Massachusetts has taken the next step towards requiring substantial investments to increase the capabilities of its electrical system and create opportunities for new technologies and innovations. On November 5th, the Massachusetts Department of Public Utilities issued an Order, D.P.U. 12-76-C, along with itemized filing requirements and a summary template, laying out what Massachusetts utilities must file in their “Grid Modernization Plans” (“GMPs”)—the ten-year proposals for investments promoting “grid modernization objectives” (such as reducing the effects of outages, optimizing demand, and integrating distributed resources) required by the DPU’s June Order on grid modernization. More specifically, the Order outlines what must be included in the “business case” that utilities will submit to support and explain the grid modernizing capital investments they propose for the next five years. This Order, along with an Order on time varying rates that was issued the same day—expect a separate post soon—starts the nine month clock on the submission of these GMPs. This is a big deal.
As I noted in June, the DPU sees its grid modernization efforts as a major reformation of Massachusetts’s electric system that will empower markets, new technologies, and other innovations to unlock efficiencies, increase reliability, reduce costs, and promote clean and distributed generation sources. The DPU is relying on the Massachusetts utilities to plot the first steps of this vision, at least in the first instance, and accordingly is demanding a lot from them in the “business case” that is intended to justify their choices.
The “business case” approach to justifying grid modernization investments, which the DPU adopted in June, was an innovative effort to avoid rote application of an inflexible cost-benefit analysis. It should provide the utilities with flexibility to assess investments that provide interdependent or difficult to quantify benefits. In June, however, the details of what a business case submission would look like were not filled in. This Order fills that gap, and the GMPs will be very substantial documents.
The business case must include five primary components:
- Goals and drivers of investments (where the utility must summarize the reasoning behind its selected investments);
- Technology/project descriptions (where the utility must present and describe the investments it is proposing);
- Costs and benefits (where the utility must itemize and analyze all costs and benefits associated with its proposed investments, including those that are difficult or impossible to quantify);
- Achievement of performance metrics and state policy goals (where the utility must link its proposed investments to grid modernization objectives and other policy goals); and
- Overall assessment (where the utility must summarize why the benefits of its proposed investments justify the costs and present analyses of stranded costs and bill impacts).
Each utility must also complete a detailed summary template that was docketed with the Order, which provides a means for comparing investment costs and benefits.
The DPU’s June Order required utilities to solicit stakeholder input in developing their GMPs, and they would be wise to make that input meaningful. These GMPs will involve substantial investments and are going to have a significant impact on the future of Massachusetts’s electrical system. Utilities should seek to bring together stakeholders now rather than attempt to gather support for their plans in adjudicatory proceedings at the DPU. Stakeholders should start thinking now about what they can offer to, or what they want from, the development of the GMPs. Nine months will pass quickly.