Section 11.03 - Transition Cost Recovery(1) Purpose. 220 CMR 11.03 establishes the procedures governing the identification, mitigation, and collection of Transition Costs.(2) Filing Requirements. No Transition Costs may be collected by a Distribution Company unless the collection of those costs has been approved by the Department. In order to recover eligible Transition Costs, a Distribution Company must file an application for review and approval with the Department, that includes the following information: (a) Documentation that the Distribution Company has filed on or before March 1, 1998, a plan to provide all of its Retail Customers the ability to purchase electricity from a Competitive Supplier as of Marsh 1, 1998;(b) Documentation that the Distribution Company, through the applicable Electric Company, has developed and will implement a plan to divest itself of its portfolio of all non-nuclear Generation assets by August 1, 1999;(c) Documentation that the plan formulated pursuant to 220 CMR 11.03(2)(a) provides a Standard Offer Generation Service rate and rate reduction as required pursuant to 220 CMR 11.04(9)(b)3.;(d) Identification of the following costs, incurred prior to January 1, 1996, for which the Distribution Company seeks recovery pursuant to M.G.L. c. 164, § 1G(b)(1): 1. The amount of any unrecovered fixed costs for Generation-related assets and obligations;2. The amount of any previously incurred or known liabilities related to nuclear decommissioning and post-shutdown obligations associated with nuclear power plants;3. The unrecovered amount of the reported book balances of existing generation-related regulatory assets; and4. The amount by which the costs of existing purchased power contract commitments exceed the competitive market price for electricity, or the amount necessary to liquidate such contracts.(e) Identification of the following costs, incurred after January 1, 1996, for which the Distribution Company seeks recovery pursuant to M.G.L. c. 164, § 1G(b)(2): 1. Employee-related Transition Costs;2. Any payment of taxes or payments in lieu of taxes made pursuant to M.G.L. c. 59, § 38H; and3. Any costs to remove and decommission retired structures at fossil fuel-fired generation facilities required pursuant to M.G.L. c. 164, § 1A(b)(2).(f) Documentation that the Distribution Company has taken all reasonable steps to mitigate to the maximum extent possible the total amount of Transition Costs for which recovery is sought pursuant to M.G.L. c. 164, § 1G; and(g) Documentation that the company's recovery of Transition Costs is net of the value in excess of book value for any company assets not classified to the transmission or distribution function.(3) Mitigation. (a) General Mitigation Requirements. Each Distribution Company seeking to recover Transition Costs pursuant to 220 CMR 11.03 shall, in accordance with the provisions of 220 CMR 11.03, mitigate any such Transition Costs pursuant to M.G.L. c. 164, § 1G(d). Mitigation efforts in which a company shall engage include, but not be limited to, the following: 1. The divestiture of non-nuclear Generation Facilities pursuant to M.G.L. c. 164, § 1A;2. A netting against book value of nuclear generating units of the net present value of the revenues in excess of operating costs expected to be earned by these units, and any other factors that should be recognized in assessing their value;3. Good-faith efforts to renegotiate, restructure, reaffirm, terminate, or dispose of existing contractual commitments for purchased power pursuant to M.G.L. c. 164, § 1G(d)(1)(ii) and M.G.L. c. 164, § 1G(d)(2);4. An examination and analysis of the historic level of performance over the life of such contractual commitments for purchased power, regardless of whether the purchased power contracts exceed the competitive market price for electricity;5. The netting against above-market costs of any below-market assets other than those assets classified to the distribution or transmission function; and6. Any other Mitigation and analytical activities that the Department determines to be reasonable and effective mechanisms for reducing Transition Costs.(b)Company Asset Valuation.1. If an Electric Company chooses to divest itself of its existing non-nuclear Generation Facilities, pursuant to M.G.L. c. 164, § 1A(b)(2), such Electric Company shall transfer or separate ownership of Generation, Transmission, and Distribution Facilities or functionally separate such facilities consistent with M.G.L. c. 164, § 1A(b). A Distribution Company shall be prohibited from selling, leasing, renting, or otherwise transferring all or a portion of any assets it obtains from the Electric Company pursuant to M.G.L. c. 164, § 1A(b) without the express approval of the Department. a. In the event that an Electric Company chooses to sell its existing Generation Facilities, such Electric Company shall demonstrate to the Department that the sale process is equitable and maximizes the value of the existing Generation Facilities being sold. All proceeds from any divestiture of Generation Facilities, net of tax effects and less any other adjustments approved by the Department that inure to the benefit of Customers, shall be applied to reduce the amount of the selling company's Transition Costs.b. If an Electric Company chooses not to sell its existing non-nuclear Generation Facilities, then the Electric Company shall transfer all of its non-nuclear Generation Facilities and purchased power contracts to an Affiliate that is a Generation Company, and shall value its nuclear and non-nuclear Generation Facilities and its purchased power contracts in accordance with M.G.L. c. 164, § 1A(c).2. An Electric Company that chooses not to divest all of its non-nuclear Generation Facilities shall subject its nuclear and non-nuclear Generation Facilities and purchased power contracts to a valuation pursuant to M.G.L. c. 164, § 1A(c). Should any Generation Facility transferred by the Electric Company to an unregulated affiliate or subsidiary be further sold, transferred to, or disposed of, to a third party within 48 months of the Generation Facility's transfer to an unregulated Affiliate or subsidiary of the Electric Company, then any amount recovered in such a sale, transfer, or disposition in excess of the remaining net book value of the Generation Facility shall be applied to reduce the amount of the selling company's Transition Costs.3. In the event that an Electric Company with Generation Facilities in the Commonwealth owns, or has an affiliate that owns, Generation Facilities in another state in the New England region, and the Electric Company chooses not to divest its existing fossil-fuel fired Generation Facilities and its existing hydroelectric Generation Facilities, the facilities shall be valued in accordance with M.G.L. c. 164, § 1A(d).4. An Electric Company that fails to commence and complete the divestiture of its non-nuclear Generation assets shall not be eligible to benefit from the Securitization provisions and the issuance of electric rate reduction bonds pursuant to M.G.L. c. 164, § 1H.(c)Purchased Power Contracts. Pursuant to the provisions of M.G.L. c. 164, § 1G(d)(1)(ii), and M.G.L. c. 164, § 1G(d)(2), an Electric Company and the sellers under its purchased power contracts shall make good-faith efforts to renegotiate those contracts that contain a price for electricity that is above-market as of March 1, 1998. For the purpose of 220 CMR 11.03, the standard of good faith shall not require either party to agree to a proposal or require the making of concessions, but shall require active participation in negotiations and a willingness to make reasonable concessions in order to equitably mitigate Transition Costs, and to provide justification for proposals, and shall demonstrate a sincere effort to reach agreement. Beginning July 1, 1998, and at least annually thereafter, a Distribution Company shall file information with the Department demonstrating whether or not each of the purchased power contracts contains a price for electricity that is above-market as of the date of review. If the prices in such contract are above-market, the Distribution Company and the seller under such contract shall, in accordance with the provisions of M.G.L. c. 164, § 1G(d)(2), make a good-faith effort to renegotiate such contract in order to achieve further reductions in the Transition Charge. The requirements of 220 CMR 11.03(3)(c) shall not apply to facilities that burn trash to generate electricity as specified in M.G.L. c. 164, § 1G(d)(2)(i). (d) Securitization. Each Distribution Company seeking approval to securitize Transition Costs pursuant to M.G.L. c. 164, § 1H must include in its filing: 1. Documentation of fully mitigated Transition Costs as approved by the Department;2. Documentation that savings derived from Securitization will inure to the benefit of the Distribution Company's Customers;3. Written commitments that purchasers of divested operations will offer employment to affected employees;4. Documentation that the Distribution Company has established, with the approval of the Department, an order of preference for use of bond proceeds such that the Transition Costs having the greatest impact on customer rates will be first to be reduced by the proceeds;5. Identification of financial entity to provide Securitization;6. Specification that the amounts collected from the Distribution Company's Customers shall be allocated first to current and past due Transition Charges and then other charges and that, upon 'the issuance of the electric rate reduction bond, Transition Charges collected shall be allocated first to transition property and second to Transition Charges, if any, that are not subject to a financing order; and7. A stipulation that Transition Charges be paid over to the financing entity within one calendar month of collection.(4)Transition Charge Calculation and Department Review.(a) The Department shall review Company Transition Cost filings to ensure that they comply with the provisions of M.G.L. c. 164, §§ 1A, 1G, and 1H.(b) The Department may allow any approved Transition Costs to be recovered from a Distribution Company's. Customers through a non-bypassable Transition Charge in accordance with M.G.L. c. 164, § 1G(e):(c) For purposes computing any carrying costs that the Department may allow in a Transition Charge calculation, the cost of equity component of any such computation shall be determined in accordance with M.G.L. c. 164, § 1G(b)(3).(d) The Department shall determine whether an exit fee may be charged to a Retail Customer that reduces purchases of electricity through the operation of, or purchases from, on-site generation or cogeneration equipment in accordance with the provisions of M.G.L. c. 164, § 1G(g). Facilities eligible for net metering shall be exempt from the six-month notice provisions of M.G.L. C. 164, § 1G(g).(e) Periodic review and reconciliation of the Transition Costs and Transition Charge of a company by the Department shall be conducted in accordance with the provisions of M.G.L. c. 164, §§ 1A(a) and 1G(a)(2).