Massachusetts DPU Issues a Strong Order on Grid Modernization

You don’t have to read far in the Massachusetts Department of Public Utilities’ recent Order on Grid Modernization, D.P.U. 12-76-B , to get a sense of what a significant step the DPU believes it is taking:

With this Order, the Department launches a new energy future for Massachusetts. The modern electric system that we envision will be cleaner, more efficient and reliable, and will empower customers to manage and reduce their energy costs. The modern electric system will build on the Patrick 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.

That vision of a modern electric system entails a rethinking of the role of the electric grid, the services we expect it to provide, and the way in which we pay for those services. And it is a big deal that the DPU is taking steps to not only imagine what that future might look like, but also how we can plot a path to get there. Delivering on that vision without a tumultuous transition period, however, will be a tall task, and jurisdictions across the country, many of which are also struggling with how technological advancements will reshape what we expect from our electric systems, will be watching what happens in Massachusetts.

The DPU rightly acknowledges that its role in bringing about a modern grid is limited, and that the grid’s future will be shaped by innovation and technological development:

This Order establishes the platform and the incentives for utilities and other businesses to innovate and invest in new technology, to continue to upgrade our current infrastructure, and to increase the use of renewable energy, electric cars, energy storage, and microgrids.

But the DPU’s role is critically important. In order for technological advancements and business innovations to reshape the electric system in a prompt timeframe and without undue snags for ratepayers, we will need the “platform and the incentives” set up by regulators to facilitate experimentation, implementation, and adoption of new technologies and strategies, and to set up clear frameworks for how new costs and benefits will be divvied up among stakeholders.

In its Order, the DPU has endeavored to graft a process for facilitating innovation and change onto a regulatory structure that is not perfectly suited to encourage rapid industry transformation. Although the DPU stopped short of moving from a historic test year to a future test year in its rate setting approach – a change that many argued would free utility companies to be more aggressive in pursuing the implementation of promising new technologies and strategies, but which the DPU ultimately decided would subject ratepayers to too much risk and entail to much concurrent change – it did take some significant steps to improve upon the straw proposal it issued at the end of last year.

The general approach is unchanged from the straw proposal. Most of the detail is left to the electric distribution companies which are required to file comprehensive, ten-year grid modernization plans (GMPs) outlining the steps they propose to take to meet key grid modernization objectives (reducing the effect of outages, optimizing demand, integrating distributed resources, and improving workforce and asset management) as well as a marketing, education, and outreach plan, proposed metrics for assessing performance on the objectives, and a research, development, and deployment plan. Each GMP will be subject to an adjudicatory review by the DPU.

Part of the first GMPs will be a five-year capital investment plan supported by a business case analysis that must include a plan for achieving “advanced metering functionality” within five years. This part of the plan, if approved, will be subject to favorable rate recovery through a capital expenditure tracker mechanism. Although the five years for achieving advanced metering functionality in this final order is less ambitious than the three years proposed by the DPU in its straw proposal, the DPU made two changes that are likely to appeal to proponents of rapid investment in grid modernizing infrastructure. First, the DPU made clear that capital investments other than those made to support advanced metering functionality will also be eligible for the favorable rate recovery procedures (as long as the distribution company is also making investments in advanced metering functionality) – a change that should facilitate investment in a broader array of technologies capable of providing immediate benefits. Second, by clarifying the adoption of a capital expenditure tracker mechanism and firming up its commitment that preauthorized expenditures will not be second-guessed in later regulatory processes, the DPU likely reduced the chilling effect that regulatory risk will have on utility investments.

The success of the process laid out by the DPU now depends in large part on the electric distribution companies, whose GMPs will provide the starting point for the next phase of the grid modernization discussion in Massachusetts. We should expect the first GMPs to be filed at the DPU in about a year, but stakeholder processes, which are required by the DPU’s Order, are likely to start much sooner.

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