Regulator Rejects Utility's Application To Include Customer-Facing Smart Grid Costs In Distribution Rates (Costs Currently Recovered In Default Service Rates)

October 1, 2019

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The Massachusetts DPU, in an order on a National Grid electricity rate case, rejected Nation Grid's proposal to move certain customer-facing smart grid costs from basic service (default service) rates to base distribution rates

Customer-facing technologies refers to the advanced digital meters and in-home customer information and energy management technologies accompanying a dynamic pricing program for basic service customers. Since the pilot is for basic service customers, costs are currently recovered through basic service rates.

The DPU noted that, "In D.P.U. 11-129, at 101-102, the Department approved National Grid’s proposal to recover customer-facing smart grid pilot program costs from the Company’s basic service customers through smart grid customer cost adjustment factors and grid-facing smart grid pilot program costs from its distribution customers through smart grid distribution adjustment factors, and approved an allocation methodology between the two components for shared capital expenses. The Department allowed for the recovery of all capital investments associated with the smart grid pilot program over a five-year period, as well as the recovery of incremental O&M costs. D.P.U. 11-129, at 94-102."

"National Grid proposes to roll the smart grid pilot program costs into base distribution rates (Exh. NG-RRP-1, at 94). For capital items, the Company proposes to roll into rate base items that were used and useful as of the end of the test year (i.e., December 31, 2017), using depreciation and ADIT levels that reflect the end of the of the [sic] rate year (i.e., September 30, 2020) (Exh. NG-RRP-2 (Rev. 4), Sch. 11, at 1, 3; WP NG-RRP-2 (Rev. 4), at 5). The Company’s proposal results in the addition of approximately $3,956,650 to the annual revenue requirement through the Company’s return on rate base (Exhs. NG-RRP-2 (Rev. 4), Sch. 1, at 1 & Sch. 11, at 1, 3; WP NG-RRP-2 (Rev. 4), at 5). In addition, the Company proposes to include in base distribution rates test-year-end depreciation expense, property taxes, and O&M expense related to the smart grid pilot program (Exhs. AG 16-7 (Supp.), Att.; DPU-NG 15-10, Att.; DPU-NG 5-3; DPU-NG 27-1)," the DPU noted

While the DPU first noted that, to date, the Department has not ruled on the prudency of the utility's smart grid pilot program investments in a separate docket, and therefore recovery in base rates is inappropriate at this time, the DPU further found that, "In addition, rolling customer-facing costs into base distribution rates is inconsistent with the cost recovery requirements established by the Department."

"The smart grid pilot program recovery is outlined in two tariffs: M.D.P.U. No. 1342 (smart grid adjustment provision) and M.D.P.U. No. 1341 (tariff for basic service). The smart grid adjustment provision, which addresses grid-facing cost recovery through the smart grid distribution adjustment factors, is charged to all customers. M.D.P.U No. 1342, Sheet 1. By contrast, the tariff for basic service, which includes provisions that addresses customer-facing pilot costs through the smart grid customer cost adjustment factors, is only charged to customers on basic service. M.D.P.U. No. 1341, § 9(a). The decision to recover smart grid pilot program costs through two separate tariffs was established in Massachusetts Electric Company/Nantucket Electric Company, D.P.U. 09-32, at 92-93 (2010), where the Department determined that it was inappropriate for customers who were not served via basic service to be responsible for customer-facing costs. The Company’s proposal in the instant proceeding would have all customers pay for customer-facing investments, which make up the bulk of the costs related to the pilot program (Exhs. DPU-NG 5-1, at 2; DPU-NG 5-4; DPU-NG 15-3). We, therefore, find the Company’s proposal to be inconsistent with the cost recovery requirements established by the Department," the DPU said

With the cost struck from base rates, the DPU said, "The Department will work to conclude the open dockets tied to the cost recovery of smart grid pilot investments in a forthcoming Order(s), and the Company should expect to recover all smart grid pilot program costs deemed to be eligible for cost recovery by the Department through the existing cost recovery mechanisms."

Docket D.P.U. 18-150

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