Utilities and other entities in Massachusetts have expressed support for a regulatory model that provides utilities certainty on grid modernization (GM) cost-recovery before they make such investments.
The “utility of the future, today” model also requires utilities to analyze GM investments from a broader societal point of view and evaluates and rewards good GM plan implementation and performance on an ongoing basis.
Besides National Grid USA, others that submitted comments to the state Department of Public Utilities (DPU) on July 24 on the Massachusetts Electric Grid Modernization Stakeholder Steering Committee’s July 2 report include the New England Clean Energy Council (NECEC) and ISO New England (ISO-NE).
New England Clean Energy Council and ISO New England
NECEC said in its comments that a more modern grid can provide a platform to promote and integrate clean energy resources including current, emerging and future technologies that will enhance the efficiency of grid operations, improve reliability and resiliency, empower customers to better manage their electricity use and provide them with new choices for meeting their energy service needs, and reduce the costs and environmental impacts of electricity use.
The DPU should establish a forward-looking regulatory framework that will facilitate grid modernization investment, while providing clear performance standards to ensure customers are well served, NECEC said, adding that the DPU “needs to move quickly.”
Also, the DPU should recognize the changes in electric technologies and expectations of electricity customers and “modernize” the regulatory framework, including its approach to benefit-cost analysis.
The DPU should adopt the “utility of the future, today” model, NECEC added, noting that two key features of that model are that it looks forward, recognizing that the industry is changing too rapidly to continue to look back, and requires performance to ensure that customers continue to be provided with good service.
Separately, ISO-NE said in its comments that in general, it supports the comments of the NECEC and others, but it emphasized that due to the independent role it has in overseeing the reliable operation of the region’s electric power system and administering the wholesale electricity markets, ISO-NE is neutral in the types of resources and energy technologies that support the power grid.
ISO-NE said it is committed to working with the New England states and industry stakeholders to ensure that different energy technologies can be integrated and interconnected in an economically efficient manner to ensure that reliability and consumer benefits are realized, thereby resulting in a modernized grid.
National Grid USA
National Grid USA said in its comments that investments in grid modernization are necessary to better meet the changing energy needs of its customers today and in the future.
The company urged the DPU to act swiftly to adopt the consensus regulatory framework, “utility of the future, today,” along with complementary regulatory policies for “distribution services pricing with transparency” and the “regulatory approval for time varying rates and direct load control” targeted proposal.
“Together, these models will promote efficient grid modernization through further alignment of government policies and customer expectations, and enable the development and approval of future utility investment and operation plans,” National Grid said.
The company also noted that since regulatory lag affects utilities’ financial performances, it also places pressure on utilities to limit investments when the utility must balance capital investment against earnings deflation. Accordingly, the company added, utilities will typically prioritize investments that maintain safe and reliable service over investments in innovation and grid modernization because there is significant precedence that such investments will meet the standard of good utility practice, as compared to more innovative and novel grid modernization investments.
To allow the investments in innovation and modernization of the electric grid that are needed to keep pace with customers’ rapidly changing needs, the DPU must consider an approach to utility regulation that aligns utilities’ future safety and reliability goals with the state’s future energy and environmental goals, stakeholder expectations and future customer expectations about the nature of electric delivery service.
The adoption of forward-looking regulation would align these goals while improving the utility’s ability to meet them by reducing or eliminating regulatory lag, with appropriate financial incentives for utilities to improve performance. Similarly, National Grid added, existing and new service quality metrics must be based on outputs that are controllable by the utilities.
Among other things, the company said that the “utility of the future, today” framework achieves those objectives by allowing utilities to file a forecasted, multi-year rate case for the DPU’s review and approval, including proposed capital and operational expenditures for each year of the plan, and incorporating elements of performance-based ratemaking to provide appropriate incentives to utilities while including safeguards to ensure customers continue to receive safe and reliable service.
National Grid is a subsidiary of National Grid plc.
Massachusetts Department of Energy Resources
In its comments, the state Department of Energy Resources (DOER) said that the threats posed by climate change, physical and cyber attack, along with advances in markets and technology provide the opportunity to transition the century-old electric delivery system to a modern and dynamic grid.
The DPU should follow the “utility of the future, today” regulatory framework or certain complementary or targeted regulatory policies, DOER said, adding, however, that in its analysis, the DPU should carefully consider the role of incentives for grid modernization beyond those incentives that are part of the current regulatory scheme.
Among other things, DOER said the DPU should provide guidance to utilities as soon as possible, preferably by Oct. 1, and encourage utilities, in the context of their next base rate proceeding, to include a grid modernization investment proposal consistent with the DPU’s directives.
Furthermore, the DPU should open a separate investigation into time varying rates and open a targeted electric vehicle (EV) proceeding.
The proceeding should be tailored to address such matters as establishing EV-related reporting and analysis requirements for utilities.
Attorney General, Low Income Network, Associated Industries of Massachusetts
In their comments, the state Attorney General, the Low Income Network and the Associated Industries of Massachusetts said that the DPU should put affordability, reliability and the safety of electric service at the forefront of its policy on grid modernization, noting that Massachusetts’ customers pay some of the highest rates in the nation.
While the final report is a good first step, it does not present specific evidence or a reasonable basis upon which to justify adoption of grid modernization policies that depart from the base rate case method of cost recovery or the DPU’s precedent on reviewing the cost-effectiveness of investments, the groups said. The electric distribution companies (EDCs) have already begun the grid modernization process through the automation of their distribution systems, they added.
Before the DPU adopts new regulatory policies that depart from its cost recovery and cost-effectiveness policies in place today, it should answer certain questions within company-specific adjudicatory proceedings, including what would it cost to achieve additional grid modernization technologies and programs that are incremental to those that are already installed or planned.
The DPU should adopt the “reasonable approach” to cost recovery and cost-effectiveness that the state Attorney General’s office and the Low Income Network have developed, and which was reflected in the enhanced regulatory model described in the final report, they added.
Under that model, the EDCs will continue to be required to show within a base rate case proceeding that investments are prudent, used and useful, least cost, and that they have been appropriately allocated among rate classes. That process helps ensure affordable rates and provides for a review of proposed rates and the bill impacts associated with those proposed rates, the state Attorney General, Low Income Network and the Associated Industries of Massachusetts added.
“Requiring investments today without fully considering the results of these pilots will yield uncertain future benefits and potential stranded costs,” they said. “Many technologies are not yet proven through wide-scale deployment to provide actual benefits, and in some cases, program benefits will hinge on customer engagement, which is uncertain.”
In its comments, Environment Northeast said the DPU should adopt rules that send the right economic signals to utilities and stakeholders to encourage grid modernization investments, including geographically targeted distributed generation, storage, energy efficiency and demand response that can address system peaks, reduce investments in distribution and transmission infrastructure and meet other grid needs identified by system planners.
Also, the DPU should define and adopt a framework for analyzing the costs and benefits of grid modernization investments as well as establish and appoint diverse stakeholder interests to a grid modernization advisory council (GMAC) to institutionalize the process of stakeholder participation and input.
A properly designed GMAC can serve as the primary forum for stakeholder input into utility grid modernization planning, ensure that utility plans and investments advance the goals of grid modernization, and can help resolve issues before utility plans and proposals come before the DPU, the group said.
Furthermore, ENE added, the DPU should begin a proceeding to examine the regulatory issues affecting electric vehicle deployment, including the role of electric vehicles in supporting the distribution system.
At current electricity and gas prices, a plug-in electric vehicle’s (PEV) fuel costs are 65% less per mile than a conventional medium-sized sedan. In 2011, ENE added, the state’s expenditure on imported gasoline and diesel was more than $3.1bn.
Additionally, the DPU should begin a proceeding to examine the role that advanced metering infrastructure, dynamic pricing and pro-active consumer engagement can play in, among other things, driving deep and persistent energy efficiency savings.
“In order to meet the climate and energy challenges currently facing the commonwealth, the energy system will have to undergo a transformation,” ENE said, adding that studies show that powering the heating and transportation sectors with electricity can deliver significant reductions in greenhouse gas emissions.
While regional expenditure on transmission infrastructure is planned to exceed $11bn between 2002 and 2017, of which about $5bn will be paid by Massachusetts ratepayers, recent activity at ISO-NE confirms that the state’s investments in distributed generation, clean energy resources and energy efficiency can help maintain grid reliability, avoid expensive transmission infrastructure and save ratepayers money.
Specifically, ISO-NE has said that state-level investments in energy efficiency have deferred the need to build $416m in transmission upgrades previously thought to be needed, ENE added.
NSTAR Electric, Western Massachusetts Electric Company
In their comments, Northeast Utilities’ (NYSE:NU) NSTAR Electric and Western Massachusetts Electric Company (WMECO) said that Northeast Utilities and others agreed during the grid modernization working group process that grid modernization investments should be made with the goal of accomplishing such outcomes as reducing the impact of outages, integrating demand resources and optimizing workforce and asset management.
Northeast Utilities, along with Unitil (NYSE:UTL), has developed a grid modernization regulatory framework – “Grid modernization expansion – pre-approval process” – that encourages the development of company-specific grid modernization plans geared towards meeting the DPU’s and the working group’s stated grid modernization goals. The process allows the distribution companies and their customers to leverage grid modernization opportunities, while keeping the safety and reliability of the electric distribution systems as a paramount consideration.
The process “provides the department the best opportunity to meet grid modernization goals and opportunities quickly and efficiently, at a reasonable cost to customers, and in a way that effectively interfaces with the distribution companies’ existing systems,” the companies said. “The proposed process focuses specifically on grid modernization plans, as opposed to subsuming grid modernization into an electric distribution company’s all-encompassing capital planning and investment process.”
Among other things, the companies said that they support the creation of an adjudicatory process before the DPU with the participation of stakeholders regarding their grid modernization plans in order to provide the DPU and interested stakeholders a full review of the proposed plan prior to implementation.
Under the process, grid modernization plans would contain a full examination of the cost-effectiveness of the technologies sought for inclusion in the plans, the companies said.