Earlier this week, the Massachusetts Legislature passed new
legislation that is currently awaiting Gov. Deval Patrick's
signature and will provide further impetus for renewable energy
development in the commonwealth. This new legislation, Senate Bill
2395, An Act relative to competitively priced electricity in
the Commonwealth (the "Act"), will increase the
amount of new renewable energy that would qualify for economically
favorable treatment by utilities in Massachusetts. It also contains
numerous other changes relating to electricity matters.
This alert highlights key provisions in the Act affecting
renewable energy generation.
Net Metering Cap
At its highest level, the concept of net metering allows electric
customers to install generation on their property to serve their
electric needs and to be paid in the form of credits on their bill
by the local electric distribution company for electricity that
generation produces in excess of the customer's needs. To
qualify for net metering in Massachusetts, customers must install
generating facilities within their distribution company's
service territory that utilize either wind or solar or are used as
part of an agricultural business. The amount of any electricity
generated in surplus of a customer's needs in a month is
reflected as a "Net Metering Credit" in that
customer's future bills from its local electric distribution
company. The amount of the Net Metering Credits depends upon both
the generation output level and the technology employed to generate
the electricity. The credits never expire and are assignable to
others served by the same electric distribution company (with some
other limits described below). In order to be able to net meter, a
customer must apply for and be granted a net metering
interconnection by its distribution company.
Prior to the Act, there was a cap on the amount of new generation
that each distribution company was required to allow for
participation in the net metering program. That cap was set at 3
percent of the peak total energy demand from all customers in all
service territories of the distribution company ("Peak
Load"). The cap was allocated between the two types of net
metering facilities - facilities where the customer is a
municipality or governmental entity ("Government
Facilities") and facilities where the customer is a private
party ("Private Facilities"). Government Facilities were
allotted two-thirds of the cap amount (2 percent of the Peak Load)
and Private Facilities the remaining one-third of the cap amount (1
percent of the Peak Load).
The Act doubles the total net metering cap to 6 percent of each
distribution company's Peak Load and changes the allocation
between Government Facilities and Private Facilities. Under the
Act, up to 3 percent of Peak Load can be covered by net metering
from each type of facility.
The Act is a significant boost for both developers of renewable
energy projects and those that are financing the projects in
Massachusetts. Prior to the Act, most if not all of the
distribution companies had reached the 1 percent cap allocated to
Private Facilities. The availability of net metering for Private
Facilities has proven to be critical to the financeability of those
facilities. Net Metering Credits are a key revenue component to
support the financing, and the inability to net a generation
facility's output against the host customer's consumption
could eliminate the incentive to install a generation facility for
customers seeking to primarily decrease energy costs long
term.
The Act aims to remedy the practical issue associated with the
inability of distribution companies to provide up-to-date
information to determine whether a new net metering interconnection
application (known as a "Schedule Z") would fall under
the relevant cap. To address this issue, the Act requires the
Department of Public Utilities ("DPU") to approve an
enforceable standard interconnection timeline to be implemented no
later than November 1, 2013.
Potentially of interest for smaller-scale projects, the Act also
exempts Private Facilities that are 60 kW or smaller (defined as
"Class I") from inclusion in the calculation of the
aggregate Private Facility net metering cap. Additionally, Class I
Private Facilities with 10 kW nameplate capacity or below on a
single-phase circuit or 25 kW nameplate capacity or below on a
three-phase circuit can net meter, regardless of the status of the
cap. Last, anaerobic digestion (a technology that uses accelerated
biodegradation of organic material to produce a biogas that can be
used to produce energy) now qualifies as an acceptable generation
technology for net metering.
Long-Term Renewable Energy Generation
Contracting
The Act revises the procedures for contracting for renewable
generation by distribution companies. Prior to the Act, the
renewable energy long-term contracting requirement for distribution
companies was scheduled to conclude on July 1, 2013. The Act ended
that period six months early, in favor of establishing a new
renewable energy procurement process. Now, between January 1, 2013,
and December 31, 2016, all distribution companies are required to
twice solicit proposals from renewable energy developers through a
competitive bidding process.
The timetable and method for solicitation, as well as the
execution of the resulting long-term (10- to 20-year) contracts,
must be proposed by the distribution companies in consultation with
the Massachusetts Department of Energy Resources ("DOER")
and will be subject to DPU review and approval. Distribution
companies may opt out of the joint solicitation and engage in
individual competitive solicitations if they do so before the first
joint solicitation and obtain specific approval from the DPU. The
DPU will adopt regulations to implement the Act. Contracts proposed
to be entered into are subject to the review and approval of the
DPU.
The renewable energy generation source to be used by a developer
under its proposal must have a commercial operation date on or
after January 1, 2013 (as determined by DOER). There are numerous
additional criteria in the Act that must be met in order to obtain
DPU approval to enter into a long-term contract.
The renewable energy procured under the new long-term contracting
process may not exceed 4 percent of each distribution company's
Peak Load. In addition, 10 percent of the total long-term contracts
must be reserved for distributed generation facilities that are
small (not larger than 6 MW) or emerging (not solar, wind or
anaerobic digestion) and for "diverse renewable energy
generation facilities," as determined by DOER. Solicitation by
the distribution company for the allotted 10 percent must be
conducted using a separate competitive bidding process.
Commissioned Studies and Regulatory Proceedings
The Act also establishes the following regulatory
initiatives in Massachusetts:
- A DPU investigation into the need, in the next 10 years, for additional electric generating capacity in Northeast Massachusetts ("NEMA"). If a determination is made that additional capacity in NEMA is needed, the DPU may order distribution companies to solicit competitive proposals from developers and enter into cost-effective, long-term contracts.
- A study by the Executive Office of Energy and Environmental Affairs, in consultation with DOER, to initiate a study on whether "useful thermal energy" (energy produced from direct heat, steam, hot water or other thermal forms) should be added to the list of alternative energy generating sources that may be used to meet RPS requirements.
- A DOER study on the process for reactivation of pre-existing hydroelectric power sites, focusing on how to expedite and streamline the permitting and approval processes.
- A DOER study to assess whether long-term contracting requirements reasonably support the renewable energy goals of the Commonwealth.
The Act contains several other provisions not summarized in this
Alert. Further, the provisions discussed above are only summaries
of the key provisions we discussed.
Our attorneys have significant experience advising clients on
assessing and complying with statutory and regulatory changes in
the energy and utilities sector, as well as developing and
financing renewable energy generation. If you have any questions
concerning the Act or energy regulatory issues generally, please
contact any of the attorneys listed in this Alert.
Originally published August 2, 2012
www.daypitney.comThe content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.