State House, Boston Massachusetts Senate Bill 447, The "Competitive Franchise" bill, submitted by Senator Mark Montigny and others for the 1995 Legislative Session

An Act To Establish Guidelines for Competition in the Electric Utility Industry

The General Laws are hereby amended by inserting after Chapter 164A the following chapter:-

CHAPTER 164B.

Department of Public Utilities Authorities for the Creation and Operation of Consumer Service District Franchises.

Section 1. To capture economic benefits for the Commonwealth's industrial, commercial, and residential electricity consumers, the following sections seek to encourage competition among electric utility companies by providing authorities, rules and guidelines for municipalities to offer electric service franchises for competitive bidding.

Section 2. For the purposes of this legislation, subsections two through eighteen inclusive, shall, unless the context otherwise requires, have the following meanings:

"Arbitration board," a board consisting of three members: one member appointed by the current service provider; one appointed by the new service provider; and one appointed by the department. This board shall specify the valuation, schedule of payment, and schedule for transition in ownership of facilities and service.

"Consumer service district," the entire geographic area defined by municipal boundaries.

"Contract," a document outlining the terms of service, mutual obligations, responsibilities, and compensation in conformance with the terms of the request for proposals, and subject to review and approval by the department.

"Current service provider," an electric company providing electric service to a municipality prior to establishment a consumer service district.

"Department," the department of public utilities.

"Electric company," an electric utility company, as defined by section 1 of chapter 164, which provides electric energy to retail customers within the commonwealth.

"Electric utility franchise," a franchise territory recognized by the department of public utilities.

"Formula for valuation," a formula consisting of three parts:
(i) replacement value less depreciation on a straight line basis, and/or consideration of obsolescence.
(ii) the costs associated with inventory and appraisal of facilities to be transferred; and
(iii) the costs of reintegrating the system, if any.

"Franchise," the right or rights, stated or implied, of an electric company to provide service to a particular territory.

"Franchise fee," a fee payable by the utility to the municipality, in return for the franchise to the consumer service district.

"Franchise territory," the geographic area in which an electric company has the stated or implied right or rights to provide electric service.

"Municipal governing body," any duly elected City Council or Board of Selectmen. In cities or towns where municipal electric companies exist, it shall mean the municipal light commission.

"Municipality," a city or town within the commonwealth.

"New service provider," electric company which holds a contract to serve a newly established consumer service district.

"Request for proposals," a document, as described by section 3, prepared by the municipality to solicit bids for electric service.

"Standard franchise contract provisions," terms to be included in consumer service district contracts between electric companies and municipalities. These provisions shall include, but not be limited to, the following: (i) grant of authority; (ii) the temporal term of franchise, specifying the franchise's beginning and ending dates; (iii) termination provisions, describing the power of the municipality and/or electric company to terminate the franchise; (iv) regulation provisions, citing the state laws and regulations the electric company must obey in fulfilling its obligations under the contract; (v) construction and maintenance provisions, outlining construction and maintenance standards with which the utility must comply; (vi) provisions for the restoration of streets, requiring the utility to restore streets to good condition pursuant to section 70 of chapter 164, after erecting or maintaining lines or equipment in the consumer service district; (vii) municipal services provisions, identifying services which the electric company must provide to the consumer service district; (viii) quality of service provisions, specifying the quality of service the electric company must provide to the consumer service district; (ix) provisions for the use of public ways, detailing purposes for which the utilities can use the public rights of way; (x) provisions for reports, identifying and describing the reports an electric company must submit, as well as frequency and contents of these reports; (xi) provisions for inspections, identifying the municipality's right to audit and inspect an electric company's financial records and facilities; (xii) franchise fee provisions, outlining an amount equal to six per cent of annual gross revenues from kilowatt hour sales to the consumer service district, or an amount deemed appropriate by a municipal governing body, according to a schedule of fees payable on a monthly basis to the municipality; (xiii) non-waiver provisions, describing terms of compliance with the provisions of the contract, including a statement that each party must comply with current or future law, regulation or other contractual agreements; (xiv) assignment provisions providing that the municipality's express consent must be obtained before assignment of any or all of the electric company's equipment, operations, or holdings within the municipality's consumer service district to another entity; (xv) indemnity provisions, requiring an electric company to hold the municipality harmless for damages to persons or property which result from an electric company's activities under the contract; (xvi) forfeiture provisions, stating conditions under which a municipality may revoke the contract, and outlining methods and procedures for these actions and for the electric company's redress; (xvii) provisions for notices, stating the person or persons either party shall contact regarding routine and extraordinary contract issues, and stating the proper methods of notice and the length of notice required; (xviii) provisions for amendments, describing conditions which can trigger amendments to the contract, and outlining the process for the creation and acceptance of these amendments; (xix) provisions for acceptance, defining the action the electric company must take to formally accept the contract; (xx) undergrounding provisions, describing the conversion of above-ground equipment to underground/burial conversions.

"Stranded investment," an investment in generating facilities, transmission facilities, or contracts, which the department has deemed no longer "used and useful," due to a prospective acquisition of part of an electric company's franchise territory pursuant to the creation of a consumer service district.

"Transfer of service," a process by which the new service provider assumes the responsibility to provide electric service to the consumer service district from the current service provider. This process may be accomplished by one of several methods:
(i) a new contractual arrangement between the municipality and the current service provider with no transfer of facilities;
(ii) the leasing of facilities within the consumer service district from the current service provider by a new service provider;
(iii) an arbitrated buy-out or acquisition of the facilities within the consumer service district by the new service provider; or
(iv) municipal acquisition of facilities by eminent domain, pursuant to section 1 of chapter 79 et seq., within the consumer service district. The municipality may then offer a franchise lease to a new service provider. For the purposes of establishing a competitive consumer service district through municipal acquisition, such transfers shall be exempt from the provisions of sections 35 and 36 of chapter 164.

"Used and useful," a facility or power supply contract helping to meet forecasted demand on an economical basis as determined by the department.

Section 3. A municipality, by two-thirds vote of a municipal governing body, shall have the power to create a consumer service district. This vote shall also create the office of the consumer service district manager. The municipal governing body shall then file this vote with the department within ninety days. The department shall recognize this vote as establishing a consumer service district.

Within thirty days of receipt of this vote, the department shall inform, by written notice, the municipality's current service provider of the vote. This notice shall inform the municipality's current service provider of the municipality's intention to offer the consumer service district's electric service for competitive bidding. Along with this notice, the department shall instruct the municipality's current service provider to deliver to the municipal governing body the following: (i) a complete inventory of the current service provider's facilities and equipment within the consumer service district; (ii) a list of planned upgrades and facility retirements within the consumer service district; (iii) the current service provider's demand forecast for the consumer service district; (iv) the current service provider's rate forecast for residential, commercial, and industrial customers within the consumer service district; (v) a complete statement of planned conservation or load management programs within the consumer service district; (vi) any other information deemed pertinent and requested by the municipality, excluding any information that the department deems of a proprietary or confidential nature.

The current service provider shall deliver the above information to the municipal governing body within sixty days of the department's instruction. The governing body may use this information to prepare a request for proposals pursuant to section 4. The municipal governing body shall release this information to interested electric companies.

Section 4. Upon creation of a consumer service district, the department shall recognize the municipal governing body's authority to issue a request for proposals. The request for proposals shall notify interested electric companies of a municipality's intention to accept bids for electric service.

(a) The request for proposals shall include the following items:

(i) a profile of the consumer service district compiled from information obtained from the current service provider;
(ii) provisions for demand side management;
(iii) provisions for integrated resource management;
(iv) provisions for environmental protection;
(v) generic provisions provided by the department pursuant to section 7;
(vi) a description of the standard contract provisions delineated in section 2;
(vii) the term of any ensuing contract, which shall be ten years unless some other term is deemed appropriate;
(viii) provisions for low income service and rates;
(iv) a provision which requires the new service provider to conduct demand forecasting, subject to oversight of the consumer service district manager and approval of the department.

(b) In addition, the department shall issue to the municipality a list of generic items or standards for inclusion in the request for proposals. The department will provide this list to the municipality within thirty days of the date on which the department recognized the consumer service district. The department may update this list and specific provisions through its public rulemaking process.

(c) The request for proposals shall also include "most favored nation" provisions to take advantage of technological advancements and maintain marketplace competition. The request for proposals shall further contain a description of standard franchise contract provisions as defined in section 2.

Section 5. The department shall recognize the authority of contiguous consumer service districts to make joint efforts in issuing requests for proposals, negotiating contracts and conducting operations. Each interested municipality shall first form a consumer service district as prescribed by section 3.

Section 6. Upon completion of a request for proposals, the municipal governing body shall issue this document to all interested electric companies. The request for proposals shall include a deadline, determined by the municipal governing body, by which the municipal governing body must receive the bid in hand. The municipal governing body shall review and consider bids only after the bidding deadline has passed.

Section 7. After the bidding process ends, the municipality shall have the authority to negotiate a contract. The municipality may negotiate directly with the current service provider. The municipality may also negotiate with a prospective new service provider based upon its response to the request for proposals. When the parties reach an agreement, the municipality shall forward the proposed contract to the department. The department shall review the proposed contract to assure that it complies with the department's generic provisions and standards. The department shall have final approval of the proposed contract. Approval shall not be unreasonably withheld. If the department disapproves a proposed contract, it shall notify the parties, in writing, of the reasons for disapproval. The parties shall have the opportunity to correct any defects in the contract.

Section 8. The current service provider may claim that establishment of the consumer service district renders certain of its facilities or contracts no longer used or useful. In this case, the current service provider may request that the department designate these facilities or contracts as stranded investment.

(a) The request shall be made to the department no later than sixty days after recognition of the consumer service district. The request will include the following: (i) a full description of the facilities or contracts the current service provider claims as stranded investment; a full valuation of these facilities or contracts; (iii) a brief which includes the following: (A) The current service provider's rationale for the requested designation; (B) a complete list of the alternatives the current service provider has pursued to market its capacity and energy; (C) a complete list of the steps the current service provider has taken to maintain these facilities or contracts, as used and useful.

(b) The department shall determine these facilities or contracts as stranded investment if no longer used and useful. To determine these facilities or contracts as stranded investment, the department must find the following:

(i) The facilities or contracts are no longer used and useful, due to the consumer service district's creation and resultant loss of franchise territory;
(ii) The current service provider has made reasonable efforts to market its capacity and/or energy;
(iii) The current service provider has no reasonable alternatives to maintain the facilities as used and useful.

(c) The department shall make this determination prior to the approval of the municipality's contract with the new service provider.

(d) If a facility or contract is determined by the department to be stranded investment, the department may instruct that the facility's or contract's energy and/or capacity be sold at prevailing market rates. The department may also allow the current service provider to sell the entire assets of a facility deemed stranded investment. Any resulting loss from these transactions shall be shared between the consumer service district's ratepayers and the current service provider. Ratepayers shall be responsible for no greater than thirty-three and one-third percent of the resulting loss; the current service provider shall be responsible for no less than sixty-six and two-thirds percent of the resulting loss. In the case of a municipal electric system, the department shall make appropriate determinations recognizing that municipal electric systems have no stockholders to share any resulting losses.

(e) The department shall also determine, if appropriate, the time period for which a facility or contract remains a stranded investment.

Section 9. The municipal governing body shall have authority to accept a bid received pursuant to section 6. It shall also have final approval of a contract negotiated pursuant to section 7, provided that such contract has been approved by the department. In recognition of the validity of the contract, the department shall amend the current service provider's franchise to specifically exclude the new consumer service district.

Section 10. The department will retain all authority granted to it under chapter 164 and chapter 164B. In addition, the department shall recognize the authority of a municipal governing body to do the following: (a) form or dissolve a consumer service district; (b) request and receive all pertinent information from a current service provider to compile a request for proposals; (c) issue a request for proposals to all interested electric companies; (d) undertake joint efforts with other contiguous consumer service districts, bargain collectively and function cooperatively; (e) negotiate with an interested electric company, including the current service provider; (f) enter into contracts with an electric company, subject to the department's approval; (g) take by eminent domain the current service provider's facilities within the consumer service district.

Section 11. A municipality may request that an arbitration board be formed with membership as specified in section 2. The board shall determine the valuation of any transferred or taken facility or property. The board shall also determine which facilities or properties are to be included within such a transfer. Establishment of the arbitration board shall occur within thirty days of the contract's award to a new service provider. The arbitration board shall act pursuant to section 1 of chapter 251 et seq., and its evaluation determination shall be exempt from the provisions of section 43 of chapter 164.

(a) The arbitration board will conduct hearings to determine the valuations of the facilities within the consumer service district. The arbitration board shall employ the formula defined in section 2. The arbitration board shall issue a decision on the proposed valuation within six months of appointment. The arbitration board will have authority to make other findings of fact and award damages.

(b) Upon the request of the municipality, the arbitration board may also conduct hearings to determine whether the current service provider created unreasonable delays in the arbitration process. If the arbitration board determines that the current service provider caused unreasonable delay, it may determine the amount of and award damages. The arbitration board's decisions will be binding on all parties. A party may appeal the arbitration board's decisions pursuant to section 18 of chapter 251.

(c) The department shall review the expenses and service charges for the arbitration board. The final cost of the facility's acquisition shall include these charges. If the arbitration board is convened to hear charges of unreasonable delay, the losing party shall pay these charges.

Section 12. The office of the consumer service district manager, formed pursuant to section 3, shall operate at the discretion of the municipal governing body, which body shall oversee said office. The consumer service district manager shall have the following duties:

(a) assist the municipal governing board during the bidding process;
(b) negotiate a contract with the new service provider;
(c) represent the municipal governing body during transfer of services between the current service provider and the new service provider;
(d) oversee the new service provider's forecasting duties for the new consumer service district;
(e) carry out administrative and business operations, including the review of the new service provider's compliance with the terms of the contract, as well as any other duties deemed appropriate by the municipal governing body for purposes of establishing or operating a consumer service district.

Section 13. A municipal governing body may dissolve its consumer service district by a two-thirds vote of its members.

Section 14. Notices pursuant to this chapter shall be by certified mail and deemed received three days after mailing.

Section 15. An electric company affected, directly or indirectly, by this chapter, shall comply with air pollution standards pursuant to chapter 111, chapter 164, and all other applicable federal and state laws regarding air emissions and the protection of environmental resources. Section 16. An electric company under contract to a consumer service district shall supply annual reports to the municipality. The annual report will verify compliance with the terms and standards in the contract. The annual report will also demonstrate the proper maintenance of the electric company's facilities. Failure to meet the terms or standards of the contract may trigger court actions for damages, or dissolution of the contract.

Section 17. This act, being necessary for the welfare of the Commonwealth and its electricity consumers, shall be liberally construed to effect the purposes hereof.

Section 18. The provisions of this act are severable, and if any provision hereof shall be held invalid in any circumstances, such invalidity shall not affect any other provisions or circumstances. This act shall be construed in all respects so as to meet all constitutional requirements. These provisions are intended to be in accordance with the existing rights and powers of municipalities, and not to interfere or restrict those rights and powers in any way.

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