Massachusetts electric distribution companies to submit grid modernization plan

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Massachusetts state regulators, in a June 12 order, required each electric distribution company to submit a 10-year grid modernization plan outlining how the company proposes to make measureable progress toward such grid modernization objectives as reducing the effects of outages.

The other objectives are optimizing demand, including reducing system and customer costs; integrating distributed resources; and improving workforce and asset management, according to the state Department of Public Utilities’ June 12 order.

“With this order, the department launches a new energy future for Massachusetts,” the department said. “The modern electric system that we envision will be clearer, more efficient and reliable, and will empower customers to manage and reduce their energy costs. The modern electric system will build on [Massachusetts Gov. Deval Patrick’s] Administration’s progress towards our clean energy goals by maximizing the integration of solar, wind, and other local and renewable sources of power. It will minimize outages by automatically re-routing power when lines go down, and immediately alert the utility when customers have lost power.”

Because customers will have new tools and information to enable them to use less electricity when prices spike, the electric system will be appropriately sized and less expensive.

 

As TransmissionHub reported, the department, in an October 2012 order, said it will examine its policies to ensure that the companies adopt grid modernization technologies and practices in order to enhance the reliability of electricity service, reduce electricity costs and empower customers to adopt new electricity technologies and better manage their use.

The department said at the time that it intends to form a grid modernization stakeholder working group, which will include the electric distribution companies and others, to discuss issues facing the grid and customers and to develop recommendations to the department.

In its June 12 order, the department said that in their plans, companies must outline their timing and priorities for all their grid modernization planning and investment over the 10-year period. The state Department of Public Utilities (department) also said that a company’s plan must include a marketing, education and outreach plan with a component that is common to all the companies, as well as a company-specific, local component; a research, development and deployment plan; and proposed infrastructure and performance metrics to measure progress in achieving grid modernization objectives, including common statewide and company-specific metrics.

In its first plan filing, a company must include a five-year, short-term investment plan, which applies only to a company’s capital investments. A short-term plan must include an approach to achieving advanced metering functionality within five years of the department’s approval of the plan. Capital investments included in the short-term plan, the department added, must be supported by a comprehensive business case analysis.

If that analysis does not justify deployment of advanced metering functionality within five years, the company may include an alternative proposal to achieve that functionality within a longer timeframe, together with a business case analysis that justifies the alternative.

The short-term plan may include a proposal for grid modernization capital investments other than those associated with advanced metering functionality, again including a business case analysis, the department added.

Investments contained in the short-term plan, that is, capital investments made during the first five years of the plan, are eligible for pre-authorization, which involves a review of the company’s cost estimates for a project, such that the department will not revisit in later filings whether the company should have proceeded with those investments. However, the department will review the prudency of the company’s implementation of those investments.

In order to remove what may be impediments to some grid modernization investments, the department concluded that a capital expenditure tracking mechanism should be available for incremental capital investments included in the short-term plan. The department also said that it finds that this targeted cost recovery mechanism appropriately provides more favorable cost recovery for the companies and reduces their risk associated with grid modernization investments.

The short-term plan investments that are eligible for targeted cost recovery are those incremental capital investments made within five years of approval of a company’s plan and made for advanced metering functionality or other incremental grid modernization capital investments, but the latter only as part of a short-term plan that also addresses advanced metering functionality. In other words, the department added, targeted cost recovery will not be available for other investments if the company is not also investing in advanced metering functionality.

To be eligible for targeted cost recovery, although investments associated with advanced metering functionality must be made within five years, they need not be used and useful by the year for which cost recovery is sought. The department also noted that it recognized that the deployment of advanced metering functionality could require investments that, for various reasons, might not satisfy a strict application of the used and useful standard for some time after the investment is made.

If a company can show that is the case, the department will allow recovery through the targeted cost recovery mechanism. By contrast, investments made for grid modernization capital projects other than those associated with advanced metering functionality must be used and useful within the five-year period and by the year for which cost recovery is sought, under the department’s usual ratemaking policy.

The department also noted that the companies need more than six months to develop and present meaningful plans, as well as further guidance from the department regarding the implementation of time varying rates (TVR) and how companies should present the business case for capital expenditures in their plans.

The department determined that the companies’ ability to file meaningful plans is not contingent on prior completion of the department’s electric vehicle proceeding (D.P.U. 13-182) or resolution of issues related to cyber security, privacy or access to meter data.

“[W]hile resolution of these issues is not necessary for companies to file meaningful plans, the department intends to address privacy, data access, and the use of aggregated interval data in more detail well before any wide-scale collection of interval data takes place,” the department said.

Electric distribution companies must file their first plans within nine months of the later of the department’s final order in TVR (D.P.U. 14-04) and the department’s final directive to companies regarding the presentation of their plan business cases for capital expenditures.

The department also said that once the companies file their plans, the department would review each filing in a separate adjudicatory proceeding to ensure that each plan is consistent with the department’s directives.

Time varying rates

Separately on June 12, the department issued the “anticipated policy framework for” TVR, noting that it opened in January an investigation into TVR, which will allow customers, assisted by new technologies like advanced meters, to respond to the actual varying costs of electricity and, among other things, allow individual customers to save money by altering usage based on price signals that reflect those actual costs.

As part of the investigation, the department solicited comments from interested persons on various questions. The department added that the state is several years from the implementation of widespread TVR and that technology changes may occur in the interim. Thus, it said it is aware that the framework may not capture all of the issues that will need to be resolved before TVR are offered on a widespread basis in Massachusetts.

Basic service, or the default electricity supply provided by distribution companies, should include TVR for all rate classes following the deployment of advanced metering functionality. While TVR options in basic service may be an appreciable change for customers, they are used to TVR for various purchases, including hotel reservations and airplane tickets. By pricing services in this way, the department said, consumers are able to maximize the value they derive from those products, and the department expects that consumers will do the same with electric service.

Electric distribution companies will continue to be basic service providers and will offer two basic service options: a default product with a time of use (TOU) pricing structure that includes a critical peak pricing component and a flat rate with a peak time rebate (PTR) option. The latter option will more closely approximate the existing basic service product for customers who prefer the status quo basic service offering.

With a PTR, for instance, customers will receive a rebate if they lower their electricity use relative to a pre-established baseline during times when wholesale hourly energy prices are highest. Thus, under PTR, customers will have an incentive to lower their electricity usage when it is most critical to do so, but even those who ignore the incentive will be insulated against higher peak prices because they will pay one price for all electricity consumption, the department added.

Among other things, the department said that the change in basic service from a predominantly flat-rate structure to one in which TVR become the default option will not occur overnight and is likely to be a multi-year process. Thus, by signaling the department’s policy direction early, the department said it provides ample time for stakeholders and customers to adjust to the change.

Written comments on the policy framework are due by July 3.

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