COMMONWEALTH OF MASSACHUSETTS
DEPARTMENT OF PUBLIC UTILITIES
____________________________________
)
Electric Utility Industry ) D.P.U. Docket Nos. 96-100
Restructuring ) and 96-25
)
____________________________________)
RESTRUCTURING SETTLEMENT AGREEMENT
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This Restructuring Settlement Agreement ("Settlement") is jointly
sponsored by the Attorney General, American National Power, Conservation Law
Foundation, Division of Energy Resources, KCS Power Marketing, Inc., Low-
Income Intervenors(1), Massachusetts Community Action Directors Association,
Massachusetts Energy Directors Association, Massachusetts High Technology
Council, Northeast Energy and Commerce Association, Northeast Energy
Efficiency Council, Inc, The Energy Consortium, Union of Concerned
Scientists, U.S. Generating Company, New England Power Company ("NEP"), and
Massachusetts Electric
Company and Nantucket Electric Company (referred to collectively as "Mass.
Electric"). The Settlement is designed to provide a resolution of some
issues presented in the industry restructuring Docket Nos. D.P.U. 96-100
(the Department's generic proceeding on electric utility restructuring) and
D.P.U. 96- 25 (Mass. Electric's own restructuring proceeding). This
Settlement, once approved by the Department, would require a restructuring
of the New England Electric System ("NEES") in furtherance of the
competitive market structure objectives of the Department and would
implement the restructuring plan of the Attorney General as applied to Mass.
Electric and its affiliates in the New
__________
1 The Low-Income Intervenors are Irving Berstein and Pearl Noorigian who are
represented by the National Consumer Law Center.
England Electric System. The Settlement includes a requirement for a filing
by NEP to separate its generation business from its transmission business,
a commitment voluntarily to divest NEP's generation business through a sale
or spinoff of 100 percent of that business, a request for approval of the
jurisdictional separation between transmission facilities subject to the
Federal Energy Regulatory Commission's ("FERC") jurisdiction and
distribution facilities subject to the Department's jurisdiction, and the
assurance of stranded cost recovery by NEP and Mass. Electric. This
Settlement also resolves all ratemaking issues for Mass. Electric and
assures that Mass. Electric's rates to retail customers comply fully with
the requirements of the Attorney General's principles. Finally, this
Settlement resolves certain other issues necessary to implement retail
choice for Mass. Electric's customers on the Retail Access Date which is
defined as the later of January 1, 1998 or the date when retail access is
made available to all customers of the investor-owned utilities in
Massachusetts.
The parties to this Settlement recognize and fully understand that
their mutual promises in this Settlement evidence the consideration they
have extended to each other in their efforts to settle the issues of D.P.U.
96-25 in accordance with the principles articulated in D.P.U. 96-100. The
willingness and ability of Mass. Electric and NEP to commit to and fulfill
any and all of their obligations under this Settlement, including in
particular the full divestiture of NEP's generating business, are predicated
and conditioned upon the commitments by the Attorney General and the
Department to the recovery in full of Mass. Electric's and NEP's stranded
costs, as set forth in this Settlement and in the wholesale rate settlement
included in Attachment 3. The Settlement is designed to implement the
Attorney General's principles for electric industry restructuring in
Massachusetts in a manner that is consistent with the proposals articulated
by the Department in its
orders in D.P.U. 96-100. It is further designed to insure recovery of Mass.
Electric's access charge as part of its transition from a fully bundled,
completely regulated electric utility to an unbundled distribution company
in an emerging competitive industry.
The Settlement follows the outline of the Attorney General's
principles. The parties have agreed on the following:
I. Price Reductions for Customers.
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The Attorney General's principles will produce reduced rates for all
customers on the Retail Access Date. The Settlement accomplishes that
objective by freezing Mass. Electric's base rates prior to the Retail Access
Date, implementing unbundled rates for Mass. Electric on January 1, 1997,
and providing retail delivery tariffs with a standard offer option on the
Retail Access Date. Mass. Electric's unbundled tariffs that will be
effective from January 1, 1997 through the Retail Access Date, together with
supporting documentation, are included in Attachment 1. Mass. Electric's
retail delivery tariffs with the standard offer option that will be
effective on and after the Retail Access Date are included in Attachment 2.
Mass. Electric's retail delivery tariffs contemplate the corporate
separation of NEP's generation and transmission, and recognize that NEP will
be paid the transmission rates established by FERC.
Under a separate wholesale rate settlement included in Attachment 3,
NEP's wholesale base rates to Mass. Electric will be frozen through the
Retail Access Date, or through December 31, 2000 if the Retail Access Date
has not yet occurred or Mass. Electric has not otherwise terminated its all-
requirements service under the wholesale tariff. Following the Retail
Access Date, NEP will cease providing Mass. Electric all-requirements
service under its wholesale tariff, FERC Electric Tariff, Original Volume
No. 1 (Tariff 1),
and NEP will implement, and Mass. Electric will pay, the contract
termination charges set forth in that wholesale rate settlement.
The approval by FERC of the wholesale rate settlement included in
Attachment 3 is a condition to the effectiveness of this Settlement and to
the provision of retail access by Mass. Electric to its customers. Failure
by FERC to approve the wholesale rate settlement as filed shall render this
Settlement null and void and of no effect.
A. The Unbundled Rates Effective from January 1, 1997 Through the
Retail Access Date.
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The unbundled rates included in Attachment 1 shall be phased in during
the first six months of 1997 beginning on January 1, 1997 in accordance with
the following terms:
1. Mass. Electric's unbundled rates in Attachment 1 are divided
into delivery service charges and energy service charges. The
delivery service charges include Mass. Electric's distribution
costs including the conservation cost factors approved by the
Department for calendar year 1997, an allowance for
transmission costs, and recovery of fixed costs associated with
NEP's purchased power expense currently recovered in NEP's W-95
rate. The energy service charges include Mass. Electric's fuel
clause plus an allowance equal to the variable energy cost
currently recovered in NEP's W-95 rate. Mass. Electric's fuel
clause will continue to operate as a fully reconciling charge
during the effective period of the unbundled rates.
2. Mass. Electric's unbundled rates will be used for billing
purposes to provide information to customers. Further
information, such as the estimate of variable energy and
capacity costs under the
Boston Edison Company E-Plan proposal will be made available to
any customer upon request.
3. Mass. Electric will eliminate its purchased power adjustment
clause as of January 1, 1997 and will roll PPCA W-95(S) into
its base rates by adding the PPCA W-95(S) amount of $0.00307
per kilowatthour and the PPCA reconciliation adjustment of
$0.00051 per kilowatthour to base revenues. No further
reconciliations of purchased power expense and revenues will be
required after August 1, 1996, and any balance whether positive
or negative existing from the PPCA reconciliation will be
retained or borne by Mass. Electric and will not be refunded or
collected from customers.(1)
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1 The balance in the PPCA reconciliation account through July 1996 is
approximately $18 million. This includes: a) an overrecovery of $25 million
since the last PPCA factor adjustment; and b) a remaining balance of $7
million on the underrecovery now being collected through a PPCA
reconciliation adjustment. Mass. Electric will credit the $18 million
balance by applying $3 million to prefund a storm fund effective on August
1, 1996, and by applying $15 million to Mass. Electric's hazardous waste
fund in lieu of the repayment of service extension discounts for customers
who have received the discounts and who choose another supplier within the
Service Extension Discount notice period. No further reconciliations of
purchased power expense and revenues will be required after July 31, 1996.
For August through December, Mass. Electric will accept the risk of an
underrecovery and retain the benefit of any overrecovery. In addition, any
refunds made pursuant to footnote 2 of the wholesale rate settlement in
Attachment 3 shall be retained by Mass. Electric.
4. The unbundled rates in Attachment 1 shall remain in effect for
all usage prior to the Retail Access Date, subject to Section
I.C. below. The fuel adjustment factor shall be applied to
billings after the Retail Access Date for usage occurring
before the Retail Access Date. The final balances in the fuel
factor remaining after the Retail Choice Date shall be returned
to or collected from customers in the first quarter after the
Retail Access Date.
5. Effective on January 1, 1997, Mass. Electric shall close, or
cease to offer, to new customers the following rates and
incentive clauses:
Scheduled Interruptible Service, Rate I-1
Economy Interruptible Service, Rate I-2
Cooperative Interruptible Service Provision, Rate
I-3
Cooperative Interruptible Service Provision, Rate
I-4
Cooperative Interruptible Service Provision, Rate
I-5
Flexible Time-of-Use Pricing, Rate G-5
Community Partnership Program Discount Provision
Jobs Through Conservation Program Discount Provision
General Service - G-5 Rate Incentive Provision
Service Extension Discount
B. Retail Delivery Rates and the Standard Offer Effective from the
Retail Access Date Through December 31, 2000.
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The retail delivery rates included in Attachment 2 shall become
effective for usage on and after the Retail Access Date on the following
terms.
1. Mass. Electric's retail delivery rates included in Attachment
2 include four components. The first three of the components
will be included in a delivery service charge, and the fourth
will be billed separately to customers taking standard offer
service. The four components are as follows:
(a) Distribution charges that will remain in place
through December 31, 2000 and which may be
superseded by a filing that becomes effective after
suspension on January 1, 2001.
Performance standards are also established for
reliability and customer satisfaction in the
distribution component of the rate with credits to
customers if the standards are not achieved;
(b) Transmission charges that recover on a fully
reconciling basis the transmission charges billed
to Mass. Electric by NEP together with the charges,
if any, billed to Mass. Electric by or for the
benefit of a Regional Transmission Group, an
Independent System Operator, any other transmission
provider, or any regional entity that may be
created or allowed to implement rates and tariffs
for transmission services or reliability related
operating services under FERC accepted tariffs;
(c) Access charges that are designed to recover on a
fully reconciling basis all contract termination
charges paid by Mass. Electric to NEP. As set
forth more fully below these access charges are
fixed at 2.8 cents per kilowatthour for the period
through December 31, 2000, subject to the residual
value credit under Attachment 3, and at declining
levels thereafter. The access charges are subject
to adjustment for various factors in NEP's
wholesale rate settlement included in Attachment 3.
(d) A standard offer for service during a transition
period that is fixed for the period through
December 31, 2004 subject only to a fuel index,
which is set forth in Attachment 8, on the
following schedule:
Calendar Year Average Price per kilowatthour
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1998 2.8 cents
1999 3.1 cents
2000 3.4 cents
2001 3.8 cents
2002 4.2 cents
2003 4.7 cents
2004 5.1 cents
Together the charges in paragraphs (a) through (d) comply with the Attorney
General's principles related to rates and prices. In addition, Attachment
4 contains revised terms and conditions for Mass. Electric that reflect
changes to Mass. Electric's terms and conditions associated with its change
to an unbundled distribution company, and which set forth the requirements
for customers taking retail access. The details of each charge included in
the rates and the changes to the terms and conditions are set forth in the
paragraphs below.
2. Distribution Charges. The distribution charges in the retail
delivery rates will become effective on the Retail Access Date
and will remain in effect through December 31, 2000 on the
following terms.
(a) Mass. Electric shall be authorized to implement the
depreciation rates shown in Attachment 5 as of the
effective date of the retail delivery rates.
(b) Mass. Electric shall be authorized to establish a storm
fund to pay for all of the incremental costs of any major
storm, defined as any storm with incremental costs of
over $1.0 million occurring after the date this
Settlement is approved by the Department. The storm fund
will be prefunded with $3.0 million on August 1, 1996
pursuant to footnote 2 above. The distribution component
of the retail delivery rates contains a $3.0 million
accrual for this charge and Mass. Electric shall begin to
accrue this amount to the fund on an annual basis
commencing on the date when the retail delivery
rates become effective. The accrual shall continue at
$3.0 million per year until a modification is approved by
the Department following a filing by Mass. Electric.
Mass. Electric is authorized to charge all incremental
costs of major storms against the fund and to pay or
accrue interest on the fund balance whether positive or
negative in accordance with the protocols for the fund
set forth in Attachment 6.
(c) This Settlement is based on the existing separation of
distribution and transmission facilities on the
integrated NEP and Mass. Electric systems, and thus
assumes that all property owned by Mass. Electric, except
for those facilities that are paid for by NEP pursuant to
the Integrated Facilities Schedule III-B of Tariff 1, is
subject to the Department's ratemaking jurisdiction when
it is used to provide access to retail customers.(1) As
set forth below, the parties agree that this separation
is reasonable and appropriate, and should be approved by
FERC and the Department for ratemaking purposes as part
of this Settlement. However, approval of the
jurisdictional separation of facilities without change is
not a condition of this Settlement, and Mass. Electric
and NEP will modify the separation in a manner that is
necessary to accommodate
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1 An analysis that supports the jurisdictional separation and demonstrates
its compliance with the seven factor test established by FERC in Order 888
is included in Attachment 12.
the policies of the Commission and the Department. In
the event that facilities or costs are transferred from
transmission to distribution or from distribution to
transmission, the parties agree that appropriate
adjustments to the transmission and distribution
components of the rates will be made to reflect the
transfer.
(d) The retail delivery rates are based on the assumption
that all remaining unfunded state and federal deferred
income tax balances(1) are recovered over six years after
the effective date of the retail delivery rates.
(e) Mass. Electric shall implement the performance standards
for reliability and customer satisfaction set forth in
Attachment 7, and Mass. Electric shall be required to
credit customers with an amount calculated in accordance
with the schedules in that attachment during the year
following any year that it failed to meet any performance
standard. In addition, Mass. Electric shall propose, by
July 1, 1997, a performance standard for the effective
management of line losses.
(f) By April 1 of each year, Mass. Electric shall file with
the Department to adjust rates to recover or refund
revenues necessary to assure that Mass. Electric's annual
return on equity associated with distribution operations
from the prior year averaged between six percent and
eleven percent
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1 At December 31, 1995, unfunded deferred federal and state income tax
balances were $4,490,000 and $8,761,000, respectively. See Attachment 6,
pp. 3-4.
before any credits that may be required pursuant to
paragraph (e) or incentives earned on demand side
programs as authorized by the Department pursuant to
section III.C, below. Mass. Electric's return on equity
for the prior year shall be calculated using the earnings
available for common equity as reported to the Securities
and Exchange Commission in Mass. Electric's annual report
as adjusted in the preceding sentence divided by the
average of the thirteen monthly common equity balances on
Mass. Electric's books for the same period.(1) If Mass.
Electric's return on equity so calculated is below six
percent, it shall be authorized to increase its rates by
a uniform per kilowatthour surcharge calculated to
provide sufficient revenues to increase Mass. Electric's
return on equity to six percent. If Mass. Electric's
calculated return on equity is above eleven percent, it
shall be required to reduce its rates by a uniform per
kilowatthour surcharge to refund revenues necessary to
reduce the calculated return on equity between eleven and
12.5 percent by 50 percent and the earnings above 12.5
percent by 100 percent. If Mass. Electric's calculated
return on equity falls between six and eleven percent,
then no further adjustment shall be authorized or
required.
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1 Mass. Electric's earnings available for common equity and common equity
balances shall also be adjusted to eliminate the effects of any writedown
and to restore expenses associated with any such writedown that may result
from the implementation of industry restructuring or this Settlement.
(g) Mass. Electric shall also adjust its retail delivery
rates for the effects of any changes in the federal or
state income, revenue, sales, or franchise tax rates or
laws, or any externally imposed accounting changes, if
they affect Mass. Electric's costs by more than $1.0
million per year or any other charges under the retail
delivery rates in Attachment 2.
(h) The retail delivery rates in Attachment 2 include fully
reconciling charges for Mass. Electric's access charges
and transmission payments. To maintain rate stability
and avoid rate dislocations, cost allocations among rate
classes were determined using the allocators for these
cost functions that have been developed and approved in
prior cases within continuity constraints, and then, once
rates have been designed, a uniform cents per
kilowatthour reconciling factor is subtracted from the
energy component of the rate designs and applied to all
customers as a uniform cents per kilowatthour charge.
For billing purposes the transmission and access charges
shall be rolled into the distribution rates and shall not
be shown separately on bills to customers.
(i) The discount for the R-2 Rate that is available for Mass.
Electric's low income customers is designed to reduce the
base rates of a customer taking standard offer service by
35 percent in accordance with the Attorney General's
principles. To assure that the same level of discount is
available regardless of the supplier and to allow the
operation of the reconciling access and transmission
charges, the discount is applied exclusively to the
distribution component of the rate. The recovery of the
discount from Mass. Electric's other customers is based
on distribution rate base in accordance with the practice
in prior cases.
(j) Mass. Electric's energy conservation services charge and
conservation cost factors are included in the base rates
in Attachment 2, and separate Energy Conservation Service
and conservation cost factors will be discontinued on the
effective date of the retail delivery rates. Any
outstanding balances, whether positive or negative, will
be added to or subtracted from Mass. Electric's demand
side program budgets for the first two years after the
Retail Access Date.
3. Transmission Charges. The transmission charges in Mass.
Electric's retail delivery rates shall be recovered in a
uniform cents per kilowatthour factor under the transmission
cost adjustment provisions included in the tariffs in
Attachment 2. The transmission cost adjustment shall recover
the costs billed to Mass. Electric by NEP, by any other
transmission provider, and by other regional transmission or
operating entities, such as NEPOOL, a regional transmission
group (RTG), an independent system operator (ISO), or other
regional body, in the event that they are authorized to bill
Mass. Electric directly for their services. The transmission
cost adjustment shall be established annually based on a
forecast of transmission costs, and shall include a full
reconciliation and adjustment for any over- or under-
recoveries occurring under the prior year's adjustment. As set
forth below, the Parties have agreed to support the
implementation of NEPOOL reforms, including the formation of an
RTG and ISO to the extent consistent with this Settlement.
These reforms are desirable, but are neither a condition to
retail access by Mass. Electric nor of the approval of this
Settlement.
4. Access Charges. The access charges in Mass. Electric's retail
delivery rates shall be recoverable in a uniform cents per
kilowatthour factor under the access cost adjustment provisions
included in the tariffs in Attachment 2. The access cost
adjustment factor will recover on a fully reconciling basis the
contract termination charges billed by NEP to Mass. Electric
under the wholesale rate settlement included in Attachment 3
and shall be subject to the dispute resolution procedures set
forth in Section 3.5 of that wholesale rate settlement. The
Parties agree that: a) the wholesale rate settlement in
Attachment 3 is reasonable; b) approval of this Settlement by
the Department represents express authorization of Mass.
Electric to pay those charges under G.L. c. 164, Sec. 94A until
Mass. Electric's obligation to NEP for payment of contract
termination charges has been fully extinguished; c) the
decision by Mass. Electric to execute the contract termination
agreement with NEP included in Attachment 3 and to pay the
contract termination charges is reasonable and prudent; and (d)
the contract termination charges shall be recoverable in Mass.
Electric's rates for retail delivery services for as long as
the contract termination charges remain in effect.
5. Standard Offer. Consistent with the Attorney General's
principles Mass. Electric shall arrange to provide standard
offer service through a transition period ending on December
31, 2004, by
putting it out to bid. Standard offer service shall be
available to all of Mass. Electric's retail customers on the
Retail Access Date. After the Retail Access Date customers are
free to leave the standard offer at any time to purchase from
an alternative supplier in the market, but, once the market
option is selected, a customer may not return to service at
standard offer prices, provided, however, that standard offer
service shall be available to all residential or G-1 customers
who have previously taken service from an alternative supplier
for the first year after the Retail Access Date, if such
residential or G-1 customer elects to return to standard offer
service within 90 days of first taking service from the
alternative supplier. The terms and conditions for the bids by
potential suppliers for standard offer service are set forth in
Attachment 8.
Mass. Electric's standard offer prices are guaranteed,
subject to the fuel price index described in Attachment 8.
Under the tariffs included in Attachment 2, Mass. Electric's
charges for standard offer service are included as a separate
surcharge to the rates for retail delivery service that apply
to all retail access customers. Mass. Electric shall reconcile
the revenues billed to retail customers taking standard offer
service against payments to suppliers of standard offer service
and recover or refund any under or overcollections on the
following terms:
(a) Any revenues billed by Mass. Electric for standard offer
service in excess of payments to suppliers of that
service shall be accumulated in an account and credited
with interest calculated using the methodology for
calculating interest on customer deposits specified in
Mass. Electric's
terms and conditions. The accumulated balance at the end
of each calendar year shall be credited to all of Mass.
Electric's retail delivery customers through a uniform
cents per kilowatthour factor in the following year.
(b) In the event that the revenues billed by Mass. Electric
do not recover Mass. Electric's payments to suppliers or
Mass. Electric defers expenses to meet the inflation cap
established in Section I.B.9, Mass. Electric shall be
authorized to accumulate the deficiencies in the account
together with interest calculated as above and recover
those amounts by implementing a uniform cents per
kilowatthour surcharge on the rates for standard offer
service, if and to the extent that the access charges
billed by Mass. Electric to its retail delivery customers
are for any reason below the unadjusted contract
termination charges listed under the NEP wholesale rate
settlement in Attachment 3. Under-
recoveries, if any, that remain after the standard offer
transition period ends on December 31, 2004 shall be
recovered from all retail delivery customers by a uniform
surcharge not exceeding $0.004 per kilowatthour
commencing on January 1, 2010.
6. Safety Net Service. In recognition that electricity is an
essential service, and that there is a risk that in a
competitive market some low-income customers may be unable to
obtain or retain service on reasonable terms on account of a
credit profile that would not create a barrier to service under
the current regulated monopoly supply, Mass. Electric shall
arrange to provide electric
supply for low-income customers who are no longer eligible to
receive service under the standard offer and not adequately
supplied by the market because they are unable to obtain or
retain electric service from competitive power suppliers.
Service under this provision shall be made available under
rates, terms and conditions approved by the Department. Mass.
Electric shall fully recover the reasonable costs it incurs in
arranging this service.
7. Basic Service. In recognition that customers may face an
occasional hiatus between competitive suppliers, and in an
effort to prevent such customers from losing power because they
do not have a contractual relationship with a viable supplier,
Mass. Electric shall facilitate the continued delivery of
power, such as by providing supply through the short-term
wholesale power market, to such customers and allow them to
have a reasonable opportunity to make other supply
arrangements, and shall fully recover its reasonable costs of
providing such service. Such supply shall be provided on terms
and conditions approved by the Department.
8. Terms and Conditions. Mass. Electric's terms and conditions in
Attachment 4 have been modified to reflect the changes in Mass.
Electric's operations. In addition to modifications that are
necessary to reflect changes to Mass. Electric's business with
its customers, the terms and conditions included in Attachment
9 have been added to specify the terms and conditions for the
settlement process with suppliers. Those requirements are
designed to allocate load and resources as required under the
NEPOOL agreement and protocols. These terms and conditions are
recommended by Mass. Electric for approval by the Department as
part of this
Settlement. However, approval is not a condition of the
Settlement.
9. Inflation Cap for Standard Offer Customers. Mass. Electric
shall assure that the economic value of the ten percent rate
reduction for customers is maintained by capping average
revenues per kilowatthour for retail delivery service plus the
standard offer, adjusted to exclude: (1) the fuel price index
in Attachment 8; (2) any adjustments caused by the return on
equity floor under Section I.B.1(f); and (3) changes in tax
laws or accounting under Section I.B.1(g), at 8.91 cents per
kilowatthour adjusted for the Consumer Price Index occurring
between October 1, 1996 and the effective date of any
adjustment to the standard offer price under Section I.B.1(d).
Mass. Electric shall defer expenses associated with payments to
vendors under the standard offer equal to the amount necessary
to meet the inflation cap and recover such deferral using the
mechanism in Section I.B.5(b).
C. Right to File for Rate Change in the Event that Retail Access Date
Postponed
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Nothing in this Settlement shall prevent the Parties from seeking a
rate change to become effective after suspension on January 1, 2001 in the
event that the Retail Access Date has not occurred by that time.
II. Benefits of Competition Extended to All Customers.
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The Attorney General's principles require utilities to extend the
benefits of competition to all customers. This Settlement achieves that
requirement by providing all customers with the opportunity to choose
alternative suppliers on the Retail Access Date and by guaranteeing
significant rate reductions for customers who take standard offer service
prior to choosing an alternative supplier under the ratemaking portion of
this Settlement. Specifically, the parties agree that Mass. Electric shall
implement retail access on the following terms:
A. Prior Commitments with Customers.
--------------------------------
Prior commitments under Mass. Electric's rates or contracts will be
treated as follows:
1. Service Extension Agreements: Many of Mass. Electric's non-
residential customers have executed Service Extension
Agreements under Paragraph 3 of Mass. Electric's currently
effective terms and conditions. Mass. Electric shall waive the
five year notice provision insofar as it would limit the
customer's ability to purchase electricity from an alternative
supplier under the terms of Mass. Electric's retail delivery
tariffs included in Attachment 2 and shall require no repayment
by the customer as would otherwise be required under the terms
and conditions and their contracts. Nothing in this Settlement
shall require Mass. Electric to waive the advance written
notice required before the retail customer may install on-site
non-emergency generation for its own use or bypass Mass.
Electric's distribution system.
2. Service Extension Discounts. Many of Mass. Electric's
customers served under Rate G-3 have exercised their option to
sign a service extension discount agreement under which the
customer must provide five years prior notice before purchasing
electricity from an alternative supplier or installing non-emergency generation for its own use, but is allowed to buy
down its five year notice provision to three years by repaying
120 percent of all Service Extension Discounts received from
Mass. Electric over the prior
two years. Under this Settlement, Mass. Electric will waive
the five year notice provision without requiring such repayment
insofar as it would limit the customer's ability to purchase
electricity from an alternative supplier under the terms of
Mass. Electric's retail delivery tariffs included in Attachment
2.(1) As with the Service Extension Agreements, nothing in
this Settlement shall require Mass. Electric to waive the
advance written notice required before the retail customer may
install on-
site non-emergency generation for its own use or bypass Mass.
Electric's distribution system. Mass. Electric shall eliminate
the Service Extension Discount as of the Retail Access Date.
Under Section 7.3 of its W-95 wholesale rate settlement
(in FERC Docket No. ER95-267-000), NEP agreed to reimburse
Mass. Electric for the discounts provided to customers under
Service Extension Discount agreements. NEP's tariff provision,
however, requires that payments for the buy down of the notice
period be paid to NEP (Tariff 1, Section III-D, p.2, Par. 4)
and requires Mass. Electric to obtain NEP's consent prior to
modifying the Service Extension Discount agreements. (Id,
Par.6). In the wholesale rate settlement included as
Attachment 3 to this
__________
1 To the extent necessary to allow customers to purchase from alternative
suppliers under the retail delivery tariffs, Mass. Electric will also waive
condition 3 in the availability provisions of its G-5 Rate Incentive
Provision that requires customers participating on that rate not to have
provided notice under the Service Extension Discount Agreement.
Mass. Electric also has a special contract with Raytheon that was
approved by the Department on January 30, 1996. Under Section V.A. of that
contract, the Parties agreed that the agreement was to remain in effect
through December 31, 1998, even if retail access were to occur earlier than
that date. Under this Settlement, Mass. Electric shall provide Raytheon
with the option to terminate as of the Retail Access Date even if that date
occurs prior to January 1, 1999.
Settlement, NEP provides that consent and waives its right to
reimbursement, as well as ceases payment to Mass. Electric for
Service Extension Discounts.
3. Notice Provisions in Mass. Electric's Tariffs. Mass.
Electric's General Service (G) rate tariffs include a provision
requiring all customers to provide two years prior written
notice before purchasing from an alternative source or
installing additional on-
site generation capacity for the customer's own use. Mass.
Electric shall waive this notice requirement for purchases from
alternative suppliers under the terms of Mass. Electric's
retail delivery rates included in Attachment 2. Nothing in
this Settlement shall require Mass. Electric to waive the
advance written notice required before the retail customer may
install additional on-site, non-emergency generation for its
own use or bypass Mass. Electric's distribution system.
4. Conservation and Load Management Program Terms and Conditions.
Many of Mass. Electric's nonresidential customers have
participated in Mass. Electric's conservation and load
management programs that require repayment of Mass. Electric's
incentive payments if the customer purchases electricity from
an alternative supplier. Mass. Electric shall waive this
repayment obligation insofar as it would limit the customer's
ability to purchase electricity from an alternative supplier.
Nothing in this Settlement shall require Mass. Electric to
waive the requirement for repayment before the retail customer
may install on-site, non-
emergency generation for its own use or bypass Mass. Electric's
distribution system.
B. Implementation of Retail Access.
-------------------------------
This Settlement requires Mass. Electric to provide retail
access and implement the retail delivery rates in Attachment 2 on the
Retail Access Date, which is the later of January 1, 1998 or the date
on which retail access is made available to all customers of the
investor-owned utilities in Massachusetts. Under this Settlement,
this condition will be achieved when legislation, final regulatory or
court action, or unchallenged settlements with all other investor-
owned utilities are in place. In the event that retail access is not
yet available to all customers of investor-owned utilities by January
1, 1998, Mass. Electric in its sole discretion shall have the option
to accelerate the Retail Access Date under this Settlement, implement
retail access for its customers, and make the tariffs in Attachment
2 effective by providing the Department and the Parties with 90 days
advance notice in writing. Upon such notice, no further action by
the Department will be required for the tariffs to become effective.
III. Protect the Environment and Promote Conservation.
------------------------------------------------
The third element of the Attorney General's plan requires the
restructuring plans of utilities to protect the environment and promote
conservation. This Settlement complies with these requirements by requiring
significant emissions reductions from NEP's units, and by continuing funding
for demand side programs including clean renewable resources. The Parties
have agreed to the following terms:
A. Siting Reform
-------------
The parties agree to work cooperatively with all interested persons
to update the existing Energy Facilities Siting Board statute, G.L. C. 164,
Secs.
69G through 69R, to substitute for the existing need and least cost
requirements in the current statute a mechanism that maintains the existing
alternative technologies review (with its minimum environmental impacts
standard), maintains the existing alternative site review, and which gives
a preference for clean energy technologies, including demand-side management
and clean renewables, in the Commonwealth's energy supply. The parties will
make best efforts to reach agreement on proposed legislation reflecting
these changes on or before December 4, 1996, for filing with the Legislature
on that date. The Division of Energy Resources and the clients represented
by the National Consumer Law Center elect not to be signatories to this
paragraph.
B. Emissions Reductions.
--------------------
NEP or its successors in interest shall reduce the emissions of NOx
and SO2 from its Salem Harbor Units 1, 2, 3, and 4, and its Brayton Point
Units 1, 2, 3, and 4 by the amounts and on the schedule and terms set forth
in Attachment 10. Nothing in this Settlement shall affect NEP's obligations
to comply with environmental regulations lawfully imposed or restrict the
environmental regulators' authority to impose new environmental standards.
C. Conservation and Load Management and Renewables.
-----------------------------------------------
By July 1, 1997, Mass. Electric shall develop and file with the
Department annual budgets for demand side programs and clean renewables for
the period 1998 through 2001 designed at $66.7 million adjusted for any
outstanding balances from the ECS and conservation cost factors on the
Retail Access Date pursuant to Section I.B.2., above. At least 15 percent
of the amount budgeted for residential programs in any given year shall be
spent on low income residential programs, and the amount budgeted for low
income residential programs implemented through the existing weatherization
and fuel assistance program network shall be a minimum of $1.1 million in
1998, $1.3
million in 1999, $1.4 million in 2000, and $1.5 million in 2001 provided
that the performance of the network contractors is of satisfactory quality.
For each of the following years, funds shall be allocated within the $66.7
million budget to commercialize and develop fuel cells and a diverse group
of clean renewables in a manner approved by the Department, with
collaborative input, based on the following rates per kilowatthour times the
kilowatthours distributed by Mass. Electric. In 1998 the rate shall be
$0.00025; in 1999, $0.00055; in 2000, $0.00085; and in 2001, $0.00125 times
the kilowatthours distributed by Mass. Electric. The budgets shall also
include expenditures for the energy conservation service (ECS) program,
interruptible rate credits, Mass. Electric's demand side programs, the
installation of sophisticated metering and control systems, overhead costs,
and the incentive or bonus earned from programs implemented prior to the
Retail Access Date and to be earned on the demand side programs implemented
after the Retail Access Date pursuant to this paragraph. During any given
year Mass. Electric shall reconcile actual spending and earned incentive to
the approved budget, with a separate reconciliation for renewables and
demand side management, and shall carry forward any balance, positive or
negative, into the following year through an adjustment to the approved
budget.
While the Department will decide the appropriate level for ongoing
conservation, load management and renewables funding after December 31,
2001, Mass. Electric, the Attorney General, the Conservation Law Foundation,
the Northeast Energy Efficiency Council, the Union of Concerned Scientists,
and the Division of Energy Resources jointly recommend that evaluation of
funding after this date be informed by review of the then current market
barriers and experience gained with the competitive energy markets and
customer choice established in this Agreement; and should further be based
upon environmental and economic goals to be achieved by such funding
established by the
Department through appropriate proceedings. Ongoing commercialization
support for fuel cells and clean renewable technologies beyond December 31,
2001 should also be based on a goal of supplying at least four percent of
Massachusetts electricity kilowatthour sales from such new, clean
technologies by the end of 2007.
Generation technologies potentially eligible for commercialization
support, subject to Department review, shall include a diverse group of low
and zero emissions generation technologies with substantial long-term, cost-
effective regional production potential which utilize any of the following:
a) solar photovoltaic and solar thermal electric energy;
b) wind energy;
c) ocean thermal, wave and/or tidal energy;
d) fuel cells;
e) landfill gas; and
f) low emission advanced biomass power conversion technologies
like gasification using such biomass fuels as wood,
agricultural, or food wastes; energy crops, biogas, or organic
refuse-derived fuel.
While the Department will decide how funds shall be allocated based
on input from a collaborative process, the commercialization of clean
generating technologies should be accomplished in a least cost manner.
Optimal use should be made of competitive bidding in funding
commercialization activities. Commercialization activities shall also
attempt to promote as diverse a group of clean technologies as is practical
and ensure no single resource or technology dominates commercialization
efforts.
The Company will perform pilot projects in 1997 funded out of the
adjustment for cost of conservation and load management approved by the
Department for 1997 to assess the value of distributed clean generation,
conservation and load management technologies in reducing or avoiding
distribution system costs. Operational procedures to invest in clean
distributed generation and geographically-targeted DSM that lower
distribution service costs should be implemented as soon as is practical.
Clean distributed generation of 30 kilowatts (kW) or less to include
fuel cells, renewables and small scale cogeneration shall remain eligible
for "net metering" as provided for in existing Department regulations
regarding the buy- back of generated power at the retail rate.
IV. Protect Low Income Customers.
----------------------------
The fourth principle in the Attorney General's plan focuses on the
continued protection of low income customers. Mass. Electric's plan
complies with this principle by continuing the discount for Rate R-2
customers, assuring that all customers receive immediate rate reductions
through standard offer service, providing safety net service for low-income
customers that have no other alternative supplier (see Section I.B.2.,
above), and funding the residential low income demand side programs in
Section III.C. In addition, Mass. Electric shall implement a program to
protect against redlining by market suppliers by paying market suppliers of
Rate R-2 customers directly for electricity delivered up to the prices for
Standard Offer Service set forth in Section I.B.1.(d) and then including the
costs of such service in Mass. Electric's distribution bill to Rate R-2
customers. In this way, Mass. Electric, rather than the market supplier,
shall assume the risk of nonpayment from Rate R-2 customers.
Electric service is essential and should be available to all
customers. The restructured electricity industry should provide adequate
safeguards to assure universal service. Programs and mechanisms that enable
residential customers with low incomes to manage and afford essential
electricity
requirements will be maintained throughout the period of the settlement in
order to foster the goal of universal service.
V. Create a Fully Functioning Stable and Reliable Structure for the
Competitive Market.
----------------------------------------------------------------
The Attorney General's final principle focuses on the institutional
structure and protections necessary to prevent unfair and anti-competitive
conduct, and to maintain reliable and safe electricity supplies. These
industry structure issues focus on the region as a whole and the corporate
structure of Mass. Electric and its affiliates within the New England
Electric System.
A. Regional Reform.
---------------
The regional issues center on the formation of a regional transmission
group, an independent system operator and NEPOOL reform. Mass. Electric and
NEP have made proposals and participated actively in these issues. The
current version of NEP's NEPOOL Restructuring Proposal and proposal for a
regional transmission group is included as Attachment 11. NEP and Mass.
Electric shall continue to support at a minimum, the regional reforms set
forth in those documents, and shall consult with the parties to this
Settlement to develop mutually agreeable approaches to these issues that are
consistent with the terms of this Settlement. However, this Settlement is
not conditional upon the adoption, approval, or implementation of the
regional reforms listed in those attachments. Nothing in this Settlement
shall limit parties from advocating positions other than those in Attachment
11.
B. The Jurisdictional Separation Between Transmission and
Distribution.
------------------------------------------------------
In Order 888, FERC set forth a seven factor test for determining
whether facilities used to provide access to retail customers are subject
to the ratemaking jurisdiction of FERC under the Federal Power Act or of the
Department under state law. Attachment 12 provides a specific evaluation
of FERC's seven factors as applied to the separation of facilities between
Mass. Electric and NEP. The parties agree that all of Mass. Electric's
facilities, except for those that are paid for by NEP pursuant to the
Integrated Facilities Schedule III-B of Tariff 1, meet FERC's seven factor
test for designation as distribution facilities subject to the Department's
jurisdiction, and the parties support an affirmative recommendation by the
Department to FERC that the current separation between the transmission
facilities owned by NEP and distribution facilities owned by Mass. Electric
be adopted by FERC for ratemaking purposes as part of the approval of this
Settlement. However, approval of the jurisdictional separation of
facilities without change is not a condition of this Settlement.
C. The Transfer of Transmission Properties and Facilities.
------------------------------------------------------
NEP shall develop and file a plan with the Department by July 1, 1997
to separate its generating business from its transmission business.
D. Divestiture of NEP's Generating Business.
----------------------------------------
1. Consistent with the restructuring plan advanced by the Division
of Energy Resources, NEP agrees, subject to the receipt of all
required governmental approvals, to sell, spin off, or
otherwise transfer ownership of its generating business to a
nonaffiliated entity or entities, other than properties,
assets, and
entitlements classified to the transmission function. The
parties intend that the properties to be divested shall also
include (1) properties owned by New England Energy Inc.
(NEEI), (2) the generating units of Nantucket Electric, to the
extent they are not classified to the transmission function,
including any proceeds from the sale of emission credits, and
(3) The Narragansett Electric Company's ownership interest in
the Manchester Street Station. NEP shall develop and file by
July 1, 1997 a plan with the Department to implement
divestiture. This plan shall include in particularized detail
the generating business to be divested and all properties,
assets, and entitlements to be included in the divestiture and
shall be updated with an informational filing 90 days before
the date of divestiture. The Department shall review the plan
and shall issue a final order on the method of sale and the
reasonableness of the proceeds as part of its plan approval.
The divestiture shall be completed by six months after the
later of the Retail Access Date or the receipt of all
governmental approvals necessary for the transfer. If, for
any reason, the divestiture is not completed within three years
of the Retail Access Date, NEP shall file a report with the
Department explaining the delay.
2. As part of the divestiture, NEP will endeavor to sell, lease,
assign, or otherwise dispose of its minority shares of nuclear
units or entitlements on terms that will assign ongoing
operating costs and responsibility to a nonaffiliated third
party but may require NEP to retain the obligation for post-
shutdown, decommissioning, and site restoration for these units
or entitlements. NEP shall recover these post-shutdown,
decommissioning, and site restoration costs from Mass. Electric
through the contract termination charge, and shall credit any
net positive value or recover any payments associated with such
transaction in the reconciliation account of the contract
termination charge. The Parties agree that this approach is
reasonable and NEP is authorized to include it in its
divestiture plan. This plan will be subject to the approval of
the Nuclear Regulatory Commission ("NRC") to the extent
required by NRC regulations. In the event that NEP is unable
to sell, lease, assign, or otherwise dispose of its nuclear
units or entitlements, NEP shall include 80 percent of the
going forward costs of operating the units and entitlements,
including variable costs and capital additions, and 80 percent
of the revenues from kilowatthour sales from the units and
entitlements, in the reconciliation account and recover or
return any differences through its contract termination charges
to Mass. Electric. Within six months prior to implementing the
Performance Based Rate set forth in the prior sentence, NEP
will consult with the parties on a performance standard for
nuclear safety indicators and will file such performance
standard with a maximum potential credit for nonperformance of
$1 million. NEP's sales, if any, from its nuclear units and
entitlements shall only be made in the wholesale market to
nonaffiliates, provided that NEP shall retain the right to use
its minority shares of the units or entitlements to fulfill its
minimum, zero bid obligations under the standard offer.
As part of the divestiture, NEP will endeavor to sell,
assign or otherwise dispose of its power contracts on terms
that will assign ongoing contract payments to a nonaffiliated
third
party. In that event, changes to the above market payment to
power suppliers shall be reflected in the Reconciliation
Account. In the event that such contracts cannot be sold,
assigned, or otherwise disposed of, the power purchased from
those contracts shall be sold and the contract payments and
market value associated with the sale shall be reflected in the
Reconciliation Account. Such sales, if any, shall only be made
in the wholesale market to nonaffiliates, provided, however,
that NEP shall retain the right to use the contracts, including
that with Hydro Quebec, to fulfill its minimum, zero bid
obligations under the standard offer. Nothing in this
Settlement shall affect the rights of suppliers or NEP under
purchased power contracts.
3. In this proceeding, the Department and intervenors have
expressed the goals of attaining a market valuation of utility
stranded costs and creating a competitive market for supplying
electricity to consumers. The Department has expressed a
preference for voluntary divestiture of utility generation as
a means of achieving these goals. The Department has stated
that it "has the authority to approve the voluntary divestiture
of assets", but that it has "no explicit statutory authority
[to] order divestiture, nor is it likely to be implied."
(D.P.U. 95-30, August 16, 1995). NEP and Mass. Electric have
asserted that the Department lacks authority to order
divestiture, and would contest any effort by the Department to
do so. NEP and Mass. Electric have agreed, as part of this
Settlement, voluntarily to undertake such divestiture. In
exchange, and as consideration for this voluntary divestiture,
the parties to this Settlement, and the Department by its
approval of this Settlement, agree that NEP's
contract termination charges as set forth in Attachment 3 to
Mass. Electric and Mass. Electric's access charges as set forth
in Section I.B.1(c) for the period contemplated by this
Settlement are just and reasonable. Accordingly, and to give
effect to the reliance placed by the parties on the foregoing,
the Department shall treat the findings that such contract
termination charges and access charges are just and reasonable
as a final determination made after public notice and a full
investigation of the merits, and, in any future proceeding
brought by any person or party, or by the Department on its own
motion, shall accord such finding the full benefit of policies
of repose including, without limitation, the application of the
doctrines of res judicata, collateral estoppel, the filed rate
doctrine, the prohibition against retroactive ratemaking, and
the finality of contracts, it being the express intention of
the parties to prevent, as a matter of law and policy, the
Department or any other authority from: (a) revisiting the
issue of the justness and reasonableness of the contract
termination charges and the access charges; (b) reducing, other
than as set forth in Attachment 3, the amount of the contract
termination charges or the access charges; or (c) otherwise
limiting the right of NEP, its successors or assigns, or Mass.
Electric to charge and recover the contract termination charges
or the access charges set forth in this Settlement for any
reason prior to their recovery in full as contemplated by this
Settlement.
4. As a part of this Settlement, NEP is requesting financing and
other authorizations from the Department, including approval of
the assignment of its right to receive all or a portion of
contract termination charges from Mass. Electric to lender(s)
or other third parties. Mass. Electric is requesting
authorization from the Department to guarantee full payment to
lender(s) of all or a portion of access charges payable to NEP
and/or its assignee(s) and/or to fully indemnify NEP and/or its
assignee(s) in the event that payments to lender(s) are not
fully covered by access charges. In connection with these
financings, NEP and Mass. Electric may be required to make
irrevocable commitments to lenders in substantially the form of
Attachment 13. Approval of this Settlement by the Department
shall constitute authorization and approval by the Department
under the statutes listed in Attachment 13 including, but not
limited to, (1) NEP to complete the financing including the
assignments, (2) NEP and Mass. Electric to make these
irrevocable commitments, and (3) Mass. Electric to indemnify
NEP and/or its assignee. Approval of this Settlement shall
represent findings by the Department that (1) these irrevocable
commitments, indemnification, and assignments are just and
reasonable and in the public interest, and (2) the payments by
Mass. Electric and NEP related to these commitments and
indemnification are fully recoverable in retail delivery rates.
5. To facilitate the divestiture and valuation of NEP's units, the
parties agree that it is in the public interest for NEP or its
successors or assigns to be authorized to sell electricity at
market prices in the wholesale markets, and that NEP or its
successors or assigns shall be free to apply to become an
exempt wholesale generator pursuant to Section 32 of the Public
Utility Holding Company Act of 1935 and other Federal law,
rules and
regulations, and to designate each and every generating
facility and entitlement it owns as an eligible facility
pursuant to that statute. Approval of this Settlement by the
Department shall represent express findings by the Department
that it has sufficient regulatory authority, resources, and
access to books
and records to exercise its duties, and that the full
participation of NEP in the market and the designation of each
of its facilities as eligible facilities will benefit
consumers, is consistent with state laws, will not provide any
unfair competitive advantage by virtue of its status as a
facility owned or formerly owned by NEP, and is in the public
interest.
Nothing in this Settlement shall prevent an affiliate of
Mass. Electric from re-entering the generation business
following the completion of divestiture, and nothing in this
Settlement shall prevent affiliates of Mass. Electric from
marketing electricity, other energy sources, or energy services
to customers within or outside Mass. Electric's service
territory.
E. Standards of Conduct.
--------------------
As of the date of approval of this Settlement, Mass. Electric shall
adopt the standards of conduct set forth in Attachment 14. These standards
are recommended by Mass. Electric for approval by the Department as part of
this Settlement. However, approval is not a condition of the Settlement.
F. Customer Service Standards
--------------------------
Minimum residential customer service safeguards and protections for
consumers in their dealings with competitive power suppliers, as provided
by statute or the rules of the Department, should be maintained.
G. Unbundled Distribution Services
-------------------------------
Effective January 1, 2000, Mass. Electric shall file with the
Department a proposal to unbundle distribution services that can be provided
competitively, without impairing system reliability or other system
benefits.
VI. Successors and Assigns.
----------------------
The rights conferred and obligations imposed on any Signatory by this
Settlement shall be binding on or inure to the benefit of their successors
in interest or assignees as if such successor or assignee was itself a
Signatory hereto.
VII. Additional Provisions.
---------------------
A. This Settlement is the product of settlement negotiations. The
content of those negotiations shall be privileged and all offers of
settlement shall be without prejudice to the position of any party or
participant presenting such offer.
B. Except as expressly set forth above, this Settlement is
submitted on the conditions that it be approved in full by the Department
and that FERC approve in full the wholesale rate settlement included in
Attachment 3, and on the further conditions that if the Department does not
approve the Settlement in its entirety or FERC does not approve Attachment
3 in its entirety, the Settlement shall be deemed withdrawn and shall not
constitute a part of the record in any proceeding or used for any purpose.
C. Acceptance of this Settlement by the Department shall not be
deemed to restrain the Department' exercise of its authority to promulgate
future orders, regulations or rules which resolve similar matters affecting
other parties in a different fashion, provided, however, that approval of
this Settlement by the Department shall represent an express grant by the
Department of a waiver for Mass. Electric and NEP of any rule, requirement
or regulation promulgated by the Department as part of its proceeding on
utility restructuring that is inconsistent with the terms of this Settlement
and the wholesale rate settlement included in Attachment 3. Nor shall this
Settlement be deemed to restrain the authority of the General Court to enact
any law which would resolve similar matters affecting other parties in a
different fashion.
D. The Department approval of this Settlement shall endure so long
as is necessary to fulfill this Settlement's objectives. In the event of
future regulatory or legislative actions which may render any part of this
Settlement ineffective, Mass. Electric and NEP shall nevertheless be held
harmless and made whole.
Respectfully submitted,