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United States v. NSTAR Electric Co.

United States District Court, D. Massachusetts

October 27, 2016

UNITED STATES OF AMERICA
v.
NSTAR ELECTRIC CO., et al.

          MEMORANDUM AND ORDER ON THE JOINT MOTION OF DEFENDANTS NSTAR ELECTRIC CO. AND HARBOR ELECTRIC ENERGY CO. TO DISMISS THE CROSSCLAIMS OF THE MASSACHUSETTS WATER RESOURCES AUTHORITY

          RICHARD G. STEARNS, UNITED STATES DISTRICT JUDGE

         In 1989, the U.S. Army Corps of Engineers (ACOE) issued a permit to the Boston Edison Company[1] and the Massachusetts Water Resources Authority (MWRA) to install a submarine electric cable beneath Boston Harbor connecting NSTAR's K-Street substation (385-T) in South Boston with the Deer Island Waste Water Treatment Plant (Plant). In this lawsuit, the ACOE alleges that defendants violated the permit by failing to bury the cable at the required depth. The ACOE seeks civil penalties as well as injunctive relief in the form of compliance with the permit or removal of the cable.

         In response to the lawsuit, the MWRA filed crossclaims against NSTAR and the Harbor Electric Energy Company (HEEC)[2] asserting that the utility companies are solely responsible for the costs of reinstalling or protecting the existing cable. The MWRA also alleges that the utilities refused to negotiate in good faith over a successor to the parties' 1990 Interconnection and Facilities Support Agreement (1990 Agreement), in violation of Mass. Gen. Laws ch. 93A, §11 (Chapter 93A). NSTAR and the HEEC now move to dismiss the crossclaims contending that primary jurisdiction over the dispute rests with the Massachusetts Department of Public Utilities (DPU); that the MWRA's claims are currently the subject of a pending state-court action; that the MWRA's resort to alternative litigation venues amounts to impermissible claim-splitting; and that its claim for declaratory judgment is unripe as it has (as yet) suffered no actual harm. The court heard argument on the motion on October 18, 2016.

         BACKGROUND

         On May 19, 1989, this court (Mazzone, J.) ordered the MWRA to undertake the construction of the Plant as the cornerstone of a long-term plan to restore the heavily-polluted Boston Harbor. Among its many provisions, the Order mandated that the MWRA “have electrical power available on Deer Island sufficient to commence construction . . . by October of 1990.” In response, the MWRA entered into the 1990 Agreement with Boston Edison and the HEEC. Under the 1990 Agreement, the MWRA undertook to amortize and pay for the cost of constructing and operating the cross-harbor cable and the appurtenant electrical transmission facilities over the 25-year life of the contract. The 1990 Agreement included two spending caps setting the MWRA's maximum obligation for construction costs. The first, applicable to the Phase I facilities (including the cable), was $25, 400, 000. The second, applicable to both Phase I and Phase II facilities, was $41, 650, 000. “Recovery of construction costs through the Interconnection Agreement is capped such that the HEEC, and not the MWRA, will absorb any costs that exceed the cap.” Dkt #30-2 at 8 (DPU approval of the HEEC financing application), citing 1990 Agreement at 8.

         The ACOE issued a permit to Boston Edison Company and MWRA to install a 4.15 mile, cross-harbor 115-kilovolt submarine electrical cable to power the Plant. In January of 1990, Boston Edison incorporated the HEEC to build and maintain the cable.[3] The following month, the ACOE amended the permit to add the HEEC. The permit required that the cable be installed at least 25 feet below the sea bed of two federally-owned channels in Boston Harbor, the Reserved Channel and the Main Ship Channel.

         NSTAR engaged geotechnical consultants to conduct subsurface investigations. These revealed bedrock just beneath the sea floor in the Reserved Channel. NSTAR selected Les Cables de Lyon (CDL) to supply the electric cable. A CDL subcontractor, Harmstorf, was hired to excavate the cross-harbor trench for the cable. NSTAR and the HEEC claim that

during the construction of the Cable, it became apparent that the only way to uniformly reach the specified depths at certain locations would have been blasting through bedrock, which was discouraged by both the [Massachusetts Department of Environmental Protection] and the [ACOE]. Although the depth actually achieved during construction was less than the permit specified in certain locations, it was the maximum achievable depths in those locations utilizing construction methods approved at that time, and depth actually achieved was below the official maximum depth then anticipated and communicated by the [ACOE] for any future shipping needs.

Am. Answer of NSTAR and HEEC ¶ 14, Dkt #20.

         When completed in 1994, the combined costs for the Phase I and Phase II facilities, exclusive of interest and charges, came to less than $41.65 million, entitling Boston Edison and the HEEC under the 1990 Agreement to an incentive payment of $1.487 million. As amortized over the twenty-five year term of the 1990 Agreement, the costs of the project totaled approximately $104 million (of which $3.475 million is attributable to the incentive award).

         In 2000, the Massachusetts Port Authority (Massport) asked the ACOE to undertake a study of the feasibility of deepening the Reserved Channel and the Main Ship Channel to accommodate a new generation of mammoth container ships. The ACOE study laid the groundwork for the Boston Harbor Deep Draft Navigation Improvement Project (Deep Draft Project). During a feasibility exploration, the ACOE discovered that in some locations the cable was not buried to the 25 foot level mandated by the permit - in some areas it lay as little as 12 feet below the sea floor. In 2003, the ACOE notified the three permit holders that the cable's positioning violated the terms of their permit. The ACOE demanded that the cable be reinstalled at the proper depth requirements to allow the Deep Draft Project to go forward.[4]

         Prolonged settlement negotiations between the ACOE and the permit holders began in 2003.[5] NSTAR proposes the placement of protective concrete mats or steel plate structures just above the cable, extending some 1, 000 linear feet into the Reserved Channel. NSTAR and the HEEC estimate the cost of trenching and placing the mats to range from $10 to $20 million, as opposed to the $50 to $100 million cost of installing a new cable. NSTAR and the HEEC also maintain that any “cable protection costs” they incur are recoverable from the MWRA under the 1990 Agreement.

         On October 30, 2015, the HEEC, as “own[er] and operat[or] of a submarine electric cable and related substation and interconnection facilities that are used exclusively for providing distribution service to the MWRA facility, ” filed a petition with the DPU seeking a tariff “to recover its costs to serve MWRA on and after January 1, 2016.” Dkt #30-1 at 1. In its tariff petition, the HEEC stated that the MWRA was then “paying for service under a long-standing contract with the HEEC that expires on November 12, 2015 and will not be renewed.” Id. at 6 (Pet. ¶ 5). Thus, it was “seeking (1) approval of a tariff that will provide a construct for recovery of prudently incurred costs on a going-forward basis; and (2) approval of a rate consistent with the provisions of the tariff rate mechanism to supplant the amounts currently recovered under the expiring Interconnection Agreement . . . [but] not . . . costs associated with the [ACOE's] dredging.”[6] Id. at 25.

         While the terms of the 1990 Agreement required the negotiation of a successor agreement, the parties were unable to formalize an extension or new terms prior to the expiration date. As a consequence, the MWRA filed suit in Suffolk Superior Court on November 11, 2015. In the Superior Court Complaint (as amended on March 21, 2016), the MWRA disclosed that during the renewal negotiations, NSTAR insisted that it agree to join the ISO-New England Forward Capacity Market and to assign to NSTAR a percentage of any earnings as an offset against the cable protection costs. The MWRA refused, claiming that it had “no responsibility for the costs, ” and that its participation in the Forward Capacity Market would “require it to assume a range of operational risks which it was not willing to undertake.” MWRA Mem. at 16. As in this case, the MWRA sought a declaratory judgment that the 1990 Agreement did not obligate it to bear the costs of remediating the cable as it was not “a matter of regular maintenance.”[7] MWRA Cross-cl. ¶ 26 (Dkt #15). It also claimed that NSTAR had breached the 1990 Agreement, had refused to negotiate in good faith, and had violated Chapter 93A. On June 24, 2016, the Superior Court dismissed the MWRA's claims without prejudice with the notation that “the amended complaint alleges no facts plausibly suggesting that the MWRA is entitled to relief under any of its causes of action.”[8]

         On May 5, 2016, the DPU issued an interlocutory order in the tariff proceeding in response to the MWRA's motion to dismiss, ruling that it would exercise “primary jurisdiction” in determining whether the HEEC was required by the 1990 Agreement to file the tariff request with the Federal Energy Regulatory Commission (FERC). The DPU further ruled that the dispute over the recovery of cable protection costs was a matter of contract liability outside its decisional authority. The HEEC moved for reconsideration, arguing that the dispute involves “interpretation of a special contract under the [DPU's] jurisdiction.” Dkt #30-4 at 3. The DPU demurred, stating that it would reach a determination of its jurisdiction over cable protection costs only after such costs were actually incurred: “[B]ecause [the HEEC] does not seek to recover any costs associated with cable protection in its filing and does not propose any tariff provision specifically addressing Cable Protection Costs, the issue of responsibility for Cable Protection Costs is outside the scope of this proceeding.” Id. at 8.

         After efforts to reach an agreement with the permit holders failed, the ACOE brought this lawsuit in the federal district court on July 15, 2016, alleging that noncompliance with the 1990 permit violates Section 10 of the Rivers and Harbors Act of 1899 (RHA), 33 U.S.C. § 403, ...


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