Cape Wind, NSTAR argue over whether power purchase deal has been terminated

Cape Wind Associates LLC and NSTAR Electric Co. are in a tussle, both in and out of court, on whether NSTAR properly terminated earlier this year a long-term power purchase agreement with the long-delayed Cape Wind offshore wind farm project.

Both companies filed briefs on March 20 at the U.S. First Circuit Court of Appeals in a case where local opponents of the project, including the Town of Barnstable, are trying to get a regulatory approval of that PPA thrown out. The status of the PPA goes to a key question for the court of whether this lawsuit is moot and therefore should be thrown out.

Said Cape Wind in its March 20 brief: “NSTAR’s purported termination of the Power Purchase Agreement (‘PPA’) between NSTAR and Cape Wind is not effective and the PPA remains in effect. The case before this Court is therefore neither moot nor unripe. Accordingly, Cape Wind respectfully requests that the Court proceed to issue a decision in the case.”

On Jan. 7, NSTAR informed the court that on Jan. 6 it terminated its PPA with Cape Wind “in accordance with the PPA’s terms,” and therefore the appeal may be moot. On Feb. 17, NSTAR further alleged to the court that NSTAR terminated the PPA “due to Cape Wind’s failure to meet Critical Milestones defined in the PPA.”

But, Cape Wind told the appeals court that prior to NSTAR’s attempt to terminate the PPA, by letter to NSTAR delivered on Dec. 31, 2014, Cape Wind properly invoked the force majeure provision of the PPA, which by its terms suspended and extended the Critical Milestones NSTAR claims Cape Wind failed to meet. “NSTAR has never expressly countered Cape Wind’s invocation of the force majeure clause,” said the project developer. “Nor has NSTAR engaged with Cape Wind in the mandatory dispute resolution process provided for in the PPA, which is a precondition to an effective termination. Thus, the purported termination on January 6 was ineffective to terminate the Agreement.”

NSTAR is a wholly owned subsidiary of Northeast Utilities d/b/a Eversource Energy (NYSE: NU).

NSTAR said in its March 20 brief: “The plaintiffs in this action seek ‘a declaration that Massachusetts officials violated federal law in bringing about a wholesale power contract’ – a power purchase agreement (‘PPA’) – between NSTAR and Defendant-Appellee Cape Wind Associates, LLC (‘Cape Wind’). The plaintiffs claim the PPA will require NSTAR to pay Cape Wind an ‘above-market price’ for wholesale power that ‘will be passed along, in full, to [them] and other NSTAR customers over the course of the contract’s fifteen-year term.’ And they contend that the Department of Public Utilities (‘DPU’) order requiring the agreement violated the Dormant Commerce Clause and Supremacy Clause of the United States Constitution. The plaintiffs accordingly seek ‘an injunction that would prospectively block the DPU’s order approving the contract and thereby making [that contract] effective.’

“The result the plaintiffs seek has come to pass because the contract is no longer effective,” NSTAR added. “On December 31, 2014, Cape Wind notified NSTAR that it had not achieved certain Critical Milestones defined in the PPA by that date. NSTAR then terminated the PPA in accordance with its terms on January 6, 2015. That termination was effective immediately. As a result, NSTAR will not buy power from Cape Wind, and the allegedly ‘above-market’ costs set forth in the PPA will not be passed along to the plaintiffs. Whether or not the State Parties acted consistently with the Supremacy Clause or the Dormant Commerce Clause, resolution of those legal questions will do nothing to revive the terminated contract, which is the only source of the injury the plaintiffs claim. This appeal is accordingly moot. There is no live ‘case or controversy’ to decide. There is no relief this Court can provide the plaintiffs. And in the absence of proceedings to invalidate NSTAR’s termination of the contract, there is no warrant for this Court to delay dismissal of the appeal.”

Said NSTAR about the force majeure issue: “To be sure, Cape Wind’s notice contended that its failure to meet Critical Milestones was the result of an event of ‘Force Majeure’ under the agreement. Cape Wind took the position that ‘relentless litigation,’ including a statutory appeal of a permitting decision by the Energy Facilities Siting Board, ‘slowed the development of Cape Wind’s project and interfered with the timely financing of the project,’ preventing the achievement of the Critical Milestones. Cape Wind asserted that these circumstances amounted to a ‘Force Majeure’ event that ‘excused and suspended’ its performance obligation. But that contention was certainly wrong: the PPA by its terms declares that Cape Wind’s ‘failure to timely obtain and maintain all necessary Permits…, a failure to satisfy contractual conditions or commitments, or lack of or deficiency in funding or other resources shall each not constitute a Force Majeure.’ Presumably for that reason, Cape Wind has not challenged NSTAR’s termination of the PPA. It has not brought an action in a court of competent jurisdiction seeking to declare the termination invalid or otherwise impermissible under the agreement. And no other remedy exists. The PPA by its terms is not specifically enforceable, and Cape Wind has no cognizable damage that is recoverable under the PPA.”

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.