New Massachusetts Energy Bill to Affect Markets

On Friday, August 3, Governor Deval Patrick signed into law S. 2395,An Act Relative to Competitively Priced Electricity in the Commonwealth. The Act will have significant impacts on the markets for conventional and renewable energy resources in Massachusetts. The Senate bill was originally intended to fine-tune aspects of the Green Communities Act passed in 2008. However, the Act also became a vehicle to address some stakeholders’ opposition to current ratepayer funding levels for energy efficiency and renewables development and to advance policies viewed by some as undermining reliance on competitive generation markets. Below is a summary of several of the more significant provisions. Additional descriptions and analyses of the provisions of the Act will be provided over the next few weeks. Distributed Generation With respect to development of renewable distributed generation resources, the Act contains multiple provisions designed to increase business opportunities for that sector. For example, the Act will double the amount of renewable energy capacity eligible to qualify for distribution companies’ net metering tariffs. This provision is particularly important because net metering capacity for projects serving private sector and non-profit entities is almost completely subscribed across the state. Technical changes were also made to allow facilities of co-ops consisting of cities, towns and other governmental entities organized under section 136 of chapter 164 to qualify for net metering as governmental entities. In addition, the Act exempts certain Class I net metering facilities from the net metering cap limit if capacity of the facility is less than 10 kW on a single-phase circuit or less than 25 kW on a 3-phase circuit. This will allow the development of smaller projects without the risk of net metering capacity becoming fully subscribed before a project has site control, becomes fully permitted and has a signed interconnection services agreement from the local distribution company. Under the Act, the Massachusetts Clean Energy Center (MassCEC) will administer a Hydropower Design and Construction Improvement Grant to fund upgrades and improvements to existing hydro facilities, provided the upgrades and improvements are necessary for the facilities to qualify as Class I or II renewable energy generating sources under section 11F of chapter 25A. One provision that was included in earlier versions of the bill but which did not survive provided a uniform approach for determining the amount of property taxes to be paid by solar energy facilities. Given the capital-intensive nature of photovoltaic facilities, traditional property tax assessment methods, as applied in some communities, have undermined the financial viability of PV projects. Additional efforts will no doubt be made by the solar industry to craft a compromise in the future. Long-term Contracting for Renewables Under the Act, distribution companies have received a mandate to continue soliciting proposals for long-term contracts from renewable generating facilities beyond the previous deadline of December 31, 2012. From January 1, 2013 to December 31, 2016, distribution companies must jointly solicit proposals twice during the period for the equivalent of an additional 4% of load; however, a utility can individually solicit proposals if it can demonstrate to the Department of Public Utilities (DPU) prior to the first joint solicitation that the individual company’s solicitation would be more cost effective for ratepayers than engaging in a joint solicitation. Contract terms can be 10 to 20 years and can be for Renewable Energy Credits, energy or a combination of both. Distribution companies can decline to consider contract proposals that “place an unreasonable burden on the distribution company’s balance sheet or income statement of the distribution company or its parent company, subject to the approval of the DPU.” The distribution company incentive for entering into such contracts will decrease from 4 to 2.75 percent of the annual payments. Ten percent of the 4 percent of load procured will be reserved for “newly developed, small, emerging or diverse renewable energy distributed generation facilities” which shall not net meter and of which less than 30 MW have been installed in Massachusetts before April 1, 2012. The Act imposes a new standard on procured renewables: they must be “low cost” instead of “cost effective,” taking into account other factors set forth in the statute. The Act also includes explicit language providing that if the Renewable Portfolio Standard program is terminated, these long-term contracts will remain in full force and effect. However, it is important to note that none of these new provisions regarding long-term contracting shall take effect until the Department of Energy Resources completes a study “to assess whether the long-term contracting requirements reasonably support the renewable energy goals of the Commonwealth” under section 83 of the Green Communities Act. That study must be submitted to the Legislature. There is no deadline for completion of the study. Generation Procurement for NEMA Load Zone In what some stakeholders perceive as a retreat from reliance on competitive wholesale markets, the Act requires that if the DPU determines that there is a shortfall of capacity in the northeastern load zone of Massachusetts (NEMA), the DPU may order the distribution companies serving that zone to solicit proposals for long-term contracts “from developers of electric generation.” The term of the contract(s) would be 10 to 20 years. Eligibility would be restricted to generating resources with commercial operation dates on or after June 1, 2014. Additional descriptions and analyses of the provisions of the bill will be provided over the next few weeks.