstrate that the long-term contract is necessary to secure
project financing, only that it will assist in securing project
financing," citing NSTAR Elec. Co., D.P.U. 12-30, at 40 (Nov.
26, 2012); Massachusetts Elec. Co. & Nantucket Elec. Co., D.P.U.
10-54, at 52-53 (Nov. 22, 2010).
24
iii. Negative LMP periods. Finally, the PPA provisions
allowing HQUS to forgo delivery during negative LMP periods do
not interfere with or contradict Section 83D's firm service
requirement. That is because additional electricity
transmission would not benefit either party during negative LMP
periods.
LMP methodology is "used by electricity market operators
across the country." Black Oak Energy, LLC v. Federal Energy
Regulatory Comm'n, 725 F.3d 230, 233 (D.C. Cir. 2013). LMP is a
way to price a given unit of electricity at a particular time
and location. "Under LMP, the price any given buyer pays for
electricity reflects a collection of costs attendant to moving a
[unit] of electricity through the system to a buyer's specific
location on the grid." Id. at 233–234. See Sacramento Mun.
Util. Dist. v. Federal Energy Regulatory Comm'n, 616 F.3d 520,
524 (D.C. Cir. 2010) ("With an LMP-based rate structure, prices
are designed to reflect the least-cost of meeting an incremental
[unit of demand for energy] at each location on the grid, and
thus prices vary based on location and time"). "The cost of
generation can be thought of as the 'baseline cost' of serving
electricity (known in the industry as 'load') to another
location on the system in a hypothetical, congestion-free
environment. Congestion, in turn, drives up costs because it
requires [electricity providers] to dispatch more expensive
25
generators to meet demand. The cost of congestion results in
different prices at different nodes of the system, depending on
how congested the wires leading to those nodes are" (citations
omitted). Black Oak Energy, LLC, supra at 234.
The PPAs specify that, if "the LMP at the Delivery Point is
negative, or, in the reasonable opinion of [HQUS], is likely to
become negative, then [HQUS] . . . shall be under no obligation
to schedule or transfer Deliveries of Qualified Clean Energy to
the Delivery Point during such period." Alternatively, Exhibit
D of the PPAs allows the companies to take a credit against the
contract price for negative LMP periods. Given that LMP
measures the value of an additional unit of electricity at a
particular time and location, a negative LMP period is one in
which this value is negative. In other words, at the relevant
time and location, the supply of energy exceeds the demand for
it, and there is a surplus. In such a scenario, it would be
wasteful to deliver additional hydroelectric generation. The
negative LMP provisions therefore comport with Section 83D's
requirement that contracts procured be "cost-effective," Section
83D (d) (5) (iii); see 220 Code Mass. Regs. § 24.03(1), and
provide a form of price protection for the companies and -- by
extension -- ratepayers in the Commonwealth.18
18We disagree with the petitioner's argument that the
department was required to make some subsidiary finding
26
Beyond the fact that such delivery would be cost-
ineffective, it would also not serve the Legislature's purpose
in enacting Section 83D. It was not the purpose of the
Legislature to require generation of hydroelectric energy for
its own sake; instead, the purpose was to generate clean
electricity that meets the energy demands of the Commonwealth,
thus reducing greenhouse gas emissions and achieving other
environmental goals. See St. 2008, c. 169, preamble; Kain, 474
Mass. at 281-282. Delivering energy during negative LMP periods
serves neither the Commonwealth's energy needs nor the
environmental purposes promoted by Section 83D.
None of the provisions cited by the petitioner and
discussed supra permits unilateral interruptions. They are
instead aimed at maintaining cost-effectiveness and making the
companies and their customers financially whole in case of
interrupted service. We therefore conclude that the
department's interpretation of Section 83D's firm service
requirement was reasonable, and that interpretation was
regarding its conclusion that delivery of energy in these
periods would be wasteful. The concept of negative LMP periods
speaks for itself, and the department's commonsensical
conclusion is one that is reflected in other PPAs and the rules
of system operators. See Barton Windpower, LLC, U.S. Dist. Ct.,
No. 13-CV-5329 (N.D. Ill. June 18, 2018) (explaining custom when
LMP is negative for market participants to stop generating power
or to continue to generate power and sell it to system
operator).
27
correctly applied to the PPAs in this case.19 The department's
conclusions were supported by substantial evidence, adequate
findings, and sufficient rationale.
c. Hydroelectric generation alone. The next issue is
whether the department's finding that the PPAs provide the
delivery of energy produced through hydroelectric generation
alone was supported by substantial evidence, adequate subsidiary
findings, and sufficient rationale. We conclude that it was.
The record contains "substantial evidence" supporting the
department's finding that the PPAs provide for hydroelectric
generation "alone." For example, the PPAs provide that HQUS is
"solely responsible" for demonstrating that "the Hydro-Québec
Power Resources from which the Products are Delivered are
Qualified Clean Energy Generation Units." The "Hydro-Québec
Power Resources" are the sixty-two specified hydroelectric
19We similarly reject the petitioner's argument that the
PPAs do not identify one or more discrete periods in which HQUS
is to deliver firm service. To the extent discrete periods are
meant to be limited to temporal periods other than the entire
contractual term, as the petitioner claims, each of the PPAs
provides a monthly schedule for the entire twenty-year life of
the agreements that surely meets this requirement. The
department made such a finding in its order. Additionally,
provisions in the PPAs requiring HQUS to cure delivery
shortfalls within a defined shortfall cure period do not invite
interruptions by allowing HQUS to "defer cure anywhere from
[twelve] months and [one] day up to a maximum of [twenty-three]
months and [twenty-nine] days," as the petitioner claims, but
instead provide a remedy for the inevitable occurrence of
interrupted service.
28
generating stations; "Qualified Clean Energy Generation Units"
are electricity generating facilities "capable of producing
Qualified Clean Energy, or Qualified Shortfall Energy"; and both
"Qualified Clean Energy" and "Qualified Shortfall Energy" are
defined as energy produced by the "Hydro-Québec Power Resources"
and tracked by the NEPOOL GIS "to ensure unit-specific
accounting" of the delivery of hydroelectric energy. The PPAs
thus unambiguously require HQUS to make available to the
companies generation capacity from hydroelectric facilities, and
to continuously verify this generation through a tracking system
(NEPOOL GIS). The PPAs also excuse the companies from accepting
or paying for any certificate from HQUS that does not evince
generation from the specified hydroelectric sources. Beyond
such contractual clauses, the department also made an undisputed
subsidiary finding that HQUS's hydroelectric generation
facilities have adequate capacity to provide the statutorily
mandated 9.45 million MWh of purely hydroelectric generation.
The petitioner argues nonetheless that the department's
reliance on the language of the PPAs and the use of NEPOOL GIS
tracking was insufficient. Instead, the petitioner claims that
the department was required to make a finding that, "under the
laws of physics," energy delivered by HQUS and flowing through
the transmission line comes solely from hydroelectric
generation. The department rejects the contention that it was
29
required to "predict whether HQUS might breach its contractual
obligation in the future, or expound on 'the laws of physics.'"
Instead, the department's position is that it was sufficient
that the PPAs contractually required HQUS to deliver only
hydroelectrically generated energy. The department explains
that this is the "only analysis that it reasonably could
conduct," because once electricity enters the New England power
grid, it is impossible to distinguish the source of any given
unit of energy, unless there is a dedicated power line for a
given source of electricity. No such dedicated power line was
required by the relevant statute or regulations. Again, we
conclude that the department's interpretation of the statutory
and regulatory requirements is reasonable and supported by the
evidence.
Although framed by the petitioner as a question about the
laws of physics or the sufficiency of the evidence, the issue
whether the PPAs provide for hydroelectric generation "alone" is
necessarily linked to a question of statutory construction,
namely, what it means for electricity to come from
"hydroelectric generation alone." Under Section 83D, the
companies were required to enter into "long-term contracts" to
purchase "hydroelectric generation" deriving "from hydroelectric
generation alone." Sections 83B, 83D (a). See 220 Code Mass.
Regs. §§ 24.02, 24.03(1). If the use of the word "alone" is
30
important, then the use of the word "generation" -- as opposed
to "transmission" -- is no less significant. Both terms clearly
support the department's interpretation of the statutory and
regulatory requirements.
Fortunately (for this court), the laws of physics are not
in dispute. Nor is there any inconsistency between the laws of
physics and the contractual requirements. See Northern Ind. Pub.
Serv. Co. v. Federal Energy Regulatory Comm'n, 954 F.2d 736, 737
(D.C. Cir. 1992) ("When electricity reaches an intersection of
several alternative transmission paths, it will flow
along . . . guided by the laws of physics rather than the
intention of [contractual] parties . . ."). The petitioner and
the department essentially agree on the physics involved in
transmitting electricity from Canada to Maine for distribution
in Massachusetts.
The department analogizes the physics involved as follows:
"It is like [forty] people pouring water into an Olympic
swimming pool. Someone later drawing water from the pool cannot
distinguish between the molecules contributed by each person.
Not surprisingly, the association of market participants in the
electric grid that helps guide matters affecting the system
calls itself the New England Power Pool (NEPOOL)." In the
Olympic pool analogy, one can identify the individual sources of
water that are poured into the pool, and can therefore measure
31
what each person is contributing to the pool. One cannot,
however, trace water that is already in the pool to a particular
contributor.
In this vein, the department's order focuses on the fact
that the PPAs require the generation of the purchased
electricity to occur at sixty-two specified hydroelectric
sources. So long as this generation can be verified and the
amount that is generated is received by the companies, the
department does not understand the statute to require that the
delivery system for this electricity (i.e., the transmission
lines) be exclusive of other sources. This is a reasonable
reading of the phrase "hydroelectric generation alone" (emphasis
added), particularly in light of the physics involved. It is
also unclear why imposing the requirement of a dedicated
transmission line for hydroelectric generation would serve the
Legislature's purpose in enacting Section 83D if the fact of
hydroelectric generation can be verified in other ways,
particularly given the additional cost and environmental harm
caused by developing such a line. Such a requirement is absent
from the language of Sections 83B and 83D, which refer only to
hydroelectric generation.20
20The petitioner argues that without ensuring that the
transmitted energy is from hydroelectric generation only, the
Commonwealth would be paying for clean energy that is being used
elsewhere. However, that is a fiction so long as the
32
In sum, the department's construction of the statute and
the regulations is reasonable and supported by the evidence. It
serves the environmental purposes promoted by the act, and is
consistent with the "laws of physics."
d. NEPOOL GIS tracking system. As discussed supra,
Section 83D (j) requires PPAs to "utilize an appropriate
tracking system to ensure a unit specific accounting of the
delivery of clean energy" to accurately measure progress in
achieving the Commonwealth's environmental goals. The purpose
of Section 83D's tracking requirement is to allow DEP, in
consultation with DOER, to "accurately measure progress in
achieving the commonwealth's [emissions-related] goals."
Section 83D (j). The NEPOOL GIS tracking system employed in the
instant case is the industry standard developed for such
measurement. It has been developed by regulators, and it has
been universally accepted by the industry just for such purpose.
See, e.g., Ferrey, Threading the Constitutional Needle with
Care: The Commerce Clause Threat to the New Infrastructure of
Renewable Power, 7 Tex. J. Oil Gas & Energy L. 59, 62-63 (2011)
(Ferrey) (explaining how tracking systems for renewable energy
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. See Jones, 28 Fordham Envtl. L. Rev. at 206-
207.
33
certificates are essential to success of -- and operation of --
renewable portfolio standard [RPS] programs); N.H. Rev. Stat.
Ann. § 362-F:6 (2014) (mandating electric RPS program to use
NEPOOL GIS certificate tracking).
The department provided a relatively short yet sufficient
explanation of its finding that use of the NEPOOL GIS is
consistent with Section 83D (j). The department concluded that
the use of NEPOOL GIS is "well-established" and that the PPAs
require HQUS to utilize it "in compliance with all relevant
NEPOOL GIS operating rules." The department was entitled to
draw on its expertise to conclude that the NEPOOL GIS is an
appropriate tracking system under Section 83D (j). See New
England Power Generators Ass'n, Inc. 480 Mass. at 405; Goldberg,
444 Mass. at 635. The department's expertise in this arena
includes knowledge and experience specific to the NEPOOL GIS
itself, as the department (formerly the Department of
Telecommunications and Energy Resources) participated in the
development of NEPOOL GIS's operating rules. See New England
Generation Info. Sys., D.T.E. 03-62-A, at 9, 24 n.14 (2004).
Indeed, the department's role in developing the NEPOOL GIS
operating rules was to ensure the NEPOOL GIS's efficacy as an
emissions labeling tool in accordance with the emissions
labeling statute that the department is charged with
administering. See id. at 1; 220 Code Mass. Regs. § 11.06
34
(2016). These operating rules include rules relating to the use
of certificates for unit-specific tracking of how electricity is
generated as well as rules for coordinating with the department
and DEP. See New England Power Pool Generation System Operating
Rules, Rule 2.1(a) & Appendix 5.3 (Jan. 1, 2020). See also
Alliance to Protect Nantucket Sound, Inc., 461 Mass. at 178
(describing "great deference" owed to department's expertise in
cases involving "interpretation of a complex statutory and
regulatory framework").
The department also concluded that the PPAs provide
sufficient protections to ensure adequate tracking of energy
attributes. The PPAs define "Certificate" as "an electronic
certificate generated pursuant to the [NEPOOL] GIS Operating
Rules . . . to represent certain generation attributes of each
[unit of electricity] generated." The PPAs require HQUS to
"transfer to [the companies] all of the right, title[,] and
interest in and to . . . any and all Certificates[] associated
with Qualified Clean Energy or any Qualified Shortfall Energy."
Further, as discussed supra, the PPAs require HQUS to "comply
with all [NEPOOL] GIS Operating Rules including, without
limitation, such rules relating to the creation, tracking,
recording and transfer of all Environmental Attributes
associated with Qualified Clean Energy or Qualified Shortfall
Energy" purchased under the agreements, where "Environmental
35
Attributes" is a defined term that refers to "any Certificates
issued pursuant to the [NEPOOL] GIS in connection with Energy
generated by [HQUS's hydroelectric generating systems]."
The record provides additional support for the department's
finding. Specifically, in September 2018, upon request from the
companies pursuant to 310 Code Mass. Regs. § 2.09 (2004), DEP
issued an advisory ruling, concluding that NEPOOL GIS tracking
of energy units and attributes satisfies Section 83D (j)'s
requirements. This ruling was in the record before the
department. While such rulings are not binding, Massachusetts
courts give them deference when they relate to a statute that
the agency is charged with interpreting and applying, and so
long as they are consistent with the text and purpose of that
statute. See Brookline v. Medical Area Serv. Corp., 8 Mass.
App. Ct. 243, 258–259 (1979). Cf. Sullivan v. Sleepy's LLC, 482
Mass. 227, 232 n.11 (2019). It is particularly appropriate to
give weight to DEP's advisory ruling approving of the use of the
NEPOOL GIS, as the stated purpose of Section 83D (j)'s tracking
requirement is to allow DEP to monitor the Commonwealth's
progress in reducing greenhouse gas emissions.
A contrary conclusion -- that NEPOOL GIS is not an
appropriate tracking system for these PPAs -- flies in the face
of industry practice relying on tracking systems to comply with
36
RPS programs. See New England Generation Info. Sys., D.T.E. 03-
62-A, at 5-9; Ferrey, 7 Tex. J. Oil Gas & Energy L. at 62-63.
NEPOOL GIS not only issues and tracks certificates for all
MWh of generation and load produced in the control area of the
Independent System Operator for New England (ISO-New England),
as well as imported MWh from adjacent control areas, but
provides emissions labeling for the New England load serving
entities by tracking the emissions attributes for the region's
generators. Market participants in New England commonly use and
rely on NEPOOL GIS to track clean energy generation and its
associated environmental attributes, and have long done so.21
Market participants also use NEPOOL GIS to trade renewable
energy credits, which are vital to enforcing RPS programs. See
Ferrey, 7 Tex. J. Oil Gas & Energy L. at 62-63; Jones, 28
Fordham Envtl. L. Rev. at 216-217 & n.8.
The NEPOOL GIS tracking system is not just the industry
standard, but the only mechanism recognized as sufficient to
identify supplier-specific labeling information for identifying
resources. See Massachusetts Elec. Co. & Nantucket Elec. Co.,
D.P.U. 08-51, at 2 & n.7 (June 13, 2013). Concluding that
21DOER relies on NEPOOL GIS to track the Commonwealth's
renewable energy portfolio standards. 225 Code Mass. Regs.
§ 14.09 (2016); 225 Code Mass. Regs. § 15.09 (2014); 225 Code
Mass. Regs. § 16.09 (2019). DEP similarly relies on NEPOOL GIS
to monitor compliance with its clean energy standard. 310 Code
Mass. Regs. § 7.75 (2020).
37
NEPOOL GIS's tracking system does not satisfy Section 83D's
requirements would require the creation of an entirely new
system, which is both impractical and incompatible with the
Commonwealth's goals to advance renewable energy.22
Because the department's conclusions were supported by
substantial evidence, and the department relied on its expertise
and knowledge of the NEPOOL GIS system to conclude that the
system's tracking mechanism was adequate to "ensure that the
Companies purchase clean energy generation as defined by
statute, and not system energy that contains non-clean energy
generation," we affirm the department's decision.
3. Conclusion. The department applied a reasonable
interpretation of Section 83D's firm service requirement,
concluding that the words "without interruption" must
accommodate the reality of inevitable outages, even while
delivery of energy must be guaranteed to the maximum extent
22Any argument that NEPOOL GIS does not physically track
the energy HQUS will deliver back to the hydroelectric
generation station is a repeat of the argument addressed supra,
i.e., that the PPAs do not adequately ensure that HQUS will
generate and deliver hydroelectric power alone. The
petitioner's arguments seem to misunderstand how the tracking
system works: NEPOOL GIS tracks the attributes associated with
the energy HQUS delivers into the system, while the meters at
the delivery point measure the quantity of energy. Requiring
more, i.e., that the parties ascertain the attributes of the
energy already in the transmission line, or construct a new
transmission line devoted solely to energy generated by HQUS, is
at worst an exercise in futility and at best unnecessary and
cost-ineffective.
38
possible. The provisions allowing HQUS to cure delivery
shortfalls, pay cover damages for uncured shortfalls, and forgo
delivery during negative LMP periods all comply with this
reasonable interpretation of the statute. The department's
conclusion in this regard, as well as its conclusions that the
PPAs provide for the procurement of energy from hydroelectric
generation alone and that the NEPOOL GIS tracking system is an
appropriate system to meet Section 83D's requirements, were
supported by substantial evidence, adequate findings, and
sufficient rationale. We therefore affirm the department's
approvals of the PPAs pursuant to Section 83D.
So ordered.