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MIT settles dispute related to cogen plant

NStar Electric and MIT have settled a dispute dating from 1995 over payment of "stranded costs" related to MIT's cogeneration plant. The agreement was approved by the state Department of Telecommunications and Energy on June 13.

The settlement includes a payment of $1.7 million from NStar representing a partial refund of various payments made by MIT from 1995 to 1997, primarily in the form of a "customer transition charge" tariff. MIT also agreed to withdraw from the appeal of the NStar merger rate plan now before the state's Supreme Judicial Court.

MIT developed the cogeneration plant after the Public Utilities Regulatory Policies Act was enacted by Congress in 1978 in response to the oil price shocks caused by oil embargos. The law intended to promote the development of cogeneration as a way of reducing energy consumption nationwide.

The plant began operating in September 1995, meeting most of MIT's electric needs while also producing cogenerated steam. In response,the Cambridge Electric Light Co. or CELCo began trying to get MIT to compensate the company for investments it had made to serve the Institute -- investments which would be stranded by the loss of revenue after MIT withdrew much of its business from CELCo. The company maintained that if it did not collect these stranded costs from MIT, it would need to collect them from other rate-payers.

In 1995, the Department of Public Utilities compelled MIT to pay a customer transition charge of $1.3 million a year to CELCo. But MIT mounted various appeals with the DPU, the Federal Energy Regulatory Commission and finally the Supreme Judicial Court, which in September 1997 remanded the case back to the DPU. No resolution could be reached through Department of Public Utilities processes.

In March 1998, the Electric Utility Restructuring Act became law. Since that law dealt with recovery of stranded costs, the MIT-CELCo matter was no longer important as a precedent-setting case. In 1999, CELCo, Commonwealth Electric and Commonwealth Gas merged with Boston Edison to form NStar. In the wake of those two developments, MIT and NStar resolved their differences through direct negotiations.

A version of this article appeared in MIT Tech Talk on July 18, 2001.

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