In a case with national implications for the deregulation of electricity rates, the Massachusetts Supreme Judicial Court today ruled favorably for the Massachusetts Institute of Technology in the battle over the impact of deregulation on cogeneration plants.
The court voided the electric rates ruling in September 1995 by the Massachusetts Department of Public Utilities involving MIT and the Cambridge Electric Light Company (CELCo). The unprecedented ruling caused a national controversy when the DPU compelled MIT to pay a "customer transition charge" of $1.3 million a year ($3,500 a day) to CELCo because MIT started up a cogeneration power plant and withdrew much of its business from CELCo. MIT still uses CELCo power for about a quarter of its campus, and the cogeneration plant is powered by COM/Gas, which like CELCo is a subsidiary of COM/Electric.
The court said the fact-finding in the DPU case was insufficient to disprove the validity of MIT's objections that the DPU had acted retroactively and arbitrarily, that it had failed to follow its own precedents and that it had miscalculated the rate. The court remanded the case to the DPU for further findings.
The court said it was unable to determine "whether the stranded costs for which the company now seeks relief were prudently incurred. We note that the Attorney General raised this concern before the department, as did the city (Cambridge)." It added the DPU "seems to have accepted the company's argument, without addressing the specific challenges to its claim made by MIT, the Attorney General, or the city."
"MIT has really persevered in this case," John DeTore of Boston, MIT's attorney, said today. "MIT has stated from day one that the charge was unfair, particularly in light of Federal regulations encouraging cogeneration because of its environmental benefits. The Court really vindicates our concerns. The court agreed with nearly all the arguments we presented," DeTore said.
CELCo claimed that MIT's cogeneration plant, which generates both electricity and steam, would cost CELCo $6 million, while an MIT expert witness testified in 1996 that the cost would be only $275,000. "That figure of $275,000 may be high now," said DeTore. He noted that MIT energy is no longer excess energy for CELCo.
Peter Cooper, assistant director for utilities in MIT's Physical Plant Department, explained, "The DPU will have to decide this in a far different atmosphere than applied two years ago. MIT's 20 megawatt cogeneration plant is a needed supplement to CELCo's power supply, which has lost 60 megawatts due to the shutdown of nuclear power plants in Maine and Connecticut."
The court agreed with an earlier Federal Energy Regulatory Commission ruling that the "customer transition charge" did not violate the Federal energy law.
MIT's 20 megawatt plant is powered by a natural gas turbine engine to produce electricity. The resulting hot exhaust gases are used to produce steam in a heat-recovery generator, an energy-efficient technology that is 18 percent more efficient than generating electricity and steam independently. The gas-fired cogeneration plant benefits the environment by reducing MIT's pollutant emissions by 45 percent, equal to reducing auto traffic in Cambridge by 13,000 round trips per day.
The Court decision noted that the Massachusetts Attorney General, who represented the DPU before the court, earlier had intervened against CELCo because "the Company had been on notice since at least 1985 that MIT was actively considering self-generation and that the Company did not undertake any meaningful effort to mitigate the foreseeable consequences of losing MIT as a full requirements customer."