On December 23^rd, the Massachusetts Department of Public Utilities (DPU) issued a straw proposal in docket 12-76 outlining a regulatory mechanism intended to advance modernization of the electric grid in Massachusetts.  The DPU’s proposal follows a year of public process that resulted in a stakeholder “working group” that submitted a report to the DPU in July.  Comments on this important proposal are due by January 17^th and hearings are scheduled for February.

In its current form, the DPU’s proposal would require electric distribution companies to submit “ten-year strategic grid modernization plans” or “GMPs” that lay out how each company intends to make progress towards four grid modernization objectives:

1. Reducing the effects of outages (for example, by using technologies capable of reducing the frequency and duration of outages);
2. Optimizing demand (including reducing system and customer costs by shifting demand to off-peak periods, reducing line losses, and using conservation voltage reduction programs);
3. Integrating distributed resources (including microgrids and energy storage); and
4. Improving workforce and asset management (for example, by using technology to more effectively deploy storm-response resources).

The first GMPs would be due within 6 months of the final order in this proceeding, and they would be updated with each rate case (which must occur no less often than every 5 years).  The companies’ GMPs would be reviewed by the DPU in separate proceedings to assess compliance with grid modernization objectives.  Future GMPs would include reporting on implementation and progress towards metrics – which have not yet been selected, but which could be used to set financial incentives.

The piece of the DPU’s proposal most likely to draw immediate attention is a requirement that, in their first GMP, each electric distribution company include a “comprehensive advanced metering plan” or “CAMP” for achieving “advanced metering functionality” within three years.  (The three year target applies with the assumption that the benefits of achieving advanced metering functionality justify the costs – the benefits and costs of achieving advanced metering on this timeline may well prove controversial.)  The DPU proposes that CAMPs would include:

1.  A technology proposal and implementation plan (including a marketing, education, and outreach plan);
2. A business case with a benefit-cost analysis;
3. A request for pre-authorization of investments; and
4. A request for a mechanism to allow for more timely cost recovery than is typically available.

Achieving the advanced metering functionality described by the DPU within three years would be a significant step towards enabling the electric grid in Massachusetts to deliver on the promise of grid modernization benefits.  Indeed, the DPU’s prioritization of advanced metering functionality is based on a determination that advanced metering is a necessary platform for fully realizing other benefits associated with grid modernization.  But the three year target depends on a benefit cost assessment that is not clear in advance and will rest in large part in the hands of the electric distribution companies.  If the DPU’s proposal goes forward, it will be interesting  to see how the electric distribution companies assess the benefits and costs of implementing advanced metering functionalities.

Even beyond the CAMPs, the issue of how to assess the benefits and costs of grid modernization investments is no easy matter.  Adopting one of the approaches put forward in the working group’s report, the DPU has proposed that electric distribution companies present a benefit-cost analysis of proposed investments within a “business case” that includes assessment of costs and benefits that cannot reasonably be quantified.  This flexible approach will potentially allow for a fuller consideration of all the benefits and costs of proposed investments than more restrictive “tests” that might be applied, but it will also leave the electric distribution companies significant discretion in how they present their proposals, and ultimately in shaping the extent and direction of investments.  The DPU, perhaps cognizant of that fact, included in its straw proposal an extensive (though incomplete) listing of costs and benefits it would expect to see considered in GMPs.

Another issue that could significantly impact the extent to which the DPU’s proposal encourages investment in new technologies is whether the cost-recovery mechanism proposed appropriately incentivizes the scope of investment that the DPU seems to envision.  Although the working group report submitted in July presented several possible regulatory frameworks for addressing grid modernization, the DPU largely decided to incorporate review of grid modernization investments into the existing framework: evaluation in rate cases.  However, the DPU proposes to use a somewhat different treatment for the CAMPs (i.e. the required investment in advanced metering).  Under the approach proposed by the DPU, the DPU would review the CAMPS, and could “preauthorize” proposed investments, eliminating the need for a later review of the investment beyond a review of whether the implementation of the investment was prudent and whether the investment is “used and useful.”  The DPU proposes allowing the companies to seek targeted cost recovery treatment for the advanced metering investments proposed in their CAMPs in the form of a capital expenditure tracking mechanism until such costs are incorporated into the companies’ base distribution rates.  This process falls short of some of the proposals put forward by the working group, but has familiarity in its favor.