On September 18, 1997, the Massachusetts Supreme Judicial Court (the "Court") ruled that Cambridge Electric Light Company (the "Company") could impose a customer transition charge ("CTC") on the Massachusetts Institute of Technology ("MIT") and that the CTC does not violate the states Public Utility Regulatory Policies Act ("PURPA") regulations. The Court remanded the case to the Massachusetts Department of Public Utilities ("DPU"), however, because the DPUs decision did not adequately analyze certain issues, including whether the Companys stranded costs were prudently incurred. The CTC was imposed on MIT because MIT now receives power from a cogeneration facility and no longer purchases all of its energy from the Company.
In 1985, MIT began investigating the option of constructing a cogeneration facility to lower its power costs. In 1992, the Company proposed several options to lower MITs power costs in an effort to retain MIT as a full requirements customer. After MIT and the Company failed to reach agreement, MIT constructed a cogeneration facility in 1993 and the facility commenced operations on September 16, 1995. While MITs cogeneration facility generates sufficient power to meet MITs normal electricity requirements, MIT must purchase back-up and auxiliary power from the Company. In May 1994, MIT petitioned the DPU to establish just and reasonable rates for the following type of services to be rendered by the Company: standby, maintenance, and supplementary service. In response to this request, the Company filed proposed rates for these three services and also proposed that major customers, such as MIT, pay the CTC as compensation for stranded costs once the customer no longer purchases all of its power from the Company.
The DPU approved the CTC ruling that it did not violate PURPA because the CTC charge did not single out MIT for discriminatory treatment as a qualifying facility ("QF"). The DPU ruled that the Company could recover seventy-five percent (75%) of the CTC from MIT. The approved CTC required MIT pay approximately $110,000 per month or $1.3 million per year.
Subsequently, MIT appealed the DPUs decision to the Court and asserted that the CTC violates the Massachusetts PURPA regulations because the CTC discriminates against customers who have a source of power other than the Company. The Massachusetts Attorney General ("AG") also opposed the imposition of the CTC, asserting that the Company had been on notice since at least 1985 that MIT was actively considering self-generation and yet the Company did not undertake any meaningful effort to mitigate the foreseeable consequence of losing MIT as a full requirements customer.
On September 15, 1997, the Court ruled that the CTC does not violate state PURPA regulations because the CTC applies to a broad class of customers and does not single out QFs. In addition, the Court stated that it found instructive the Federal Energy Regulatory Commissions policy to permit recovery of stranded cost through a mechanism such as an exit fee. The Court concluded that the recovery of prudent and verifiably authorized stranded costs is in the public interest and is consistent with PURPA.
The Court also ruled that the DPUs decision failed to make certain necessary findings thus making it impossible for the Court to consider certain claims raised by MIT and the AG. Therefore, the Court remanded the case back to the DPU. For example, the Court noted that the DPUs conclusory statement that all stranded costs had been prudently incurred could not be accepted. The Court noted that DPU proceedings regarding the deregulation of the electric power industry involve a scheme requiring aggressive mitigation of stranded costs by utilities. In these proceedings the DPU stated that utilities are in a position to avoid entering into new obligations that might be stranded by the emergence of customer choice. The Court concluded that to permit a utility to recover imprudent or unreasonable costs would impede the very policies identified by the DPU as worthy of promotion. The DPU will address these and similar issue when it determines the remanded case.