Massachusetts Court Strikes Down DPU Order Allowing Electric Utilities To Procure Gas Pipeline Capacity To Assist Power Generation

The Massachusetts Supreme Judicial Court has vacated the Massachusetts DPU's order allowing electric utilities to procure, via ratepayer-backed, long-term contracts, natural gas pipeline capacity to ease pipeline constraints and support power generators' access to gas supplies

The SJC found that the DPU's order is inconsistent with the state's electric restructuring statute, because, among other reasons, the DPU's order would expose ratepayers to the types of financial risks from which the Legislature sought to protect them.

While the SJC's affirmation of the restructuring act is a good precedent to have on the books, its impact on retail market issues(notably default service) is limited, because areas in which utilities are intruding on the completely restructured market (solar generation ownership, long-term power supply contracts) are the result of specific legislation authorizing such actions, and not the DPU's own initiative.

In any case, the SJC said that the DPU's reasoning that it is authorized to order the electric utilities to procure long-term gas capacity, "is untenable in light of the 1997 restructuring act, which amended G. L. c. 164."

"[W]e determine that the department's approval of ratepayer-backed, long-term contracts by electric distribution companies for gas capacity contradicts the fundamental policy embodied in the restructuring act, namely the Legislature's decision to remove electric distribution companies from the business of electric generation," the SJC said

While the DPU's gas pipeline order did not involve utility development of power plants, the SJC stressed the fuel procurement and management is an integral component of the generation business

The SJC cited prior DPU orders exempting the restructured electric distribution companies (EDCs) from pre-restructuring statutory fuel management and planning requirements as, "recognition that electric distribution companies were leaving all aspects of the generation business, including not only power plant construction, but also the planning and fuel management aspects of generation."

"[I]n restructuring the electric industry by removing electric distribution companies from the business of electric generation, the Legislature 'shifted the risks of generation development from consumers to generators' to 'insulate[] [consumers] from construction, operational, and price risks ... inherent in commodity rate regulation," the SJC said

"In this case, the department's interpretation of § 94A not only would permit electric distribution companies to purchase resources related to supply of electric generation (in this case, natural gas capacity), but also would allow the department to regulate such activity and to shift the associated costs to ratepayers. We agree with the plaintiffs that such activity would undermine the main object to be accomplished by the restructuring act, i.e., to move from a regulated electricity supply market to an open and competitive market for power," the SJC said

"We agree with the plaintiffs that if the restructuring act does not allow electric distribution companies to finance investments in electric generation, it cannot be reasonably interpreted to permit those companies to invest in infrastructure unrelated to electric distribution service," the SJC said

SJC-12051