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2012 Law & Public Policy

Using utilities regulation to make a greener Commonwealth

Douglas BalkoBy Douglas Balko | Download as PDF. The state’s utilities regulator recently changed the standard by which it approves mergers of utility companies.  The Department of Public Utilities abandoned its long-standing regulatory procedure on the heels of a merger petition by NSTAR Electric and Northeast Utilities in March 2011. The new standard requires utilities to show that by merging they would provide “net benefits” to the public, including to the Commonwealth’s increasingly robust environmental policy. The new standard is appropriate in view of new policy realities. In fact, it has already paid public dividends, as NSTAR and Northeast, in recognition of their obligations under the standard, recently agreed to purchase a substantial amount of clean, renewable energy from Cape Wind, the planned offshore wind farm in Nantucket Sound.

Climate change is caused by overabundant greenhouse gases. The function of these gases is to trap heat energy from the sun’s rays in the atmosphere. This process is beneficial, as it maintains the earth’s temperature at a level which sustains life on the planet. Greenhouse gases occur naturally in the atmosphere, but human activities, particularly those related to the production of energy, release greenhouse gases in massive amounts. As the atmosphere’s concentration of greenhouse gases increases so, does the amount of trapped heat. This results in higher global temperatures and extreme weather.

In recent years, Massachusetts has used several policymaking tools to abate its own contribution to climate change. First, in recognition of the close relationship between energy use and environmental quality, the executive branch re-organized its energy and environmental bureaus into one cabinet, the Executive Office of Energy and Environmental Affairs. Massachusetts is the first and only state in the nation to do so. Second, the Legislature passed a comprehensive law, the Global Warming Solutions Act. This act imposes limits on greenhouse gas emissions throughout the state. And when NSTAR Electric and Northeast Utilities petitioned to merge in late 2010, the state took the opportunity to use its utilities regulatory power to further its environmental goals.

Under Massachusetts law, DPU has the power to approve utility mergers deemed “consistent with the public interest.” Through agency adjudication over the years DPU has cometo define “consistent with the public interest” to mean “no net harm” to the public. In other words, a merger deemed to be neutral in its impact on the public was considered acceptable and would be approved. DPU relied on this standard for several decades. However, in light of the new requirements of the Global Warming Solution Act and other factors, DPU decided to reconsider its standard. As a result,utilities who now petition to merge in Massachusetts must demonstrate “net benefits” to the public, including furtherance of the state’s environmental goals. This is a much higher standard for the utilities to meet.

The primary policy argument advanced by opponents of the new standard is that “no net harm” has worked for decades –“if it ain’t broke, don’t fix it.” This argument is unpersuasive for two reasons. First, the “no net harm” standard is inconsistent with the Global Warming Act’s ambitious goals. The act requires the Commonwealth to take affirmative measures to reduce its greenhouse gas emissions. The merger of NSTAR and Northeast would create the largest utility in New England, and one of the largest in the United States. Under a “no net harm” standard, the merged entity would not reduce greenhouse gas emissions, but would continue business as usual. But if held to a higher standard,a company this large could be a blessing to the Commonwealth’s environmental policy goals. The electricity sector accounts for approximately 26 percent of the state’s greenhouse gas emissions. Thus, it is absolutely necessary to bring this crucial sector into a “net benefits” standard. That is the most effective way to accomplish the state’s environmental goals.

Second, and more fundamentally, a new standard is necessary to keep up with the times. Ultimately, the standard of review employed by DPU reflects what is “consistent with the public interest.” The weaker “no net harm” standard was established decades ago when little was known about climate change. Whatever the notion of the public interest then, it would be foolish to suppose it has not changed. The public interest is a protean, evolving assessment of what society needs now. The Legislature, the authoritative representative of the public interest, has made it clear that reduction of greenhouse gas emissions is in the public interest. DPU’s amendment of its standard was an appropriate response to this contemporary policy reality.  

Massachusetts has become a national leader in environmental policy. In order to continue as a national model, however, the state must use every tool at its disposal. Toughening the standard for approval of utility mergers goes a long way in keeping Massachusetts an environmental leader.

Douglas Balko is a second-year student at Suffolk University Law School. A graduate of Saint Joseph’s University in Philadelphia, Douglas is interested in environmental law, litigation, regulation, and land use. He will be working with the Massachusetts Attorney General’s Environmental Protection Division this summer.


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