Massachusetts regulators see a future in which customers are leaving investor-owned utilities for municipal aggregators and competitive third-party suppliers, and they aren't sure how to fit mass-market smart meter deployments into that future.
Last week, the Massachusetts Department of Public Utilities (DPU) issued an order that “declined to preauthorize any customer-facing investments” — that is, smart meter deployments — in the long-running grid modernization plans of investor-owned utilities National Grid, Eversource and Unitil.
The decision postpones the five-year advanced metering infrastructure spending plans of Eversource, which had proposed a $138 million program, Unitil, with a $1.3 million plan, and National Grid’s proposals ranging from $74 million to $369 million.
DPU’s order did approve the grid-facing portions of each utility’s plan, such as distribution automation and conservation voltage reduction, noting the need for hardening and automating the grid to deal with storm resilience and recovery, as well as the integration of distributed energy such as rooftop solar PV, electric vehicles and energy storage.
But it found several weaknesses in each utility’s advanced metering infrastructure (AMI) business case, based on a combination of two unusual factors prevailing in the state. First, all these utilities have already deployed simpler automated meter reading systems, which have already allowed each utility to achieve the significant meter-reading savings that account for a big chunk of the AMI business case.
That left Massachusetts utilities to make their case based on the other big benefit of AMI: tapping their constant stream of data to enable real-time pricing, time-of-use rates, and other forms of time-varying rates, as DPU has dubbed them. But these potential benefits are “called into question by the increasing percentage of customers on competitive supply (including municipal aggregation),” the DPU wrote.
The problem is that each utility customer that switches to a non-utility energy provider is no longer part of each utility's list of prospective time-varying rate (TVR) adopters, even though the utility paid for the smart meter that made them available.
And while third-party retailers and municipal aggregators could offer TVRs of their own, “there is currently no consensus” on how that can be accomplished, the DPU noted.
First, “neither National Grid’s nor Eversource’s existing billing systems are able to accommodate a large number of TVR customers without large-scale, multi-year upgrades,” it wrote. “The need to bill customers separately could create a barrier to participation in dynamic pricing for competitive supply customers which, in turn, will lower the potential benefits to be gained from the deployment of advanced metering functionality.”
Second, data-sharing between utilities and third parties is still an open subject, it stated. National Grid, Unitil and Eversource plan to make customer usage data available to third parties, including competitive suppliers, using the Green Button data access protocol. But before that can happen, utilities and other stakeholders need to “develop a uniform statewide data access strategy.”
“In sum, there are several issues that affect competitive suppliers’ interests and ability to offer dynamic pricing products, including access to customer data, billing limitations, and the uncertainty of customer willingness to participate in dynamic pricing products,” the DPU wrote. “As more customers migrate from basic service to competitive supply alternatives such as municipal aggregation, the Department will need the certainty of widespread adoption of dynamic pricing products from the competitive market to maximize the benefits of the deployment of advanced meter functionality.”
DPU made clear that it isn't giving up on smart meters: “We emphasize that the Department is not moving away from the deployment of advanced metering functionality and remains convinced that it is an important tool in meeting our grid modernization objectives.”
Instead, it’s launching a stakeholder process involving utilities and competitive market participants, “to consider how to remove barriers to the implementation of dynamic pricing products for all customers.” As part of this process, it plans to consider “whether an immediate targeted deployment of advanced metering functionality to certain customer groups will yield benefits that justify the costs.”
Massachusetts’ competitive supply market share has boomed in the past few years, from 31 percent in January 2016, to 48 percent in December 2017, the DPU noted. “It is reasonable to assume that this growth in participation, particularly with respect to municipal aggregation, will continue in coming years.”
Daniel Finn-Foley, GTM Research analyst, noted an important caveat in the DPU’s assessment of future growth of non-utility actors. In March, the Massachusetts Attorney General’s office proposed eliminating the competitive energy supply market for individual customers, citing research that shows customers who switched have paid $176.8 million more than they otherwise would have, many of them in low-income and minority communities.
If this proposal goes through, “this would create a pretty significant downside on that percentage of switched customers figure,” he said. Still, the Attorney General’s office has not proposed doing anything to the state’s municipal aggregation program — and if individual switching is taken away, these alternatives may grow to take up much of the slack, he said.
As for the ability of non-utility actors to enable time-varying rates of one kind or another to derive value from smart meters, Finn-Foley noted that “retail energy suppliers would likely make the case that they could use AMI to drive returns to the utilities, even if the utilities don't have direct influence over an individual customer.”
Some forms of time-of-use rates are massively popular in other markets, particularly in Texas, where “free nights and weekends” type deals have seen wide adoption, he said.
“That said, there's a big difference between a retailer offering a TVR based on their wholesale market hedging strategy and a utility offering a TVR that most benefits them and their customers,” he noted.
Finding a way to make time-variable rates that serve both parties' interests, along with the state's broader energy and environmental goals, is one of the many challenges ahead for the DPU's stakeholder process.