On October 29, 1998, the Joint Committee on Government Relations for the Massachusetts Legislature issued a proposed act to restructure the electric utility industry for the Commonwealth of Massachusetts (the "Act"). The Act proposes that retail competition should begin on March 1, 1998. In addition, this Act states that distribution companies will be required to offer standard service to those customers in their service territory who do not choose to purchase energy from competitive power suppliers at a rate that is at least fifteen percent (15%) below the present tariff rate. Furthermore, the Act provides that non-utility generators ("NUGs") which presently sell power to public utilities will be required to renegotiate their power arrangements in "good faith".
The Act states that public utilities must provide their customers with unbundled rates on January 1, 1998 and that retail competition will begin on March 1, 1998. The Act requires that, by that date, distribution companies must offer standard service, to all customers in their service territory who choose not to purchase energy from competitive power suppliers and that such standard service be in effect for seven (7) years. The standard service rate, together with the rates for transmission, distribution and other associated charges, must produce at least a fifteen percent (15%) rate reduction compared to the August, 1997 tariff rates. Distribution companies are required to purchase energy for standard service at competitive rates through an auction process.
The Act does not require public utilities divest themselves of their generation assets. However, a utilitys ability to recover its stranded costs can only occur if: the utility divests its generation facilities; fully complies with the Acts mitigation requirements; and satisfies the fifteen percent (15%) rate reduction requirement for standard service. If a utility chooses not to divest its generation assets, then the utility must transfer all of its non-nuclear generation facilities and purchase power contracts to an affiliate company at a price to be determined by the Department of Public Utilities ("DPU"). This affiliated generation company is also prohibited from obtaining new generation facilities after March 1, 1998.
All competitive power suppliers engaged in retail sales must make quarterly reports to the Massachusetts Division of Energy Resources ("DER"). These reports require competitive suppliers to disclose certain data concerning energy sales and prices, including the average price by customer class for all types of services provided by the suppliers. The DER will also determine the extent to which the competitive energy market serves the needs of retail competition and contributes to energy efficiency and fuel diversity and will issue an annual report making recommendations for improving deficiencies in the energy market and non-competitive pricing situations.
The Act requires the DER to establish renewable energy portfolio standards for all competitive power suppliers starting in December 31, 2003. The Massachusetts Department of Environmental Protection ("DEP") is required to adopt and implement uniform generation performance standards for emissions by May 1, 2003.
Competitive power suppliers must receive a license from the Massachusetts Secretary of State to either sell energy at retail or to generate energy for sale to the public. The Act states, however, that if a competitive power supplier has a purchase power contract with a public utility with rates above the competitive market price, the application will not be processed until the supplier makes a "good faith" effort to renegotiate this contract. The DPU is directed to promulgate rules to determine "good faith". In addition, the Act states that beginning July 1, 1998 and every ninety (90) days thereafter, the DPU shall review NUG purchase power agreements to determine whether the prices contained in these contracts are above the market price. If the DPU determines the price to be above the market rate, the utility and the NUG are required to makes a "good faith" effort to renegotiate the price. A competitive supplier having a purchase power contract with a utility shall be determined to have made "a bona fide offer" to renegotiate the contract if the supplier has agreed to a buyout or modification of the contract that results in the current or future rate of return for the facility covered by the contract to be equal to the cost of capital determined by the DPU in a rate proceeding prior to December 1, 1997.
It is anticipated that both the Massachusetts House and Senate will shortly consider the proposed restructuring act.