Mass. DPU Rejects Unitil REC Cost Recovery Proposal as Not Competitively Neutral to Retail Suppliers

The Massachusetts DPU rejected a proposed cost recovery mechanism from Fitchburg Gas & Electric (Unitil) regarding RECs to be procured under a long-term REC contract, finding that, "because even a small reduction in basic service prices could result ... the Company's proposed cost recovery mechanism is not competitively neutral with respect to basic service customers and competitive supply customers." (11-30)

Similar to other distribution utilities, Unitil proposed to apply RECs procured under the long-term contract to its basic service RPS obligation. The costs of the RECs were to be paid only by basic service customers.

However, rather than determining the price for the retained RECs charged to basic service customers by using the weighted average price paid by Unitil to third-party suppliers for RECs procured through competitive solicitations to meet the company's RPS obligation (as has been approved by the DPU elsewhere), Unitil proposed that basic service customers would pay the actual contract cost of the RECs, which is expected to be lower than the costs of RECs purchased through competitive solicitations.

While only basic service customers would benefit from the lower-cost RECs procured under the long-term contract, all distribution customers would be charged for the remuneration which is statutorily required to be paid to Unitil as a condition of taking on the risk of the long-term contract.

Because distribution customers would not share in the benefit of the projected below-market price of RECs but would bear the cost of remuneration, the DPU found that the cost recovery proposal is not competitively neutral, and rejected it.

The DPU instead ordered Unitil to adopt the cost recovery mechanism adopted with respect to long-term contracts at the other utilities, under which the price charged to basic service customers for the retained RECs is determined using the weighted average price paid by the utility to third-party suppliers for RECs procured through competitive solicitations to meet the utility's RPS obligation. Distribution customers shall be credited (or charged) the difference between the contract REC costs and the market price for RECs. Finally, distribution customers shall be charged the cost of remuneration.