Attorney General Martha Coakley’s office is questioning whether a charge paid by electricity ratepayers on Cape Cod and Martha’s Vineyard is an illegal tax rather than a fee.
The pointed query from the state’s top lawyer comes as part of an ongoing review by the state Department of Public Utilities of an update to the Cape Light Compact’s founding document.
The compact was formed in 1997 to buy power in bulk for electric customers on the Cape and Vineyard, provide energy-efficiency programs for local businesses and residents, and advocate for ratepayers.
In its bills to ratepayers, the compact charges an “operational adder” that’s equal to 1/10 of a cent per kilowatt hour. But the attorney general’s office argues that it needs more information to determine whether the charge is a fee or tax. If the charge is a tax, then it is illegal because taxes can be levied only with permission from the state Legislature, according to the filing submitted Friday from the Attorney General’s Office of Ratepayer Advocacy.
While supporters have argued that the compact and its financial support of the Cape and Vineyard Electric Cooperative – formed in 2007 to pursue renewable energy development – is a benefit to the region, critics have focused on the financial relationship between the agencies and transparency.
The attorney general’s filing marks the most significant line of questioning to date surrounding the agency’s collection of revenue.
The compact has funded the cooperative’s activities since its creation and will have supplied $3.7 million to the organization by the end of fiscal year 2015, according to compact officials.
That support as well as changes to the founding document, known as the aggregation plan, are potentially problematic if the money collected through the adder is found to be a tax, according to the attorney general’s office.
The attorney general says that under a standard of review established in a 1984 Supreme Judicial Court case, Emerson College v. City of Boston, a charge can be considered a fee and not a tax only if it passes all of the following tests: Be charged in exchange for a government service that benefits the party paying the fee in a manner not shared by other members of society; be paid by choice in exchange for the service; and be collected not to raise revenues but to compensate the government entity providing the services for its expenses.
The adder passes the second hurdle because customers can opt out of the compact’s power-supply program but it isn’t clear that it passes the other two, according to the attorney general’s filing.
The attorney general cites the collection of more than $1 million per year through the adder, the annual award of $400,000 to $500,000 in grants to the cooperative and the expenditure of $150,000 to $300,000 for attorneys despite limited legal work required for its power supply program.
“These payments strongly indicate that the Cape Light Compact cannot satisfy the third factor of the Emerson College test because it appears that the Cape Light Compact is collecting more than double what it requires to pay its costs,” according to the filing.
In addition, it appears that customers who pay the adder do not receive benefits that are not shared by the rest of society in the form of the compact’s advocacy and the cooperative projects, according to the attorney general’s office.
Compact officials and the agency’s attorney dispute the attorney general’s analysis and say much of the information being requested is out of the scope of the DPU review of the aggregation plan.
“It’s completely faulty,” said Jeffrey Bernstein of BCK Law, which represents the compact and cooperative. “It’s specious.”
Bernstein said the compact has no problem providing the attorney general with information but the requests don’t fall within the scope of the DPU’s review of the aggregation plan.
The attorney general has made similar arguments in the DPU’s review of other recently proposed aggregation plans and the DPU has rejected them, Bernstein said.
A spokeswoman for the attorney general declined to comment. But in the filing, Coakley’s office argues that the DPU’s rulings are wrong because they eliminate a requirement that law other than DPU regulations be considered in a review of the aggregation plan.
The compact will file a reply to the attorney general by Friday, Bernstein said.
“They’re misreading the law,” he said, adding that other divisions of the attorney general’s office have made contradictory arguments in other cases.
Compact Administrator Margaret Downey said the compact will do whatever the DPU requires but that it has been allowed to collect the additional charge since its formation.
The compact also has the authority to use the funds for “any lawful purpose,” she said. “It gives the (compact) governing board the authority to do what it has been doing.”
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