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CELCo tariff overstated loss figures, MIT lawyer says

Attorneys for MIT said last week that the first-in-the-nation "stranded cost" tariff against MIT's new cogeneration plant was based on inflated revenue figures that are at least three times what the Cambridge Electric Light Co. (CELCo) now states in an affidavit to be its maximum loss of revenue.

The charge was based on CELCo statements that it would need an average rate increase of more than six percent on other customers to make up for the loss of MIT revenues. However, in its March 4 affidavit to the Department of Public Utilities (DPU), CELCo stated the revenue loss was only two percent.

The stranded cost or "customer transition charge" amounts to a penalty of $3,500 a day ($1.3 million a year) for power MIT does not receive. MIT attorney John DeTore said the figures revealed in a recent CELCo affidavit call into question the entire factual basis of CELCo's case that a customer transition charge was needed. MIT has kept CELCo informed throughout the 10-year planning process for the MIT plant.

MIT became the first cogeneration plant in the nation to be penalized with a stranded-cost charge last September 29, when the Massachusetts DPU approved CELCo's request for a "customer transition charge" of $1.3 million a year for an indefinite period, subject to review after CELCo and its affiliate, COM/Electric, submit their proposed rates in August under the statewide restructuring of the electric power industry.

The idea behind the charge is to allow a utility to recover, from the owners of a new cogeneration plant, the out-of-pocket "stranded cost" of power commitments the utility allegedly made in anticipation of that customer continuing to get its power from the utility, and which the utility cannot otherwise sell or avoid incurring.

"The stranded cost tariff written by CELCo is an outrage. It is almost pure profit to CELCo," said Mr. DeTore, an attorney with Rubin & Rudman of Boston. "Massachusetts law requires that electric rates, whether for apartment dwellers or a college, must be `just and reasonable.' This customer transition charge which CELCo wrote does not meet that standard."

MIT filed a response on March 12 in its petition to the DPU regarding the legal interpretation of the customer transition charge.

In a March 13 interview, Mr. DeTore said CELCo's affidavit "demonstrates that there will be no appreciable impacts on rate payers in granting MIT's petition." CELCo's worst-case scenario "contains several dubious assumptions" which significantly overstate even the potential 2.06 percent revenue loss, he added.

For example, CELCo's rate specialist acknowledges that growth of electric use will increase its revenues by $1.6 million. But contrary to a February 16 DPU decision which said all such increases should offset the loss, the CELCo rate specialist said only 32 percent of the increase should offset CELCo's alleged loss from the MIT plant. In that decision, the DPU denied a stranded-cost charge sought by the Hudson Light & Power Dept. because it failed to show its actual costs, Mr. DeTore said.


CELCo, while not detailing its power commitment costs, sought the customer transition charge on the basis of company president Russell Wright's testimony that the loss of the MIT plant "would cause rates of remaining customers to increase by more than six percent." That estimate was cited by DPU Commissioner Janet Besse in the September 29 decision allowing the stranded-cost charge.

"MIT submits that an adjudication of this issue would likely result in a demonstration of minimal, if any, revenue loss to the company," said Mr. DeTore. He estimated that without the stranded-cost charge, the revenue loss would be only two-tenths of one percent at most.

"The question is how much CELCo will enrich itself at MIT's expense," he said. An MIT affidavit shows that MIT will pay about $1.2 million more a year if the DPU denies its petition dealing with the issue of tariff interpretation, which was not resolved in the original case. "Under any reasonable scenario, the company will only make an additional profit from MIT. Most likely, the company will reap the benefits of the entire $1.2 million at MIT's expense. This will increase the company's rate of return on equity ($6 million last year) by approximately 20 percent. Surely, this is not what the DPU intended in its order," he said.

MIT is also in the process of appealing the customer transition charge to the Massachusetts Supreme Judicial Court, where it may be determined whether the amount is excessive, according to Victoria V. Sirianni, MIT director of Physical Plant.

A version of this article appeared in MIT Tech Talk on March 20, 1996.

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