June 30, 2011 VIA ELECTRONIC MAIL ORIGINAL BY HAND ...

COMMONWEALTH OF MASSACHUSETTSDEPARTMENT OF PUBLIC UTILITIES________________________________________________)NSTAR Electric Co., )Groton Wind, LLC Contract ) D.P.U. 11-05New England Wind, LLC Contract ) D.P.U. 11-06Blue Sky East, LLC Contract ) D.P.U. 11-07________________________________________________)INITIAL BRIEF OF THECAPE LIGHT COMPACTJune 30, 2011Jeffrey M. Bernstein, Esq.Rebecca F. Zachas, Esq.Audrey A. Eidelman, Esq.BCK LAW, P.C.One Gateway Center, Suite 809Newton, MA 02458617.244.9500 (voice)617.244-9550 (fax)

with Section 83, is not in the public interest, and is inconsistent with the Department’sratemaking principles. The Compact’s primary concern with the Company’s Original REC CRPis that it may result in anti-competitive subsidization of Basic Service 1 customers to thedetriment of distribution customers.In its place, the Department should adopt the Alternative REC Cost Recovery Proposal(“Alternative REC CRP”), as defined below, recommended by the Compact for cost recovery ofRECs in all three proceedings, which now has the affirmative support of the Company because itis consistent with Section 83, is in the public interest, and will result in just and reasonable rates,pursuant to G.L. c. 164, §94. The Alternative REC CRP the Compact has proposed is consistentwith the alternative proposal (and proposed revised tariffs) submitted by the Company in eachproceeding. See D.P.U. 11-05, DPU-NSTAR-2-9 at 2 and Attachment DPU-NSTAR-2-9(a);D.P.U. 11-06, DPU-NSTAR-3-10 at 2 and Attachment DPU-NSTAR-3-10(a); D.P.U. 11-07,DPU-NSTAR-2-10 at 2 and Attachment DPU-NSTAR-2-10(a).I. INTRODUCTIONA. The Company’s Petitions.The Company is a local distribution company providing Basic Service to customerswithin its service territory that are not otherwise receiving generation service from a competitivesupplier. On February 18, 2011, pursuant to Section 83 and 220 C.M.R. §17.00 et seq., NSTAR1 “Basic Service” is used herein consistent with 220 C.M.R. §11.02, which defines that term as:Default Generation Service provided on or after March 1, 2005 by a Distribution Company to a Customer who is notreceiving Generation Service from a Competitive Supplier. The Department approved the use of the term “BasicService” in D.T.E. 04-115-A. Basic Service is also known as Default Generation Service or Default/BasicGeneration Service.2

filed the petitions with the Department seeking approval of the three long-term contracts, whichthe Company is entering into with:• Groton Wind, LLC, for the output (electricity supply and associated RECs) of a 48megawatt (“MW”) facility located in Groton, New Hampshire over a term of 10 years(“Groton Wind PPA”)(the “Groton Wind Petition”);• New England Wind, LLC, for the output (electricity supply and associated RECs) of a28.5 MW facility located in Monroe and Florida, Massachusetts over a term of 10 years(“Hoosac Wind PPA”)(the “New England Wind Petition); and• Blue Sky East, LLC, for the output (electricity supply, associated RECs and capacity)of a 32.4 MW facility located in Eastbrook, Maine over a term of 15 years (“Blue SkyWind PPA”)(the “Blue Sky East Petition”).D.P.U. 11-05, Groton Wind Petition at 1; D.P.U. 11-06, New England Wind Petition at 1; D.P.U.11-07, Blue Sky Wind Petition at 1.In each proceeding, the Company proposes an alternative transactional structure pursuantto 220 C.M.R. §17.06(1)(c) whereby the Company intends to sell the renewable energy andcapacity (as applicable) through the wholesale markets and to retain the RECs to satisfy itsRenewable Portfolio Standards (“RPS”) obligations associated with its provision of BasicService pursuant to 225 C.M.R. §14.00. D.P.U. 11-05, Exh. NSTAR-JGD-1 at 28, line 22 to 29,line 1 and 8-9; D.P.U. 11-06, Exh. NSTAR-JGD-1 at 29, lines 4-6 and 12-23; D.P.U. 11-07 Exh.NSTAR-JGD-1 at 29, lines 4-5 and at 30, lines 2-3; Tr. at 89, lines 1-4. The three PPAs eachcontain an energy price that is fixed at a price per megawatt-hour (“MWh”) and a REC price thatis fixed at a price per REC for the term of the contract. D.P.U. 11-05, Exh. NSTAR-JGD-1 at18, lines 5-7; D.P.U. 11-06, Exh. NSTAR-JGD-1 at 18, lines 5-7; D.P.U. 11-07, Exh. NSTAR-JGD-1 at 18, lines 5-7. The Groton Wind PPA sets the energy price at $____/MWh and the RECprice at $_____/MWh. D.P.U. 11-05, Exh. NSTAR-JGD-2 at 50. The Hoosac Wind PPA setsthe energy price at $_____/MWh and the REC price at $_____/MWh. D.P.U. 11-06, Exh.3

NSTAR-JGD-2 at 50. The Blue Sky Wind PPA sets the energy price at $_____/MWh, capacityprice at $____/kW-month, and the REC price at $____/MWh. D.P.U. 11-07, Exh. NSTAR-JGD-2 at 49. The Company also submitted the Long Term Forecast of Capacity, Energy and RECPrices dated September 21, 2010 by Levitan & Associates, Inc. (the “Levitan Forecast”) witheach of the petitions. D.P.U. 11-05, D.P.U. 11-06 and D.P.U. 11-07, Exh. NSTAR-JGD-6.For each project, NSTAR requested approval of its proposed tariffs, which provide forthe recovery of costs associated with long-term contracts for renewable energy procured pursuantto Section 83. D.P.U. 11-05, Groton Wind Petition at 1; D.P.U. 11-06, New England WindPetition at 1; D.P.U. 11-07, Blue Sky Wind Petition at 1. The Company’s proposed costrecovery for energy and capacity (as applicable) would credit or charge all NSTAR electricdistribution customers the “difference between the spot market revenues and the contract costs.”D.P.U. 11-05, Exh. NSTAR-JGD-1 at 29, lines 1-3; D.P.U. 11-06, Exh. NSTAR-JGD-1 at 29,lines 5-7; D.P.U. 11-07, Exh. NSTAR-JGD-1 at 29, lines 5-7. The Company’s Original RECCRP proposed to charge Basic Service customers the fixed price for RECs under the contract. 2D.P.U. 11-05, Exh. NSTAR-JGD-1 at 29, lines 15-16; D.P.U. 11-06, Exh. NSTAR-JGD-1 at 29,lines 19-20; D.P.U. 11-07, Exh. NSTAR-JGD-1 at 30, lines 9-10.The Company also proposed to be remunerated for four percent (4%) of the annualpayments under the contracts by recovering those costs from all electric distribution customersthrough its Long-Term Renewable Contract Adjustment Tariff. D.P.U. 11-05, Exh. NSTAR-JGD-1 at 28, lines 12-18; D.P.U. 11-05, Exh. NSTAR-HCL-1 at 4, lines 13-15 and at 5, lines 8-10; D.P.U. 11-06, Exh. NSTAR-JGD-1 at 28, lines 13-19; D.P.U. 11-06, Exh. NSTAR-HCL-1 at2 The proposed tariffs filed in these proceedings also contemplate that the Company may sell RECs procured fromthese contracts into the market at some point during the terms. D.P.U. 11-05, Exh. NSTAR-HCL-1 at 7, lines 13-15;D.P.U. 11-06, Exh. NSTAR-HCL-1 at 7, lines 13-15; D.P.U. 11-07, Exh. NSTAR-HCL-1 at 7, lines 20-22. TheCompany stated that it would “credit back the value of the RECs to the cost of the contracts.” Tr. at 60, line 1 to 61,line 5 and Tr. at 103, lines 12-17.4

4, lines 13-15 and at 5, lines 8-10; D.P.U. 11-07, Exh. NSTAR-JGD-1 at 28, lines 16-22; D.P.U.11-07, Exh. NSTAR-HCL-1 at 4, lines 13-15 and at 5, lines 8-10.B. The Alternative REC CRP.In Exhibit CLC-JFW-1, the Compact identified REC cost recovery as an issue with allthree contracts, and discussed how the Company should modify its Original REC CRP to avoidanti-competitive subsidization to Basic Service customers (the “Alternative REC CRP”). D.P.U.11-05, D.P.U. 11-06 and D.P.U. 11-07, Exh. CLC-JFW-1 at 6. Generally, the Compact’sconcern with the cost recovery associated with these long-term contracts emanates from its roleas a governmental aggregator in the Company’s service territory. 3The Company acts as thedistribution utility for the Compact’s customers, but also effectively as a competitor to theCompact for generation supply on the Cape and Vineyard. D.P.U. 11-05, D.P.U. 11-06 andD.P.U. 11-07, Exh. CLC-JFW-1 at 9, lines 6-15.In testimony, the Compact argued that the Company should adopt the approach approvedin D.P.U. 10-54 whereby the Company would charge Basic Service customers for the retainedRECs at the same price as paid for RECs purchased through the Company’s quarterlysolicitations. D.P.U. 11-05, D.P.U. 11-06 and D.P.U. 11-07, Exh. CLC-JFW-1 at 10 (citingPetition of Massachusetts Elec. Co. and Nantucket Elec. Co., each d/b/a National Grid, D.P.U.10-54, Order at 335 (November 22, 2010) (“D.P.U. 10-54 Order”). The Compact proposes fordistribution customers to be charged the contract price for both energy and RECs, and to becredited revenues from the sale of energy into the wholesale market and the sale of RECs toBasic Service customers at market price. D.P.U. 11-05, D.P.U. 11-06 and D.P.U. 11-07, DPU-3 Among other things, the Compact implements its Aggregation Plan to negotiate the best rates for the supply ofelectricity to its consumers. D.P.U. 11-05, D.P.U. 11-06 and D.P.U. 11-07, Exh. CLC-JFW-1 at 2, line 18 to 3, line3. The power-supply program is designed to provide competitive electricity prices for consumers and to gain otherfavorable economic and non-economic terms on service contracts. Id.5

CLC-1-3 at 2. The primary reason behind the Compact’s Alternative REC CRP is the anticompetitivecross subsidy that would be created by the Company’s Original REC CRP, asdiscussed in Section IV.A.2. below. D.P.U. 11-05, D.P.U. 11-06 and D.P.U. 11-07, Exh. CLC-JFW-1 at 7, lines 5-13.On June 8, 2011, in a discovery response, the Company offered an alternative costrecovery proposal, including tariff revisions, to its Original REC CRP. It stated that “if theDepartment is concerned about the competitive impact of these savings, the Company couldcharge Basic Service customers the same price for RECs obtained under the PPA as theCompany pays for RECs purchased through the Company’s quarterly REC procurements.”D.P.U. 11-05, DPU-NSTAR-2-9 at 2; D.P.U. 11-06, DPU-NSTAR-3-10 at 2; D.P.U. 11-07,DPU-NSTAR-2-10 at 2. The Company continued:Specifically, the Company would charge Basic Service customersthe weight[ed] average price paid by the Company to third partysuppliers for RECs procured through competitive solicitations tomeet RPS obligations (currently quarterly) for Class I RECs…The Company would then credit (or charge) all distributioncustomers with the net difference between the contract prices forRECs and the weighted average price paid for RECs solicited fromthe market. Thus this ‘alternative’ REC proposal would operate onthe same principle applied to the contract costs for energy underthe renewable contracts.Id.; Tr. at 82, lines 17-22 (“the Company would charge basic service customers the same pricefor the retained contract RECs as for the RECs needed to meet your basic service RPSrequirements”).The Compact believes that its Alternative REC CRP and the Company’s alternative RECcost recovery proposal are consistent, based on the Company’s information responses discussedabove and responses to cross examination by the Company’s witnesses, including questionsrelated to the weighted average price and the Company’s quarterly procurement process. Tr. at6

83-88; Tr. at 205, lines 9-24. In addition, similar to the Company’s Original REC CRP, theAlternative REC CRP would not result in any transaction costs and is simply an accountingtreatment. Tr. at 205, lines 17-21.Significantly, the Company recently informed the Compact that it will recommend itsalternative REC cost recovery proposal (which is consistent with the Alternative REC CRP) tothe Department for its approval in the Company’s Initial Briefs in these dockets.II.PROCEDURAL HISTORYOn February 18, 2011, the Company filed the NSTAR Petitions with original PPAs forreview and approval by the Department, which docketed the unconsolidated proceedings asD.P.U. 11-05, D.P.U. 11-06 and D.P.U. 11-07. The Company filed corrected NSTAR Petitionson March 1, 2011. The Department issued a Notice of Filing, Public Hearing, and ProceduralConference on March 29, 2011. On April 28, 2011, the Department accepted the Compact’sPetitions for Leave to Intervene, which were filed with the Department on April 14, 2011.On June 14 and 15, 2011, the Department conducted evidentiary hearings, whichincluded testimony by Mr. James G. Daly and Mr. Henry C. LaMontagne for the Company andMr. Jonathan F. Wallach for the Compact, among others.III.RELEVANT LEGAL STANDARDSThe Department has authority to review and approve long-term renewable powerpurchase agreements by distribution companies pursuant to Section 83. The Department’sreview of the Groton Wind PPA, Hoosac Wind PPA and Blue Sky Wind PPA, includes, amongother things, determining that the contract is “cost-effective to Massachusetts electric ratepayersover the term of the contract.” St. 2008, c. 169, §83; 220 C.M.R. §17.05; D.P.U. 10-54 Order at7

27. The Department must “take into consideration both the potential costs and benefits of suchcontracts and approve a contract only upon a finding that it is a cost effective mechanism forprocuring renewable energy on a long-term basis.” Id.In addition, in D.P.U. 10-54, which marked the issuance of the Department’s first Orderapproving long-term contracts under Section 83, the Department stated that its review of longtermcontracts under Section 83 “will also consider whether the contract is in the public interest.”D.P.U. 10-54 Order at 28 (citing D.P.U. 09-38 at 12). Significantly, the Department alsoprovided that it “will further consider whether the associated cost recovery method is in thepublic interest and will result in just and reasonable rates pursuant to G.L. c. 164, §94.” D.P.U.10-54 Order at 28 (citations omitted).IV.ARGUMENTThe Compact requests that the Department adopt the Alternative REC CRP in all threeproceedings. As noted above, the Compact understands that the Company’s Initial Briefrecommends the alternative REC cost recovery, which is consistent with the Alternative RECCRP as well and is no longer advocating acceptance of its Original REC CRP. With thatunderstanding, the Compact’s discussion here demonstrates why the Company’s Original RECCRP should not be adopted. The Compact generally does not take issue with the Company’sselection of an alternative transaction structure under 220 C.M.R. §17.06(1)(c) (i.e., sellingenergy and capacity into the market, but retaining RECs for use by Basic Service customers) orits cost recovery proposal for energy and capacity.8

A. The Company’s Original Proposal Creates the Potential of a Cross Subsidy.1. The Company’s initial selection of an alternative transaction structurecreates the potential of cross subsidyThe Company’s proposed alternative transactional structure under 220 C.M.R.§17.06(1)(c) – whereby the energy and capacity (as applicable) would be sold into the market,while the RECs would be retained for RPS obligations – creates the potential for thesubsidization of Basic Service in these proceedings. The Compact agrees with the Company thatretaining the RECs for Basic Service RPS requirements would prevent the Company fromincurring transaction costs involved with selling the RECs into the market or through an auctiononly to have to repurchase them to meet its RPS obligations. D.P.U. 11-05, Exh. NSTAR-JGD-1at 29, lines 13-15; D.P.U. 11-06, Exh. NSTAR-JGD-1 at 29, lines 17-19; D.P.U. 11-07, Exh.NSTAR-JGD-1 at 30, lines 7-9. Such an approach is reasonable as well as a “pragmatic andcost-efficient alternative to the market sale and subsequent repurchase of those RECs.” D.P.U.11-05, D.P.U. 11-06 and D.P.U. 11-07, Exh. CLC-JFW-1 at 6, line 25 to 7, line 4. Nevertheless,the Department should not allow the Company’s choice of alternative transactional structure tocome at the expense of distribution customers.The Company has chosen overall to treat these long-term contracts as distributionresources, and thus all distribution customers should benefit from them. This is evidenced by theCompany’s proposal to have all distribution customers pay the contract costs for energy andcapacity (as applicable), and receive market benefits from the sale of such products. D.P.U. 11-05, Exh. NSTAR-JGD-1 at 29, lines 1-3; D.P.U. 11-06, Exh. NSTAR-JGD-1 at 29, lines 4-7;D.P.U. 11-07, Exh. NSTAR-JGD-1 at 29, lines 4-7. In doing so, distribution customers alsoassume the risk that energy and capacity under these contracts may be priced above market atsome point during the terms. Exh. CLC-JFW-1 at 6, lines 1-4. In addition, the Company9

equested that all distribution customers pay for the 4% remuneration cost associated with thecontracts. D.P.U. 11-05, Exh. NSTAR-JGD-1 at 28, lines 14-16; D.P.U. 11-06, Exh. NSTAR-JGD-1 at 28, lines 15-17; D.P.U. 11-07, Exh. NSTAR-JGD-1 at 28, lines 18-20.Based on this alternative transactional structure, it would follow that the Company wouldopt for a cost recovery mechanism that would allow distribution customers to benefit from theRECs associated with the contract (and to take the risk that the benefit could become a cost).However, distribution customers would receive no benefit associated with the RECs procuredunder these contracts pursuant to the Company’s Original REC CRP. D.P.U. 11-05, D.P.U. 11-06 and D.P.U. 11-07, DPU-CLC-1-3.2. The Company’s use of the contract price in its original REC costrecovery proposal could also contribute to a cross subsidyMr. Wallach described the treatment of distribution customers under the Company’s costrecovery proposal as follows:distribution customers would be charged the contract cost forenergy and, in return, would be credited the revenue from the saleof the energy into the wholesale market. In contrast, distributioncustomers would neither be charged for contract cost, nor creditedfor sale revenues for RECs.D.P.U. 11-05, D.P.U. 11-06 and D.P.U. 11-07, DPU-CLC-1-3 at 1.The Company admitted that there will be a different impact on distribution customersunder the Company’s Original REC CRP at the contract price versus the Alternative REC CRPat market price. Tr. at 76, lines 15-23; see D.P.U. 11-05, D.P.U. 11-06 and D.P.U. 11-07, DPU-CLC-1-3 at 2-3 (hypothetical example demonstrating this difference). In fact, the Companyagreed that there would be a “significant detriment to distribution customers” if Basic Servicecustomers are sold the contract RECs at the contract price rather than the market price. Tr. at 77,10

efficiencies” as the Company’s cost recovery proposal and would also not involve anytransaction costs. Tr. at 69, lines 4-6; Tr. at 205, lines 17-21.The Company may use the pricing from the very same quarterly procurement process forthe Alternative REC CRP that it is already currently using for “well into” 90% of its RECprocurement for RPS purposes. Tr. at 83, lines 11-13. The Company noted that its standardpractice for purchasing RECs to meet its RPS obligations is through quarterly Requests forProposals (“RFPs”). D.P.U. 11-05, D.P.U. 11-06 and D.P.U. 11-07, CLC-NSTAR-2-4. Thesequarterly procurements result in Basic Service customers paying the market price demanded bythe winning bidder. D.P.U. 11-05, D.P.U. 11-06 and D.P.U. 11-07, Exh. CLC-JFW-1 at 5, lines12-14; Tr. at 70, lines 1-14. Thus, the Alternative REC CRP would not require any newprocesses or accounting by the Company, and yet would clearly provide more appropriate pricesignals to the marketplace than the Company’s Original REC CRP. See St. 1997, c. 164, §1(infra at 19).The Company agreed that “there is a way that the Company could do that,” referring tothe Alternative REC CRP using the pricing from the same quarterly procurement process. Infact, the Company would charge Basic Service customers the “same price” for the retained RECsas for the RECs needed to meet RPS obligations. Tr. at 82, lines 17-22. Mr. Daly went so far asto agree with the Compact on cross examination that “it’s not very difficult to do because it’ssomething that [the Company is] doing anyhow and the contract price for these contracts isfixed.” Tr. at 70, lines 15-19.Moreover, the proposed tariffs also already contemplate the possibility that RECs may besold into the market with cost recovery for the difference between the market price and the costof the RECs. Tr. at 61, lines 1-5; see supra at 4, n.2. While the Alternative REC CRP would not12

involve a market sale, the end result would be the same as if the RECs were sold into thewholesale market with distribution customers being charged the contract cost for RECs andcredited with the revenues from those REC market sales. D.P.U. 11-05, D.P.U. 11-06 andD.P.U. 11-07, DPU-CLC-1-3 at 2-3; see D.P.U. 10-54 Order at 336. 4Accordingly, the Department should eliminate this cross subsidy and resulting potentialharm to competitive markets into account by adopting the Alternative REC CRP now supportedby both the Company and the Compact.C. The Department Should Adopt the Company’s Alternative REC CRPBecause It is in the Public Interest.1. The Department should consider D.P.U. 10-54 and relevant statutes indetermining whether the long-term contracts are in the public interestIn D.P.U. 10-54, the Department required a determination that the long-term contract isin the public interest, as well as consideration of whether the associated cost recovery method isin the public interest and will result in just and reasonable rates pursuant to G.L. c. 164, §94.D.P.U. 10-54 Order at 26-27. The Department further provided that:Although the Department always considers the public interest in itsdecision-making, there is no public litmus test. The determinationis case specific, taking into consideration the particular issuesraised in a given case.Id. at xxi (Emphasis added). Thus, despite D.P.U. 10-54 serving as precedent for theseproceedings, the Department should also consider any facts and issues specific to the instantproceedings when making its public interest determinations. In particular, the Compact was nota full party in D.P.U. 10-54 and issues specific to the Compact were not addressed there. The4 The Order states that: “Although National Grid is technically not selling the renewable products into the market,its proposed treatment with respect to recovery of the market value of [the PPA] is designed so that its retention ofthe Cape Wind energy and RECs for basic service for accounting purposes results in the same rate treatment thatwould result if the products were sold into the market.” D.P.U. 10-54 Order at 336.13

Compact’s issues presented here on the Company’s Original REC CRP should be a significantconsideration in the Department’s public interest determinations.Because the Department treated these public interest determinations separately in itsD.P.U. 10-54 Order, the Compact does so here as well with the public interest evaluation specificto cost recovery and the more general public interest arguments.In D.P.U. 10-54, the Department stated that it “will further consider whether theassociated cost recovery method is in the public interest and will result in just and reasonablerates pursuant to G.L. c. 164, §94.” D.P.U. 10-54 Order at 28. In its Petitions here, theCompany has proposed to use the alternative transaction structure pursuant to 220 C.M.R.§17.06(1)(c). D.P.U. 11-05, Exh. NSTAR-JGD-1, at 29, line 18 to 30, line 1; D.P.U. 11-06, Exh.NSTAR-JGD-1, at 30, lines 1-6; D.P.U. 11-07, Exh. NSTAR-JGD-1 at 30, lines 12-17. Section83 and the Department’s corresponding regulations do not expressly set forth the ratemakingtreatment to be applied to such an alternative transaction. Accordingly, the Department mustexercise its judgment to determine what ratemaking treatment is appropriate. D.P.U. 10-54Order at 333. As discussed below, the Company’s Original REC CRP would result in thepreviously discussed cross subsidy (see Section IV.A.2.), would harm competitive markets, andwould be inconsistent with Department precedent. The Alternative REC CRP would rectify allof these problems, and thus should be adopted as the substitute cost recovery in all threeproceedings.The Department must interpret Section 83 in light of and in harmony with the preexistingElectric Restructuring Act of 1997, St. 1997, c. 164. Massachusetts law clearly provides that theLegislature is presumed to be aware of preexisting statutes when it enacts a new statute oramends an existing one. Suliveres v. Commonwealth, 449 Mass. 112, 116 (2007); Greater14

Boston Real Estate Bd. v. Dep’t Telecom. And Energy, 438 Mass. 197, 202 (2002);Commonwealth v. Russ R., 433 Mass. 515, 520 (2001); Registrar of Motor Vehicles v. Bd. ofAppeal on Motor Vehicle Liab. Policies & Bonds, 382 Mass. 580, 585 (1981); Ferullo’s Case,331 Mass. 635, 637 (1954). Nothing in Section 83 expressly invalidates or changes in anymanner the Restructuring Act of 1997, including establishment and protections of thecompetitive marketplace.In addition, when possible, the Department must interpret two statutes – such as Section83 and the Restructuring Act of 1997 in these cases – in harmony with one another. Sullivan v.Chief Justice for Admin. and Mgmt. of Trial Court, 448 Mass. 15, 27 (2006) (preference is for a“harmonious reading” of the statutes); Greater Media, Inc. v. Dep’t of Public Utilities, 415 Mass.409, 415 (1993); Kargman v. Comm’r of Revenue, 389 Mass. 784, 788 (1983)(“[s]tatutes whichdo not necessarily conflict should be construed to have consistent directives so that both may begiven effect…and statutes should be interpreted as a whole to constitute a consistent andharmonious provision”).Thus, the Department should take the Restructuring Act of 1997 into account in theseproceedings by ensuring that any cost recovery mechanism used in connection with thesecontracts will not result in harm to the competitive marketplace. It is impossible to reconcile theimpact that the Company’s Original REC CRP would have on the competitive suppliers with theRestructuring Act of 1997. However, the Company’s Alternative REC CRP is fully consonantwith that Act.declarations:As excerpted, the Restructuring Act of 1997 expressly sets forth the following(g) competitive markets in generation should … (iii) provide electricity buyers andsellers with appropriate price signals …15

St. 1997, c. 164, §1.(k) long-term rate reductions can be achieved most effectively by increasingcompetition and enabling broad consumer choice in generation service, therebyallowing market forces to play the principal role in determining the suppliers ofgeneration for all customers; and(l) the primary elements of a more competitive electricity market will be customerchoice, preservation and augmentation of consumer protections, full and faircompetition in generation, and enhanced environmental protection goals.Further, in D.P.U. 95-30, the Department listed seven principles that would “establish theessential underpinnings of an electric industry structure and regulatory framework designed tominimize long-term costs to customers while maintaining safe and reliable electric service withminimum impact on the environment.” Investigation by the Department of Public Utilities on itsown Motion into Electric Industry Restructuring, D.P.U. 95-30 at iv (August 15, 1995). Thoseprinciples include: (1) provid[ing] the broadest possible customer choice; and (2) ensur[ing] fulland fair competition in generation markets. Id.Massachusetts has competitive choice on the Cape and Vineyard because of the Compact.The Compact procures retail power supply to serve aggregated customers at prevailing marketrates. D.P.U. 11-05, D.P.U. 11-06 and D.P.U. 11-07, Exh. CLC-JFW-1 at 2, line 18 to 3, line 3.Given that the Compact effectively competes with the Company’s Basic Service, the Compact’sviability would be seriously jeopardized to the extent that the Company’s Original REC CRPresulted in below market pricing of Basic Service with commensurate harm done to distributioncustomers since the Compact acts as a consumer advocate. D.P.U. 11-05, D.P.U. 11-06 andD.P.U. 11-07, Exh. CLC-JFW-1 at 9, lines 6-15; Tr. at 20, lines 1-4 and 200, lines 16-24. In thatcase, the Compact “would not be able to offer a competitively priced alternative to Basic Service16

at a rate that is attractive to customers and allows the Compact to recover its costs.” D.P.U. 11-05, D.P.U. 11-06 and D.P.U. 11-07, Exh. CLC-JFW-1 at 9, lines 12-15.The Department should consider its cost recovery analysis and findings in its Order inD.P.U. 10-54 as precedent for these proceedings and in doing so adopt the cost recoverymechanism approved there:D.P.U. 10-54 Order at 335.… it is reasonable to conclude that, with the exception oftransaction costs, the market value that the Company will ascribeto the RECs under its proposal would be equal to the revenue thatthe Company would receive if it were to sell the RECs in the RECmarket. … Therefore, under [National Grid’s] proposal, basicservice customers will pay the same rates they would have paidabsent [the PPA].The Alternative REC CRP is entirely consistent with the REC cost recovery approachapproved in D.P.U. 10-54, which ensures that: (1) the Basic Service rate will not be distorted bybelow-market pricing of the RECs; and (2) distribution customers also appropriately benefit fromthe RECs associated with the contracts. D.P.U. 10-54 Order at 335; D.P.U. 11-05, D.P.U. 11-06and D.P.U. 11-07, Exh. CLC-JFW-1 at 9, line 17 to 10, line 12.Accordingly, the Company’s Alternative REC CRP should be adopted, a result withwhich the Compact is pleased to understand that the Company now concurs.2. The Department should consider the Compact’s REC cost recoveryissues in evaluating whether the long-term contracts are in the publicinterestIn D.P.U. 10-54, the Department also considered the public interest as it relates to thelong-term contracts with the following four questions:• Is the contract reasonable and appropriate relative to alternative long-term contracts forrenewable power?17

• Is the contract price reasonable for the specific type of resource (would be land-basedwind here)?• Are the amount and type of renewable power purchased appropriate?• Are the bill impacts on [the Company’s] customers acceptable?D.P.U. 10-54 Order at xxi. The Compact believes that its cost recovery issues should beconsidered under the first and fourth bullets. To the extent that the Department chooses toevaluate the public interest in these proceedings using different questions, the Compact requeststhat the Department consider its arguments here.The subsidization of Basic Service customers that would occur under the Company’sOriginal REC CRP renders the bill impacts on distribution customers under these contractsunreasonable. Record Request, CLC-NSTAR-1, demonstrates that, under the Company'sOriginal REC CRP, Basic Service customers capture the full benefit of the below-marketcontract RECs, with Basic Service rates about $____/MWh less than they would be if thoseRECs had been purchased at market.In contrast, under the Alternative REC CRP, all customers benefit from below-marketcontract RECs, with distribution rates about $____/MWh less than if Basic Service customerswere to pay contract prices for RECs. CLC-NSTAR-1. Accordingly, the bill impacts related tothe Alternative REC CRP are reasonable and in the public interest.D. The Department Should Adopt the Alternative REC CRP as It is Consistentwith the Requirements Under Section 83 and the Department’sCorresponding Regulations, 220 C.M.R. 17.00 Et Seq.Section 83 requires each distribution company to enter into “cost-effective” long-termcontracts to facilitate the financing of renewable energy generation. St. 2008, c. 169, §83; 220C.M.R. §17.05(1)(c)(3); D.P.U. 10-54 Order at 27. The Department should use its discretion tointerpret cost effectiveness in these proceedings, since Section 83 does not define the term “cost-18

effective.” D.P.U. 10-54 Order at 65. In D.P.U. 10-54, the Department weighed the costs of thecontracts against the benefits.Given the subsidy the Company’s Original REC CRP would have produced, it would beimpossible to find that the three contracts are cost effective for distribution customers underSection 83. In these proceedings, the Department must evaluate whether these contracts are costeffective for all of the Company’s customers, meaning Basic Service and distribution customerson competitive supply. Because the subsidy is not present in the Alternative REC CRP, therewould be no issues with that alternative under the cost effectiveness evaluation under Section 83.Accordingly, the Department should find the Company’s Alternative REC CRP wouldresult in a cost effective PPA in all three proceedings because the potential costs brought aboutby the harm to distribution customers in the form of cross subsidies as discussed above wouldnot be present. Thus, the Department should adopt the Alternative REC CRP.19

V. CONCLUSIONBased on the arguments above and the Compact’s understanding of the Company’smodified position in support of the Alternative REC CRP, the Compact respectfully requests thatthe Department approve the Alternative REC CRP for all three contracts. The Compact has noother objections to the approval of the contracts and adoption of the terms and conditions of theproposed long-term renewable contract adjustment mechanism.Respectfully submitted,THE CAPE LIGHT COMPACTBy its attorneys,_______________________________________Jeffrey M. Bernstein, Esq. (jbernstein@bck.com)Rebecca F. Zachas, Esq. (rzachas@bck.com)Audrey A. Eidelman, Esq. (aeidelman@bck.com)BCK LAW, P.C.One Gateway Center, Suite 809Newton, MA 02458617-244-9500 (voice)617-244-9550 (fax)Dated: June 30, 2011T:\Clients\BCY\POWERSUP\NSTAR Section 83 Proceedings\DPU 11-05\BCY DPU 11-05 -06 -07 Initial Brief FINAL REDACTED (6-30-11).docx20