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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 of the
Securities Exchange Act of 1934
Date of Earliest Event Reported: September 12, 1996
MASSACHUSETTS ELECTRIC COMPANY
(exact name of registrant as specified in charter)
Massachusetts 0-5464 04-1988940
(state or other (Commission (I.R.S. Employer
jurisdiction of File No.) Identification No.)
incorporation)
25 Research Drive, Westborough, Massachusetts 01582
(Address of principal executive offices)
(508) 389-2000
(Registrant's telephone number, including area code)
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Item 5. Other Events
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As previously reported, in May 1996, the Massachusetts
Department of Public Utilities (MDPU) issued a set of proposed
rules and regulations which would allow all customers of
Massachusetts investor-owned utilities to choose their
electricity supplier beginning in 1998. On September 12, 1996,
the Attorney General of Massachusetts and New England Electric
System (NEES) subsidiaries Massachusetts Electric Company
(Massachusetts Electric) and New England Power Company (NEP)
announced that they had reached agreement on a plan which, if
approved by the MDPU, would implement retail choice in 1998 and
provide Massachusetts Electric and NEP recovery of stranded
costs.
Under the plan, all customers of Massachusetts
investor-owned utilities would have the ability to choose an
alternative supplier beginning on January 1, 1998. Until a
customer chooses an alternative supplier, that customer would
receive "Standard Offer" service which would be priced to
guarantee that customer at least a ten percent savings from
today's electric prices. Distribution utilities would purchase
power for "Standard Offer" service from suppliers through a
competitive bidding process. NEP would be eligible to bid.
Under the plan, NEP's wholesale rates would be frozen until
the commencement of retail choice in Massachusetts. Upon the
commencement of retail choice in Massachusetts, NEP's wholesale
contract with Massachusetts Electric would be terminated. In
return, the cost of NEP's past generation commitments to serve
Massachusetts Electric's customers would be recovered through a
transition access charge on retail distribution rates. Those
commitments are currently estimated at approximately $4 billion
on a present value basis (of which Massachusetts Electric's share
is approximately $3 billion). The aggregate amount of the
transition access charge would be reduced by the fair market
value of NEP's non-nuclear generating assets. The value of such
generating assets would be determined by selling, spinning off,
or otherwise disposing of at least a 15 percent interest in such
generating facilities.
Sunk costs associated with generating plants and regulatory
assets would be recovered over a period of 12 years, with an
initial return on equity of 9.4 percent. Purchased power
contracts and nuclear decommissioning costs would be recovered as
incurred over the life of those obligations, a period expected to
extend beyond 12 years. The initial transition access charge
would be set at 2.8 cents per kWh through December 31, 2000, and
is expected to decline thereafter. As the transition access
charge declines, NEP would earn mitigation incentives which would
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supplement its return on equity above the initial 9.4 percent
during the twelve year transition period.
The plan also establishes performance-based rates for
Massachusetts Electric. Under the plan, Massachusetts Electric's
non-fuel rates would be frozen at current levels until the
commencement of retail choice. Upon commencement of retail
choice, Massachusetts Electric would receive an approximately $45
million increase in its distribution rates, with such rates then
frozen through the year 2000. Massachusetts Electric's return on
equity would be subject to a floor of 6 percent and a ceiling of
11 percent, effective upon commencement of retail choice.
Earnings over the ceiling would be shared equally between
customers and shareholders up to an absolute cap of 12.5 percent.
To the extent that earnings fall below the floor, Massachusetts
Electric would be authorized to surcharge customers for the
shortfall.
The NEES Companies and the Attorney General will present the
plan to other industry stakeholders with the intent of reaching
consensus with other parties before filing the plan with the MDPU
on October 1, 1996. It is not known when the MDPU will issue a
decision on the plan. Implementation of the plan is also
subject to enactment of enabling legislation by the Massachusetts
legislature and the approval of the Federal Energy Regulatory
Commission.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this Current Report on
Form 8-K to be signed on its behalf by the undersigned thereunto
duly authorized.
MASSACHUSETTS ELECTRIC COMPANY
s/Michael E. Jesanis
By _________________________
Michael E. Jesanis
Treasurer
Date: September 12, 1996
