DEREGULATION UPDATE

Massachusetts

Overview

On Nov. 25, 1997, Massachusetts Governor Paul Cellucci signed House Bill 5117 into law to deregulate the statefs electric power industry. Some industry officials consider it to be a national model for community control, sustainability, and consumer protection.

On March 1, 1998 Massachusetts will become one of the first states to implement retail competition. All customer classes will receive mandatory discounts of 10 percent, followed by an additional 5 percent rate reduction in September 1999.

The law gives cities, towns or counties the authority to automatically aggregate for their communities, including residences or businesses that donft find a supplier of their own. Consumers can opt out of the local governmentfs group to be included with smaller community groups or choose their own supplier. The result will be demand in sufficient volume to command leverage on the market.

The New Face of Utilities

The act requires each electric company to separate its competitive generation and retail sales functions, so that the former electric company ultimately provides only two primary services: Basic service and distribution service (the local wires service needed to deliver electricity from the transmission network to the final consumer).

After Jan. 1, 2000, the Department of Telecommunications and Electricity (DTE) and the Division of Energy Resources will begin studying whether metering, meter maintenance and testing, customer billing, and information services should be unbundled and provided through a competitive market. This study also will include an investigation and review of the creation of exclusive distribution territories.

If the department concludes that action on either of these issues is necessary, it has until Jan. 1, 2002 to file its recommendations and draft legislation to implement those changes.

Customer Choice Implementation

To ensure that all customers have an unimpeded choice of suppliers, the DTE mandates that each distribution company must establish:

• Procedures for customers to choose their supplier of generation service;
• Procedures to assure that service is available to all customers and suppliers;
• A rate schedule that is available to all customers and suppliers;
• Procedures to track energy and power flows within the companyfs distribution system; and
• Average load profiles provided on a timely basis to customers and suppliers.

Recovering Stranded Costs

The act also addresses the stranded cost issue. Utilities will be allowed to recover all of their legitimate stranded costs after an audit board review. Any electric utility seeking to recover transition costs must mitigate those costs. If a utility decides not to sell its non-competitive assets, the DTE will determine the market value of those generation facilities and negotiate contracts for recovering costs through transition charges.

Information on Aggregation

The Massachusetts Municipal Association, a statewide organization of cities and towns, has formed the largest energy aggregation in the state. The purchasing cooperative plans to solicit proposals from suppliers across the country to get deep discounts on electricity for the cities and towns.

In addition to electric power, the cooperative will provide gas, energy efficiency, power quality services, green energy and ancillary services.

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