BOSTON >> Electric utilities cannot pass on to their Massachusetts ratepayers the costs of financing new natural gas pipelines, the state's highest court ruled on Wednesday.

The unanimous decision from the Supreme Judicial Court was cheered by environmental groups, which dubbed the proposed tariffs a "pipeline tax." It was a setback, however, for Republican Gov. Charlie Baker's administration, which had viewed the financing mechanism as a means of increasing natural gas capacity and stabilizing electricity prices. Natural gas is the state's leading source of energy for generating electricity.

The Department of Public Utilities approved a rule last year that would authorize electricity distribution companies such as Eversource and National Grid to enter into long-term contracts with natural gas suppliers and recover through the tariffs some of the costs associated with pipeline construction.

The utilities argued that without those financial assurances, pipeline companies would not assume the risks involved with new construction.

The Conservation Law Foundation filed suit against the tariffs, arguing they ran afoul of a 1997 state law that restructured the electricity market in Massachusetts to separate companies that generate electricity from those that distribute it to consumers.

The high court agreed.


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"The department's interpretation of the statute as permitting electric distribution companies to shift the entire risk of the investment to the ratepayers is unreasonable, as it is precisely this type of shift that the Legislature sought to preclude through the restructuring act," the justices declared.

David Ismay, CLF's lead attorney in the lawsuit, said the ruling makes clear that residential electricity customers cannot be forced to shoulder costs for private gas pipelines.

"Today our highest court affirmed Massachusetts' commitment to an open energy future by rejecting the Baker Administration's attempt to subsidize the dying fossil fuel industry," said Ismay, in a statement.

ENGIE, a company that operates a liquefied natural gas terminal in Everett, Massachusetts, also sued to block the tariffs.

The Department of Public Utilities planned to suspend hearings on agreements Eversource and National Grid had reached with Spectra Energy for its proposed Access Northeast pipeline while the agency reviews the high court decision, administration officials said. No tariffs had yet been imposed by the state.

"Massachusetts has some of the highest electricity rates in the nation and without additional gas capacities and a diverse energy portfolio, the trends will continue to rise overtime," said Peter Lorenz, a spokesman for the state Office of Energy and Environmental Affairs. He said the DPU respects the high court's decision.

National Grid, in a statement, called the ruling a "disappointing setback," but said it would continue exploring options for moving forward with the Spectra pipeline. The company said the project would make the New England electricity grid more reliable and eventually save its customers more than $1 billion a year.

Democratic Attorney General Maura Healey, whose office generally represents state agencies in lawsuits, instead filed a brief on behalf of the plaintiffs opposing the tariffs.

The Supreme Judicial Court's decision "makes clear that if pipeline developers want to build new projects in this state, they will need to find a source of financing other than electric ratepayers' wallets," said Healey.

The state Senate voted earlier this year to clarify in state law that utilities could not pass pipeline construction costs on to ratepayers, but the provision was dropped from the final version of a bill signed last week by Baker that seeks to boost the state's reliance on hydropower, offshore wind and other renewable energy sources.

Wednesday's ruling could have ramifications beyond Massachusetts, as Spectra has said the pipeline could serve more than 60 percent of New England's gas-fired electric generating plants.

The Maine Public Utilities Commission approved a plan last month to require utility ratepayers to help pay for expanded natural gas, but only if other New England states acted accordingly.