Massachusetts General Laws
Chapter 164 - Manufacture and Sale of Gas and Electricity
Section 1g - Transition Costs and Charges

Section 1G. (a)(1) The department shall, in accordance with the provisions of this section, identify and determine, upon application by a distribution company and the applicable electric company, those costs and categories of costs for generation-related assets, investments, and obligations, as determined pursuant to subsection (b), which may be allowed to be recovered through a non-bypassable transition charge authorized to be assessed and collected in accordance with the provisions of subsection (e). The department shall conduct a comprehensive audit of each distribution company and applicable electric company in order to assure substantial compliance with the provisions of this section; provided, however, that said audit shall be conducted in an expeditious manner. The department shall be authorized to contract for such services through an auditing or accounting company or organization which is fully independent of any such distribution company or applicable electric company. The department shall make a finding that any agreement filed by a company under this section is substantially consistent with an initial audit before allowing the recovery of transition costs by an electric company doing business in the commonwealth to commence. For electric companies without an agreement, transition costs shall not be reviewed or approved by the department until the department completes an initial audit of electric company records maintained on file at the department. Such audit shall include an accounting of all costs eligible for recovery in accordance with the provisions of this section. The department shall complete the comprehensive audit no later than December 31, 1998. No amount shall be collected by a distribution company through such non-bypassable transition charge unless such amount has been approved by the department in accordance with the provisions of this section.
(2) Notwithstanding any other provision of this section, the department shall review a financing order periodically, at a minimum not less than every 18 months from the inception of the original financing order, to determine if the amount of reimbursable transition costs amounts proved to be accurate. Such review shall be limited to a comparison of assumed costs and assumed mitigation to the actual costs determined through actual mitigation. If the amount of reimbursable transition costs amounts previously included in a financing order exceeds the correct amount of the reimbursable transition costs amounts, then the electric company shall provide ratepayers with a uniform rate credit based on usage that in total equals the amount of the excess including carrying costs or pay to the financing entity an amount equal to such excess and, provided that all reserve funds are fully funded, the financing entity shall use or escrow such funds to redeem or otherwise reduce the amount of the principal of the electric rate reduction bonds; provided, however, that any such transfers or adjustments shall not affect the rate of transition charges, the collection of such charges, or the transfer to the bondholder trustee of the charges which have been collected.
(b)(1) The department may allow a distribution company, which qualifies pursuant to the requirements of subsection (c), and upon the commencement of mitigation efforts as required by subsection (d), to collect a charge for net, non-mitigable past investment commitments incurred prior to January 1, 1996, by the applicable investor-owned electric company during its operations within a regulated electricity system which, subject to the conditions included in this section, are classified to be transition costs in accordance with the provisions of this section. The department shall develop guidelines and parameters to identify and determine which transition costs may be recovered by collection of a transition charge, which shall include only the following:
(i) the amount of any unrecovered fixed costs determined by the department for those costs and categories of costs for generation-related assets and obligations to have been prudently incurred and associated with producing electricity from existing generation facilities which were being collected in department-approved rates on January 1, 1997, and that become uneconomic as a result of the creation of a competitive generation market, in that these costs may not be recoverable in market prices in a competitive market;
(ii) the department-authorized recovery for nuclear entitlements by those electric companies which have divested their non-nuclear generation facilities pursuant to section 1A and those previously incurred or known liabilities incurred for post-shutdown and decommissioning costs associated with nuclear power plants which are not recoverable from the decommissioning fund as administered by the federal nuclear regulatory commission; provided, however, that the department shall monitor the amount to be recovered to assure that it shall not exceed the actual total costs necessary to effect shutdown and decommissioning;
(iii) the unrecovered amount of the reported book balances of existing generation-related regulatory assets, as approved by the department; provided, that, for the purposes of this clause, the term ''regulatory assets'' shall refer to the unrecovered balance of deferred costs that otherwise would have been recognized in the period in which they were incurred but have been specifically approved for deferral and later recovery by the department; and
(iv) the amount by which the costs of existing contractual commitments for purchased power exceeds the competitive market price for such power, upon the reaffirmation, restructuring, renegotiation, or termination of such contracts, or the liquidated payments associated with the disposal of these contracts in a department-approved divestiture plan, as determined in accordance with the provisions of paragraph (2) of subsection (d) of this section.
(2) In addition to the aforementioned amounts of transition costs allowed to be recovered pursuant to clauses (i) to (iv), inclusive, a distribution company may be allowed to recover through the transition charge certain costs incurred after January 1, 1996, which shall include only the following:
(i) in order to mitigate potential negative impacts on utility personnel directly affected by electric industry restructuring, costs associated with employee-related transition costs for personnel performing services in connection with services provided by electric utilities, as approved by the department, including costs incurred and projected for severance, retraining, early retirement, outplacement, supplemental unemployment benefits, and related expenses for the personnel; provided, that said costs result either from the execution of agreements reached through collective bargaining for union personnel or from the company's programs and policies for non-union personnel; provided, however, that there shall be no recovery for employee-related transition costs associated with officers, senior supervisory employees, and professional employees performing predominantly regulatory functions; and provided, further, that these costs so incurred and approved by the department shall be eligible for recovery only until March 1, 2005;
(ii) any payments or payments in lieu of taxes made pursuant to section 38H of chapter 59; and
(iii) any costs to remove and decommission retired structures at fossil fuel-fired generation facilities required pursuant to paragraph (2) of subsection (b) of section 1A.
(3) To the extent that the department does allow a distribution company to collect a transition charge under this subsection (b), for purposes of the computation of any carrying costs that the department may determine to allow, the cost of equity component of any such computation shall be determined as follows:
(a) to the extent that the cumulative average of the transition charge is no more than $0.01 per kilowatt-hour, the company may collect total revenue under that transition charge sufficient to provide for carrying charges computed with a cost of equity capital no more than one hundred basis points above the cost of common equity capital determined by the department in the most recent adjudicated base rate proceeding under section 94 of this chapter prior to December 31, 1996 that involved an electric company;
(b) to the extent that the cumulative average of the transition charge is more than $0.01 but not more than $0.02 per kilowatt hour, the company may collect total revenue under that transition charge sufficient to provide for carrying charges computed with a cost of equity capital no more than the rate set forth in subsection (a), less one basis point for each one tenth of one mil by which the cumulative average transition charge is more than $0.01; and
(c) to the extent that the cumulative average of the transition charge is more than $0.02 the company may collect total revenue under that transition charge sufficient to provide for carrying charges computed with a cost of equity capital no more than the rate set forth in subsection (a), less 100 basis points, and less an additional two basis points for each one tenth of one mil ($0.0001) by which the cumulative average transition is more than $0.02 above the market rate for power provided under comparable terms.
(d) provided that in no event shall the department determine to allow any carrying costs for any period beyond the year 2009 on any unamortized balance of costs allowable as transition costs under clauses (i) and (ii) of paragraph (1) of subsection (b).
(c)(1) The department may, in accordance with the provisions of this subsection, authorize a distribution company to recover eligible transition costs if the following conditions are met:
(i) the company has filed on or before March 1, 1998, a plan to provide all of its retail customers the ability to purchase electricity from an alternative supplier or generation company as of March 1, 1998;
(ii) the distribution company, through the applicable electric company, has developed and will implement a plan to divest itself of its portfolio of all non-nuclear generation assets by August 1, 1999, pursuant to subsection (b) of section 1A;
(iii) the applicable electric company, pursuant to subsection (d) of this section, has developed and will implement a plan for all required, necessary, and reasonable mitigation methods to reduce potential transition costs; and
(iv) the plan formulated pursuant to clause (i) herein provides a standard service transition rate and rate reduction as required pursuant to section 1B.
(2) A distribution company is hereby authorized to attain the additional rate reduction required pursuant to said section 1B through the use of securitization, subject to the provisions of section 1H. A distribution company's use of securitization shall be approved by the department and shall be subject to the achievement of mitigation efforts satisfactory to the department pursuant to subsection (d); provided, that if a company chooses to achieve any such required rate reduction through securitization, the company shall demonstrate to the department that said rate reduction is not financially viable without the use of securitization.
(3) If, after the submittal of a restructuring plan to the department pursuant to section 1A, a distribution company claims that it is unable to meet a price reduction of at least 10 per cent reduction pursuant to subsection (a) of section 1A and subsection (b) of section 1B it shall petition the department to explore any and all possible mechanisms and options within the limits of the constitution which may be available to the department to achieve compliance with the provisions of this section, including, but not limited to, the department may authorize an alternate generation company or supplier to provide the standard offer service package as set forth in subsection (b) of section 1B if said alternate service is determined by the department to be in the public interest and necessary to achieve said required rate reductions for its consumers.
(4) If, after the submittal of a restructuring plan to the department pursuant to section 1A, a distribution company claims that it is unable to meet a price reduction of at least 15 per cent reduction pursuant to subsection (b) of section 1B it shall petition the department to explore any and all possible mechanisms and options within the limits of the constitution which may be available to the department to achieve compliance with the provisions of this section, including, but not limited to, the department may authorize an alternate generation company or supplier to provide the standard offer service package as set forth in subsection (b) of section 1B if said alternate service is determined by the department to be in the public interest and necessary to achieve said required rate reductions for its consumers; provided, however, that the department may, upon petition of a company unable to comply with the rate reduction required under subsection (b) of section 1B, certify that the petitioner is eligible to receive funds from the Ratepayer Parity Trust Fund, established pursuant to section 62 of chapter 10. The department shall, in cooperation with the secretary of administration and finance, promulgate regulations to establish a procedure to disburse monies appropriated from said trust fund. The department shall consider and may adopt proposals submitted by other parties, including but not limited to the office of the attorney general, outlining means and mechanisms by which a company could further mitigate its assets in order to comply with said rate reduction of at least 15 per cent as referenced in subsection (b) of section 1B; provided, however, in the event a company claims that it is unable to meet at least the 15 per cent reduction as set forth in subsection (b) of section 1B, the department shall work with said company to explore and implement all methods to achieve the required 15 per cent reduction; and provided, further, that said company shall be excluded from the provisions of paragraph (2) of subsection (b) of section 1A or subsection (c).
(d)(1) Any electric company seeking to recover transition costs pursuant to this section shall, in accordance with the provisions of this subsection, mitigate any such transition costs. Prior to the approval by the department of any plan allowing for such recovery, the department shall issue an order finding that the electric company has taken all reasonable steps to mitigate to the maximum extent possible the total amount of transition costs that will be recovered and to minimize the impact of recovery of such transition costs on ratepayers in the commonwealth. Mitigation efforts which an electric company shall engage in shall include, but not be limited to, the following: (i) the divestiture of non-nuclear generation facilities in accordance with the provisions of section 1A; provided, however, that all net proceeds from such divestiture pursuant to said section 1A shall be dedicated to reducing such company's total transition cost amount and the transition charge allowed to be assessed and collected by a distribution company pursuant to this section; (ii) the electric company, in accordance with the provisions of paragraph (2), shall engage in good faith efforts to renegotiate, restructure, reaffirm, terminate, or dispose of existing contractual commitments for purchased power which exceed the competitive market price for such power as determined in accordance with said paragraph (2); provided, however, that the department shall not begin to review a registration application filed pursuant to paragraph (1) of section 1F until such company with a purchased power contract with a price determined to be above-market commences such good faith efforts with such electric company as required herein; and provided further, that the department shall promulgate rules and regulations which shall establish a standard for good faith; (iii) an examination and analysis of the historic level of performance over the life of such contractual commitments for purchase power, regardless of whether or not they exceed the competitive market price; (iv) upon the determination of an amount of transition costs, further mitigation shall include netting against such above-market costs any below market assets other than those associated with distribution or transmission which are owned by the company; (v) except to the extent that such matters are provided for in collective bargaining agreements or asset purchase agreements negotiated prior to this act, or amendments to such previously negotiated asset purchase agreements, by obtaining written commitments that purchasers of divested operations will offer employment to the impacted employees who were employed in non-managerial positions to provide services for the divested operations at any time during the three month period prior to the divestiture, at levels of wages and overall compensation not lower than the employees' prior levels for a period of six months; and (vi) any other mitigation and analytical activities which the department determines to be reasonable and effective mechanisms for reducing identifiable transition costs.
(2)(i) In order to mitigate any costs in excess of the projected market value of power associated with purchased power contracts approved by the department on or by December 31, 1995, except with respect to facilities which burn trash to generate electricity, electric companies and the sellers under such contracts shall make good faith efforts to renegotiate those contracts which contain a price for electricity which is above-market as of March 1, 1998, in order to achieve reductions in the transition charges, authorized to be assessed pursuant to subsection (e), which are attributable to any such contract, as determined by the department. For the purposes of this chapter, the standard of good faith shall not require either party to agree to a proposal or require the making of concessions, but shall require active participation in negotiations and a willingness to make reasonable concessions in order to equitably mitigate stranded costs and to provide justification for proposals and a sincere effort to reach agreement. Beginning July 1, 1998, and at least annually thereafter, the department shall continue to review said aforementioned purchased power contracts in order to determine if such contracts contain a price for electricity which is above-market as of the date of review. If such contract is determined to be above-market, the electric company and the seller under such contract shall, in accordance with the provisions of this chapter, attempt to make a good-faith effort to renegotiate such contract in order to achieve further reductions in the transition charge. If an electric company has as a part of a department-approved divestiture plan assigned such contract to a buyer having adequate financial resources, the electric company shall have met its obligations under this paragraph. Furthermore, if a seller under such contract has consented to assignment of the existing contract to the buyer and has agreed to release the electric company from its obligations under such contract, the seller shall have met its obligations under this paragraph.
(ii) Upon a finding by the department that a negotiated contract buyout or other modification to the terms and conditions of such contracts is likely to achieve savings to the ratepayers and is otherwise in the public interest, the remaining amounts in excess of market value associated with such contract shall be included in the transition charges, which are authorized to be assessed pursuant to said subsection (e) and upon commencement of mitigation efforts as required herein. Upon a finding by the department that a seller has made a bona fide offer for a contract buyout or modification which is likely to achieve ratepayer savings and is otherwise in the public interest, which offer has been refused by the purchasing electric company, only those amounts in excess of market value associated with such contract that would not have been mitigated by such offer shall be included in the transition charges authorized pursuant to said subsection (e), and the seller shall be deemed to have met its obligation to negotiate in good faith. In order to compel such negotiations, (a) electricity companies are hereby authorized to use securitization, only to the extent allowed pursuant to section 1H, to finance the costs of buydowns or buyouts of said contracts, and (b) the department shall not begin to review a licensure application filed pursuant to paragraph (1) of section 1F until such time as the seller under a purchased power contract with a price determined to be above-market has commenced good faith efforts in accordance with the standard for good faith set forth in subparagraph (i) of paragraph (2). The department is hereby authorized to approve the recovery of such costs associated with such contract buydowns or buyouts. At least every 30 days, said companies shall report the status of such renegotiations to the department.
(3) An electric company which fails to commence and complete the divestiture of its non-nuclear generation assets shall not be eligible to benefit from the securitization provisions and the issuance of electric rate reduction bonds pursuant to section 1H, subject to determination by the department. An electric company, which chooses under section 1A not to divest all of its non-nuclear generation facilities shall subject its nuclear and non-nuclear generation facilities and purchased power contracts to a valuation pursuant to said section 1A under which the department shall determine the market value of such generation facilities and contracts. The department shall require a reconciliation of projected transition costs to actual transition costs by March 1, 2000, and for every 18 months thereafter through March 1, 2008, or the termination date of any transition charge allowed to be assessed pursuant to subsection (e).
(4) Securitization shall not be made available pursuant to section 1H unless the electric company proves to the satisfaction of the department the following: (i) it has fully mitigated, as defined in section 1, the related transition costs, including but not limited to, as applicable, divestiture of its non-nuclear generation facilities pursuant to section 1A, renegotiation of existing power purchase contracts, and the valuation of assets of the company, including, but not limited to, rights-of-way, property, and intangible assets; (ii) savings to ratepayers will result from securitization; (iii) all such savings derived from securitization shall inure to the benefit of ratepayers; (iv) except to the extent that such matters are provided for in collective bargaining agreements or asset purchase agreements negotiated prior to this act, or amendments to such previously negotiated asset purchase agreements, it has obtained written commitments that purchasers of divested operations will offer employment to the impacted employees who were employed in non-managerial positions to provide services for the divested operations at any time during the three month period prior to the divestiture, at levels of wages and overall compensation no lower than the employees' prior levels; and (v) the electric company demonstrates that it has established, with the approval of the department, an order of preference for use of bond proceeds such that transition costs having the greatest impact on customer rates will be the first to be reduced by those proceeds.
(e) The department is hereby authorized and directed to allow any approved transition costs to be recovered from ratepayers through a non-bypassable transition charge collected by the distribution company providing transmission or distribution service to such ratepayers. For each electric company submitting requests to the department for the recovery of transition costs, the department shall impose a cap upon the level of the transition charge, which shall remain in effect until altered upon action by the department; provided, however, that in no instance shall such charge be adjusted to reflect inflation. Any transition charge collected shall be used for the specific purposes of paying for transition costs as identified pursuant to the provisions of subsection (b) of this section. Amortization of transition cost recovery may be accelerated relative to recovery of such costs assumed in current rates, but in no case shall such amortization result in an increase in rates for any class of customer of an electric company over rates in effect as of December 31, 1997, for that company. The department shall, on a case by case basis, determine the date upon which there shall be no allowance for transition cost recovery in any rate charged by any transmission or distribution company.
(f) The department shall, in writing, notify the joint committee on telecommunications, utilities and energy of the general court within one business day upon the approval and initiation of a transition charge to any electric company pursuant to the provisions of this section. Subsequent to such notification, said committee may conduct a public hearing or hearings on such a determination for the purpose of updating the general court on the methodology used by the department to determine allowable transition cost recovery and the results of mitigation measures agreed to by electric companies to lower their transition costs.
(g) Effective as of March 1, 1998, if the utility and the department have received at least a six months notice of the customer's plans to install on-site cogeneration equipment, renewable energy technologies, fuel cells, or to purchase electricity through cogeneration equipment, a customer that reduces purchases of electricity through the operation of, or purchases from, on-site generation or cogeneration equipment, shall not be subject to an exit charge if (i) such customer provided less than or equal to 10 per cent of the annual gross revenues collected by its previous service provider in the year prior to the customer leaving the system after the retail date established in this bill; provided, however, that in the event that two or more customers who, at any time within a 36–month time period, leave such system, after the retail access date established in this bill, and represent together the aggregate of greater than or equal to more than 10 per cent of the annual gross revenues collected by such previous service provider in the year prior to the initial exit from the system, all such customers shall be subject to an exit charge based upon that portion of the annual gross revenues which is over the 10 per cent limit; and provided, further, that such fee shall be prorated amongst such customers who have left or are leaving on the system based upon the proportion of annual gross revenues each customer represented within the total amount of gross revenues being subtracted from the service provider's system; or (ii) the customer reduces purchases through the operation of, or purchases from, on site renewable energy technologies, fuel cells, or cogeneration equipment with a combined heat and power system efficiency of at least 50 per cent, based upon the higher heating value of the fuel used in the system; or (iii) the customer reduces purchases through the operation of, or purchases from, an on site generation or cogeneration facility of 60 kilowatts or less which is eligible for net metering. Except as provided in existing contracts or tariffs, the department and the utility shall not require more than six months notice of the customer's plans to install said equipment. Any such exit charge shall be payable to the customer's distribution company for the benefit of other customers. Such exit charge may be equal to but no greater than the expected value of the access charge payments the customer would have paid out but for the operation of such equipment and shall be determined by the department based upon federal and state law, any applicable judicial determinations, and criteria promulgated by the department through rules and regulations. Notwithstanding clauses (i) to (iii), inclusive, if the total kilowatt hour usage in any service territory falls below usage levels following the installation of such on-site generation or cogeneration equipment, and the department determines that the aggregate reduction in future purchases of electricity and transition charge payments resulting from customers' installing such equipment will have a significant adverse impact on electric bills to be paid by other customers in said distribution company's territory during the remaining period of transition cost recovery, then the department may order that an exit charge shall be paid on such terms as determined by the department based upon criteria promulgated herein and through rules and regulations. The department shall issue a report on July 1, 1999 and every year thereafter, for the period of transition cost recovery, relative to degree of impact on the aggregate reduction of the electricity and impact on transition charges due to implementation or use of cogeneration systems, fuel cell and renewable energy technologies.
(h) If an electric company or distribution company challenges through the administrative or judicial process a determination of the department relative to an amount or particular component of transition costs allowed or disallowed to be recovered pursuant to the provisions of this section, or if an electric company or distribution company challenges through the administrative or judicial process the manner or mechanism the department utilizes to determine an amount or particular of such transition costs, such challenge shall not prevent the department from implementing any provision of chapter 25, 25A or 164 as it relates to said electric company or distribution company or any other electric company or distribution company not involved in the dispute. During the period of time such challenge is in effect until a resolution of such is attained, said electric company or distribution company shall continue to collect any and all monies so authorized to be collected and maintain the amount under dispute in an escrow account. Once a resolution of such challenge is attained, the department shall, if necessary, make any adjustment upwards or downwards to any charge such electric company or distribution company is allowed to collect pursuant to section 1H, and such electric company or distribution company shall dispose of such monies in said escrow account accordingly.
(i) The department is hereby authorized and directed to promulgate rules and regulations to carry out the provisions of this section.

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