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<title>Massachusettes: Proposed Legislation Call for Retail Competition by March 1, 1998
and a 15% Rate Reduction</title>
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<p align="left"><strong><small><font face="Arial">About The Author:</font></small></strong></p>
<p align="left"><font face="Arial" style="font-size: 9pt">Robert A. Olson is a partner in the law firm of
Brown, Olson & Gould, P.C. which maintains a nationwide practice in energy law,
public utility law and related commercial transactions.</font></p>
<p><small><font face="Arial"><font style="font-size: 9pt">He can be reached at:</font><br>
<br>
<b><font color="#0000FF">Brown, Olson & Gould, PC</font></b><br>
2 Delta Drive<br>
Suite 301<br>
Concord, NH 03301<br>
<a href="mailto:[email protected]">[email protected]</a><br>
(603) 225-9716<br>
<a href="mailto:[email protected]"></a></font></small></p>
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<td width="70%" valign="top"><img src="../images/statelin.gif" alt="STATELINE by Robert Olson" border="0" WIDTH="375" HEIGHT="75"><p><b><u>
<br>
<br>
November 1997</u><br>
</b><big><big><big><strong><font face="Arial">Massachusettes: Proposed
Legislation Call For Retail Competition By March 1, 1998 And A 15% Rate
Reduction<br>
</font></strong></big></big></big><strong>by Robert Olson -- Brown, Olson and Wilson, P.C.<br>
</strong><font face="Arial" size="2">(<em>originally published by PMA OnLine Magazine:
05/98</em>)</font></p>
<p><font face="Arial">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".</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">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. </font></p>
<p ALIGN="JUSTIFY"><font face="Arial">The Act does not require public utilities divest
themselves of their generation assets. However, a utility’s ability to recover its
stranded costs can only occur if: the utility divests its generation facilities; fully
complies with the Act’s 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.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">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. </font></p>
<p ALIGN="JUSTIFY"><font face="Arial">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. </font></p>
<p ALIGN="JUSTIFY"><font face="Arial">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. </font></p>
<p ALIGN="JUSTIFY"><font face="Arial">It is anticipated that both the Massachusetts House
and Senate will shortly consider the proposed restructuring act.</font></p>
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<p align="left"><font face="Arial">
<small>Robert A. Olson is a partner in the law firm of Brown, Olson &
Gould P.C.
which maintains a nationwide practice in energy law, public utility law and related
commercial transactions. He can be reached at:</small></font><p align="center">
<font face="Arial"><small><font color="#0000FF"><b>Brown, Olson & Gould, PC</b></font><br>
2 Delta Drive, Suite 301<br>
Concord, NH 03301 <br>
<br>
<a href="mailto:[email protected]">[email protected]</a> | (603) 225-9716<a href="mailto:[email protected]"></a></small></font>
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