It is possible that the staff at the Executive Office of Energy and Environmental Affairs in Massachusetts does not regularly read Greentech Media -- or the opinion pages of The New York Times.
If they did, a press release issued by the EEA last week might not have declared, “Massachusetts is the first state in the nation to require electric distribution companies to take affirmative and far-reaching steps to modernize the electric grid.”
Though the two new orders from the Massachusetts Department of Public Utilities are significant, they do not trump the groundbreaking work that is already underway in a few other states.
The foundation of Massachusetts’ distribution grid overhaul, outlined in an order from the DPU, calls for distribution utilities to deploy advanced metering and file ten-year grid modernization plans. Another order calls for time-of-use pricing to be the basic default service for customers, with an option for flat-rate service.
Regulatory reform takes hold
Massachusetts joins a small but growing group of states rethinking their electricity grids and how they should be operated and paid for. The results are already looking quite different state by state. Massachusetts is betting that real-time interval data and smart meters, paired with pricing that more closely aligns with the real cost of delivering electricity, will unlock more grid investment, distributed renewable energy and efficiency.
New York is re-envisioning its entire ratemaking procedure and using efficiency across the entire system as the basis for eliminating peak demand and enabling distributed energy resources. In New York’s Reforming the Energy Vision, or REV, proposal, distribution utilities will be fundamentally transformed into platform providers for new energy services, rather than just wire companies.
“We have an opportunity to create an energy sector that goes far beyond what people consider a traditional utility,” Audrey Zibelman, chair of New York’s Public Service Commission, said during New York Energy Week’s opening event on Monday.
In Hawaii, on the other hand, “The energy Rubicon has been crossed,” Governor Neil Abercrombie proclaimed in May. The state's public utility commission has opened new proceedings for Hawaiian Electric Company’s integrated resource plan that require HECO to completely rethink its business model to meet the state goals of obtaining 70 percent of its energy supply from clean energy by 2030, including 30 percent from energy efficiency.
Is time-based pricing the answer?
Back in the Bay State, Massachusetts is not asking utilities to fundamentally rethink their core business as Hawaii and New York have, but is instead betting that advanced metering followed by time-based pricing will help achieve the state’s four major goals: reducing outages, optimizing demand, integrating distributed energy resources and improving workforce asset management.
The four goals outlined in the filing are not that specific at this point in time. The DPU does not state, for instance, how much peak demand it wants to shift or eliminate by moving to time-based pricing. (New York, by comparison, wants to eliminate peak demand by transitioning its utilities to energy technology platform providers.)
Even without detailed targets, the move to default time-of-use pricing is significant. If Massachusetts is successful, it would be the first state in the U.S. to move basic default service to more dynamic rates, a move that the DPU says consumers are ready for since they already make decisions based on time-based pricing in other areas of their lives, from travel arrangements to cell phone service.
“We continue to view advanced metering functionality as the basic technology platform for grid modernization,” the DPU wrote. “Moreover, it continues to be the department’s position that our role is to determine an appropriate level of functionality, rather than to specify advanced metering infrastructure or some other technology or suite of technologies.”
Massachusetts’ distribution utilities will have to file a short-term plan for rolling out advanced metering within five years. Unlike in many other states, utilities will not be allowed to use remote connect/disconnect as part of their business plans, since consumer protection laws in the state require a visit to the house before disconnection for nonpayment.
Like California, which passed mandatory grid modernization roadmaps for its large investor-owned utilities years ago, Massachusetts’ utilities will also have to report on a set of metrics for the investments they make. Massachusetts is also considering legislation to provide a long-term framework for net metering and solar renewable energy credits.
Unlike California and Texas, where smart meters are already widely deployed, Massachusetts will change its basic service to a time-based pricing mechanism once the meters are in place. The time-based rates will have one price for certain hours of the week when electricity demand is higher and another rate when wholesale rates are typically lower. There will also be a critical peak price when demand is extremely high.
Foreseeing public backlash, the DPU has called for customers to be able to opt out of the advanced meters and to be able to choose a flat-rate option that will come with a critical peak rebate. However, the flat rate will likely be higher than it is now, making it unattractive to most customers.
As for what the time-based rates will actually look like, it’s still up in the air. In Ontario, one of the only large areas where time-based rates are mandatory, the spread between on- and off-peak is paltry at best -- less than five cents.
The Massachusetts DPU has done its research, however, and notes that well-designed rates should mean that even low-income customers and those at home all day would not pay more on a time-of-use rate plan than they would on a flat rate plan, while the savings opportunity is considerable for those who choose to shift electricity usage. Sacramento Municipal Utility District, which is moving all customers to variable rates, has found that flat rates are actually the most confusing and least popular.
Massachusetts is a deregulated state, so the time-based rates will offered by competitive suppliers. The DPU order did not specify exactly what the rates will be, so different suppliers will likely offer different pricing spreads, although the DPU could mandate a minimum spread.
“One thing is for sure -- the Northeast is just starting to get really interesting,” Ben Kellison, senior grid analyst with GTM Research, said of the changes coming to utilities in the region.
Unlike New York and Hawaii, which are essentially isolated electricity markets, Massachusetts is part of the New England Independent System Operator’s grid. If it can find a way to bring price signals to electric customers without fundamentally altering the electricity market structure, as New York is trying to do, it could be a model for other states that want to incentivize efficiency but aren’t ready to fully address ratemaking procedures and the roles of utilities in the future.
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