National Grid’s proposal to buy electricity from Cape Wind violates state law by forcing employers in Grid’s service territory to pay for Cape Wind power even if they do not use it, Associated Industries of Massachusetts told the state Supreme Judicial Court (SJC) this morning.

Robert Rio, Senior Vice President and Counsel for the association, told the seven-member court that National Grid plans to allocate the above-market costs of Cape Wind to all of its distribution customers – both those who buy power from National Grid and those who buy electricity from independent marketing companies. He argued that state regulators should not have approved the cost allocation and urged the court to overturn the decision.

“They are not getting any benefit from the Cape Wind power. They are just paying for it,” Rio said of the competitive-service customers.

His arguments came as AIM and three other parties challenged the 15-year deal approved in November by the Massachusetts Department of Public Utilities (DPU) between National Grid and the proposed 130-turbine offshore wind farm in Nantucket Sound. AIM maintains that the deal will saddle ratepayers with the highest power price ever negotiated in Massachusetts. Other Massachusetts utilities such as NSTAR have since negotiated renewable power contracts at less than half the 25 cents per kWh average cost of the National Grid/Cape Wind agreement.

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Other critics argued this morning that the agreement should be overturned because it was signed as part of a process that was unconstitutional and because National Grid did not use an open bidding process to buy renewable energy.

Assistant Attorney General Kenneth Salinger, representing the the DPU, said regulators considered vast amounts of evidence in deciding that the agreement was cost-effective and in the public interest.

Rio told the justices that National Grid’s cost recovery plan, combined with the assertion by regulators that state law does not cap the percentage of electricity that distribution companies may purchase from renewable sources, means employers trying to manage their electricity bills using competitive suppliers will end up paying significant subsidies to basic-service customers.

Rio said that if National Grid decided to sell the Cape Wind power into the market, the law would permit the company to spread the difference between its buying and selling price to all customers. But National Grid lawyer David Rosenzweig told the court that National Grid, based in England, must comply with accounting standards that require it to use the power it buys.

A decision is expected by late 2011 or early 2012.