A recent decision by the Massachusetts Court of Appeals on standing to sue may have important implications for projects seeking to qualify to sell renewable energy credits (RECs) in Massachusetts. In Indeck Maine Energy v. Commissioner of the Division of Energy Resources, the Court held that a renewable energy company that sells RECs pursuant to Massachusetts’ renewable portfolio standard (RPS) program has standing to challenge the Massachusetts Division of Energy Resource’s (DOER’s) decision to qualify a competitor in the REC market. The Commonwealth has only met its RPS goals through the sale of RECs one year since the program began in 2003, and the Indeck decision may make achieving that goal even more difficult in the future.
Massachusetts’ RPS Program
Massachusetts’ RPS program is designed to promote the growth of renewable energy by requiring retail electricity suppliers to purchase an increasing percentage of their total power sales from new renewable energy generating sources. In 2008, that percentage is three percent. To demonstrate compliance, such suppliers must either purchase RECs or make an alternative compliance payment (ACP). Currently, RECs are being traded at over $50 per MWh, and DOER set ACP payments for 2008 at $58.58 per MWh. The high cost of RECs and the high ACP price are evidence of the high demand for renewable energy relative to supply. For example, in its 2006 Annual RPS Compliance Report, DOER noted that over 25% of the Commonwealth’s RPS requirement was met through ACP payments. Indeed, the only year in which Massachusetts qualified enough RECs to meet its RPS goals without ACP payments was in 2003. The supply of RECs has, to date, not kept pace with demand under the RPS program.
Indeck Maine Energy v. Commissioner of the Division of Energy Resources
In Indeck, two biomass facilities that qualified to sell RECs in Massachusetts (Indeck Maine Energy and Ridgewood Providence Power Partners, collectively the “Plaintiffs”) challenged a decision by DOER to qualify two other biomass facilities (Greenville Steam Company and Boralex Livermore Falls Inc., collectively the “New Facilities”). The Plaintiffs allege that DOER qualified the New Facilities without requiring a vintage waiver pursuant to 225 CMR 14.05(2), allowed the New Facilities to use fuel sources that are not Eligible Biomass Fuel under 225 CMR 14.02, and failed to provide sufficient notice and comment. The trial court dismissed the suit, concluding that the alleged injury was the result of business competition and, therefore, Plaintiffs lacked standing to sue. The Appeals Court reversed and found that (1) “competitors in the renewable portfolio program participate in a regulated industry”, and (2) the “alleged irregularities … threaten the plaintiffs’ competitive position in the market by forcing them to compete against renewable generating units allegedly using impermissible fuel sources.” Such irregularities, the Appeals Court found, put the Plaintiffs at a competitive disadvantage. The Appeals Court, therefore, held that the Plaintiffs’ claims fall into the “regulated industry exception” that gives participants in a regulated industry standing to challenge agency decisions that threaten their competitive position.
Broader Implications for REC Markets and Developing Renewable Energy Projects
Although the Indeck decision answered a procedural question of standing, it raises additional questions about the future of the Massachusetts RECs market. Will Indeck ultimately increase or decrease the predictability of the REC qualification process in Massachusetts? When the merits of the case are ultimately decided, will the market benefit from having a court’s interpretation of the RPS statute’s fuel eligibility provisions? Or, will Indeck serve primarily to introduce new risks and uncertainties by giving existing facilities a powerful tool to delay market entry by competitors? Litigation over DOER’s decision to qualify a project, even if ultimately found to be meritless, could discourage new market participants and limit REC supply relative to demand. Although, in theory, high REC prices help to support renewable energy development, they may not ultimately be enough for projects to survive the toxicity of frequent REC eligibility litigation in this market.
Looking Ahead: The Energy Bill
The Massachusetts Legislature’s Conference Committee continues to work on reconciling two energy bills passed by the House and Senate earlier this year. It remains unclear how the REC market will look should that legislation finally emerge from the Committee and be enacted. The versions adopted by the House and Senate differ substantially with regard to REC imports, which is one area that could be significantly affected by the Indeck decision. Although any version of the energy bill is likely to impose additional costs on renewable energy facilities selling RECs into Massachusetts from areas outside ISO New England, those incremental costs could be amplified by the cost of litigation initiated by competitors against imports pursuant to Indeck. Consequently, indigenous renewable resources which do not rely on 'Eligible Biomass Fuels' may enjoy an advantage in qualifying for RECs in Massachusetts.