Massachusetts regulators ordered the state’s utilities to develop a grid modernization plan (GMP) in 2014 but divergent approaches have so far prevented implementation.

The Department of Public Utilities' (DPU) June 2014 order (12-76-B) identified four objectives. Utilities were to reduce the effects of outages, optimize demand to reduce system and customer costs, integrate distributed energy resources (DER), and improve workforce and asset management.

The order’s first specification was that utilities prioritize advanced metering functionality (AMF). It is “the basic technology platform for grid modernization” and can “further all four of our grid modernization objectives,” the DPU wrote.

The order promised “preferential regulatory treatment” for AMF — as opposed to basic smart meter investments. And it instructed utilities to detail the costs and benefits of implementing AMF over five and ten years. A subsequent November 2014 order (12-76C) specified that the AMF must support default time varying rates (TVR) that have a time-of-use component, critical peak pricing component and include all customers.

The orders came from a DPU appointed by former Gov. Deval Patrick (D), but all three commissioners have changed since Gov. Charlie Baker (R) took office in January 2015. In the summer of that year, National Grid and Eversource, the state’s two investor-owned utilities, submitted very different grid modernization plans to the regulators.

The Baker-appointed commission did not act on the plans during most of 2016, but stakeholder filings in the dockets shaped the ongoing debate on the relative merits of the utilities' differing approaches.

In January 2017, Eversource complicated the GMP proceeding with its General Rate Case (GRC) filing. The utility’s rate proposal included a $400 million investment in “grid-facing” modernization technologies like sensors and switches — technologies that might also be included in the GMP proposal along with “customer-facing” investments like advanced metering.

The move complicated an already complex debate over how the GMP proceeding should evolve. National Grid’s GMP followed guidelines from Patrick’s DPU to achieve full AMF and put in place default TVR within five years. Eversource’s would achieve neither of those objectives, instead opting to introduce a new rate design concept and seek alternative paths to cost recovery for its GMP assets.

The Baker-appointed commission must now decide how to proceed — either follow the GMP guidelines outlined by their predecessors, accept Eversource’s new approach, or go back to the drawing board. Time is short, as the Eversource rate case, with its included modernization proposals, must be decided by the end of 2017.

The National Grid plan

The four scenarios in the National Grid GMP (15-120) meet the Patrick DPU’s objectives, the utility’s filing reports. In them, National Grid offered varying levels of AMF investments in "communications, customer load management, distribution control systems, advanced distribution automation, voltage management, cybersecurity, and associated foundational infrastructure.”

The technologies will give grid operators more visibility into the distribution system and open opportunity to the private sector, the filing reports.

Importantly, the AMF that replaces advanced meter reading (AMR) technology “will give customers "detailed real-time information on their own energy use to allow them to respond to TVR by modifying their electricity use,” the filing said.

The utility’s Balanced Scenario offers the most benefits and “a benefit-cost ratio of 1.19,” spokesperson Robert Kievra emailed Utility Dive. An investment with a ratio over 1.0 is considered favorable.

National Grid’s other scenarios — AMI-Focused, Grid-Focused, and Opt-In — are variations with lower than 1.0 benefit-cost ratios. But they offer “significant customer benefits,” the utility wrote. Only the Opt-In Scenario does not meet the DPU’s requirement that time-varying rates are the default for all customers.

All scenarios will be evaluated with clear metrics and each offers alternative investment combinations among “grid-facing” capital additions and “customer-facing” capital spending, the utility argued.

The “experience, lessons learned, and overall evaluation” of a recent “comprehensive smart grid pilot” informed the proposal, Kievra wrote.

The Eversource plan

The original Eversource filing in its grid modernization proceeding (15-122) is now called the Incremental Grid Modernization Plan (IGMP). The grid modernization investments shifted to its GRC (17-05) are now called the Grid Modernization Base Commitment (GMBC).

The IGMP involves “targeted investments” in customer-facing elements of the 2015 filing. They will “facilitate the Department’s grid-modernization goals,” Eversource reported, while the grid-facing elements now make up the GMBC in the rate case proposal.

The investment required for the IGMP would be $138.2 million over five years, Eversource reported. That expenditure would cover costs for meters, IT systems, cybersecurity, and other enabling technologies.

Eversource’s investments are lower than some proposed by National Grid because Eversource is planning only for an opt-in TVR option, which would attract significantly fewer customers to variable rates.

Eversource argued in its filings that its decision to exclude a default TVR option is due to the low benefit-cost ratios TVR offers. According to its calculations, an opt-in approach with 20% customer participation produces a 0.4 ratio, while the default ratio is lower.

The GMBC is one half of Eversource's GRC Grid-Wise Performance Plan (GridWise). It includes two investment categories.

Investment in distribution system network operations would be $339 million. It would cover system management, automation, communications and energy storage.

Investment in customer engagement and enablement would be $60 million for DER integration and to prepare for transportation electrification.

The other half of Grid-Wise is a proposed performance-based ratemaking mechanism (PBRM). Five-year performance targets like those in the GMBC could allow the utility to stay out of general rate cases for extended periods, saving time and regulatory costs, Eversource argued. The $400 million GMBC investment would be absorbed by Eversource until its next rate case if the DPU approves the PBRM plan, the utility promised.

Unlike other jurisdictions’ performance-based ratemaking (PBR), the PBRM does not include penalties or financial incentives except those in the goals of the GMBC, the utility acknowledged. Its PBRM is intended to allow it flexibility “to pursue innovation and customer-engagement initiatives.” Regulatory oversight would be through annual reports to the DPU.

The PBRM does not mean Eversource’s commitment to grid modernization will remain limited, its rate case proposal added. The utility “fully anticipates that the GMBC will be expanded upon, modified, and supplemented,” it reported. “The GMBC represents a necessary and important first step in the progression to a transformed distribution system.”

Eversource declined Utility Dive’s request to discuss its proposals further.

AG leans toward National Grid filing

In Massachusetts, the Attorney General’s Office represents ratepayers. A spokesperson for Attorney General Maura Healey told Utility Dive that she favors grid modernization because it will support “reliability and resiliency” and “newer, cleaner technologies.” But it could “require many millions of dollars of capital investments by the utilities over the next five to 10 years.”

The GMPs from the state’s utilities need “significant improvements,” an assessment by the attorney general concluded. The amount and timing of their investments and the metrics by which they measure benefits are inadequate.

National Grid’s GMP lays out its ten-year plan and offers both “grid-facing” and “customer-facing” five-year plans to qualify for “preferential regulatory treatment,” the attorney general’s filing reported.

The Balanced Scenario’s ten-year proposed investment is highest, at $1.275 billion. The Opt-In Scenario is lowest, at $524 million, but its benefit-cost ratio of just over 0.50 is also lowest of the scenarios. National Grid would get to 100% deployment of AMF in five years through the Balanced and AMI-Focused Scenarios, according to the attorney general’s filing.

Because much of National Grid’s proposed grid-facing investment is “critical to grid modernization,” Healey’s office endorsed it. But the utility did not, she said, “identify sufficient ratepayer benefits to justify” proposed investments in customer-facing AMF.

But National Grid’s GMP offers “key insights” on how “to unleash the full panoply of ratepayer benefits of AMF, at the lowest possible cost,” the attorney general’s office added. The DPU should use it to improve benefit estimates and data access protocols and to learn how to “maximize TVR-related benefits of AMF in a world where basic service participation is declining.”

The Eversource plan, on the other hand, “falls far short” of the DPU’s 2014 order to develop plans for full AMF and default TVR, Healey’s office concluded. It is “far too modest and ineffective” and will bring “only 5% of its customer base” to AMF and TVR.

The attorney general found Eversource’s GridWise would increase customer rates 20%, or $284 million, over five years. And its spending does not qualify “for expedited cost recovery” under the terms of the 2014 order, her office added.

The PBRM proposal is performance-based regulation “in name only,” Healey’s office wrote, because it “is not tied to quantitative improvements in service reliability, resiliency, energy efficiency, environmental benefits, or resource diversity.”

It is “not just and reasonable” ratemaking, Healey argued. It is “a multi-year ‘rate increase plan’ consisting of a series of automatic annual rate increases that have no measurable tie-in to cost incurrence and no connection to actual performance.”

The DPU should not approve the $284 million rate increase, her office wrote, and should also not “pre-approve a $400 million investment plan lacking in critical details and providing no guarantee that ratepayers will benefit.”

Massachusetts agencies have formal regulatory practices “to address grid modernization, electric vehicles and storage, and the role that utilities should play in their advancement,” the attorney general argued. Eversource can make the grid-facing grid modernization investments for its distribution system “and seek recovery as it would for any other capital investment,” her office wrote.

Divergent approaches

Former DPU staffer Jennifer Nelson, now a manager with energy consultant ScottMadden, said National Grid and Eversource have long shown differing approaches to grid modernization. An example is their smart grid pilots, she said.

National Grid’s pilot was an approximately $50 million program involving 15,000 customers and a full AMI rollout, while Eversource proposed a smaller, more targeted pilot that retrofitted its current AMR, Nelson said.

Nelson saw similar differences in the GMPs. National Grid offered four scenarios and higher levels of spending while Eversource proposed more targeted investments. She pointed out that Eversource’s five-year investment plan fell in the middle of National Grid’s spending proposals by dollar amount.

Acadia Center Staff Attorney Mark LeBel said his impression was that the attorney general concluded National Grid was too "optimistic" about the benefit projections, while Eversource was too "pessimistic" about the benefit projections.

Eversource’s decision to move the bulk of its capital expenditures to the GRC seemed to be attempt to achieve higher returns on the investment in the rate case than it would in the GMP proceeding, LeBel said.

“A 3.5% annual increase in revenue on your gross distribution revenue is just fundamentally different than capital cost recovery for some of the significant grid modernization investments,” he said.

LeBel pointed out putting the investments in the GRC was also to Eversource’s advantage because it would allow cost recovery sooner.

“The DPU is required to decide rate cases within ten months, but the grid modernization proceeding has no time limit,” he said.

Nelson agreed that Eversource may have seen the GRC as a faster way to move forward with some of the GMP investments. But, she said, Eversource may also be motivated by its PBRM proposal.

It is possible Eversource’s strategy to move some GMP investments to the GRC was to encourage the DPU to approve the PBRM because the DPU wants to move ahead on grid modernization, she suggested.

Back to the DPU

During the Patrick administration, Nelson said the commissioners’ intent with grid modernization was to “to lay enough groundwork and precedent to enable future commissions to move it forward.”

A compromise to achieve the 2014 order’s intent is still possible, she said. “If the DPU were to authorize recovery of its cost, Eversource could be more open to make the investment in full AMF.”

LeBel agreed grid modernization still has some momentum because of the Baker DPU’s work. “And there is enough interest from both the utilities and the [attorney general] and other stakeholders and, probably, the legislature, that the commission realizes ignoring it is not an option.”

But, he said, none of the stakeholders are completely happy with the utilities’ GMPs. “If anything is going to get approved, it’s going to need a lot more work.”