Cape Wind: Federal Appeal Filed

INTRODUCTION

This appeal turns on whether certain Massachusetts officials enjoy Eleventh Amendment immunity from prospective injunctive and declaratory relief in a suit challenging action by the Massachusetts Department of Energy Resources (“DOER”) and Department of Public Utilities (“DPU”).

Plaintiffs do not seek any monetary relief from the Commonwealth or any other party. Rather, they seek a declaration that Massachusetts officials violated federal law in bringing about a wholesale power contract and an injunction that would prospectively block the DPU’s order approving the contract and thereby making it effective. In the absence of such relief, the Commonwealth’s actions will result in continuing impermissible state interference in the interstate, federally regulated wholesale electricity market for the next fifteen years.

The District Court’s holding that this suit was barred by the Eleventh Amendment was gravely flawed. It is hornbook law that suits against state officials for prospective relief are not barred by the Eleventh Amendment. See Ex parte Young, 209 U.S. 123 (1908). Under a straightforward application of that principle, the District Court should have permitted Plaintiffs’ lawsuit to proceed.

The parties’ dispute arises out of a controversial plan to build an offshore wind-powered electric generation facility, known as Cape Wind, in the waters surrounded by Cape Cod, Martha’s Vineyard, and Nantucket. For many years, the administration of Governor Patrick has promoted Cape Wind as a cornerstone of its energy policy. Because placing wind turbines in an ocean is an expensive way to generate power, Cape Wind has had difficulty finding willing buyers for its electricity.

There are many avenues open to Massachusetts to assist Cape Wind if it chooses to do so. The Commonwealth could subsidize Cape Wind from its general revenues. It could provide tax incentives. And it could require the state’s utilities to purchase renewable energy, allowing Cape Wind to compete solely against other renewable energy sources rather than against conventional power plants.

There are, however, two key limits on what Massachusetts can do to assist Cape Wind. First, the state may not require the state’s utilities to enter into any particular wholesale electricity transaction with Cape Wind or dictate the price or terms on which such a transaction may take place. Under the Federal Power Act, states are forbidden to regulate wholesale sales of electricity; that regulatory field is reserved exclusively to the Federal Energy Regulatory Commission (“FERC”), in order to ensure a uniform and comprehensive approach to regulating what is inescapably an interstate market. Second, under the Dormant Commerce Clause, the state may not use its regulatory power to insulate Cape Wind, an in-state producer, from out-of-state competition. Without congressional authorization, states may not erect barriers to interstate commerce or lock up part of a local market for local producers.

In supporting Cape Wind, Massachusetts transgressed both of those limits. As the Complaint explains, NSTAR Electric Company (“NSTAR”), one of the state’s two largest electric utilities, sought to merge with the Connecticut-based Northeast Utilities (“Northeast”). DOER, the state agency tasked with implementing the Governor’s energy policy, improperly used its influence over the merger review process to strong-arm NSTAR into a settlement agreement under which NSTAR would enter into a wholesale power contract with Cape Wind at the above-market price that Cape Wind required. As an express quid pro quo for that commitment, DOER agreed to drop its opposition to the merger – opposition that otherwise would have delayed the merger proceedings long enough that the deal would have unraveled. DPU then issued an order, Order 12-30, ratifying DOER’s role in bringing about the Cape Wind-NSTAR contract and approving that contract, thereby making it effective. Under Order 12-30, the above-market costs – nearly $1 billion in total – will be passed along, in full, to Plaintiffs and other NSTAR customers over the course of the contract’s fifteen-year term.

Plaintiffs sued, alleging two ongoing violations of federal law resulting from the Commonwealth’s actions. First, Plaintiffs alleged a violation of the Supremacy Clause, because the Commonwealth used its regulatory control over NSTAR’s merger to coerce NSTAR into entering a wholesale power purchase agreement with Cape Wind. The Commonwealth’s unlawful intrusion into the exclusively federal field of wholesale electricity regulation will continue for the fifteen-year duration of the contract. Second, Plaintiffs alleged a violation of the Dormant Commerce Clause, because the Commonwealth used its regulatory power over NSTAR to lock up, for the next fifteen years, a portion of the interstate market for renewable energy for a favored in-state producer at above-market rates. These continuing violations of federal law, set in motion by DOER’s coercion and DPU’s order, will cause injury to rate-payers, including Plaintiffs, in the form of inflated electricity prices for the next fifteen years.

To redress these ongoing violations of federal law and the resulting injury-in-fact, Plaintiffs sought purely prospective relief: a declaration that DOER’s strong-arming NSTAR into a sweetheart wholesale electricity contract with an in-state company was illegal; a declaration that DPU’s Order 12-30, which approved the NSTAR-Cape Wind contract and made it effective, was illegal; and an injunction preventing DPU officials, on a prospective basis, from enforcing Order 12-30. The requested relief would render the contract invalid on a prospective basis, nullifying for all future purposes the coercive acts of state officials in illegally forcing NSTAR into the Cape Wind contract, and remedying the continuing interference with the federally regulated and interstate wholesale electricity market that will result from the state’s action.

The District Court dismissed Plaintiffs’ Complaint on the ground of sovereign immunity, holding that Plaintiffs sought purely retrospective relief that would somehow “bleed[] the treasury.” Add. 19. The Court expressly declined to reach the merits of Plaintiffs’ Complaint, but it included three footnotes noting that it would have dismissed Plaintiffs’ Complaint on the merits as well. Add. 22 nn.25-27.

As explained below, the District Court’s sovereign immunity ruling violated Ex parte Young and bedrock principles authorizing suits for declaratory and injunctive relief against state officials in federal court. The District Court mistakenly held that Plaintiffs’ suit was barred because it supposedly would lead the court to pass on the legality of past state action. But the Supreme Court has authoritatively established that “a declaration of the past … ineffectiveness” of state action poses no sovereign immunity concern when the plaintiff seeks prospective injunctive relief. Verizon Md., Inc. v. Pub. Serv. Comm’n of Md., 535 U.S. 635, 646 (2002). Accordingly, the District Court’s judgment should be reversed and the case should be remanded for further proceedings. There is no reason to reach alternative, merits-based grounds for affirmance, and the Court may lack jurisdiction to do so in any event because no Defendant filed a cross-appeal. But if the Court were to reach the merits, then it should reject the District Court’s alternative grounds for dismissal. Plaintiffs’ Complaint states claims under the Supremacy Clause and Dormant Commerce Clause and should be permitted to proceed.