DEPARTMENT OF ENERGY RESOURCES

Transcription

1 COMMONWEALTH OF MASSACHUSETTS EXECUTIVE OFFICE OF ENERGY AND ENVIRONMENTAL AFFAIRS DEPARTMENT OF ENERGY RESOURCES 100 CAMBRIDGE ST., SUITE 1020 BOSTON, MA Telephone: Facsimile: Charles D. Baker Governor Karyn E. Polito Lt. Governor Matthew A. Beaton Secretary Judith F. Judson Commissioner June 17, 2016 VIA HAND DELIVERY, FIRST CLASS MAIL, & Mark D. Marini, Secretary Department of Public Utilities One South Station Boston, MA RE: National Grid Electric Rates (DPU ) Dear Secretary Marini, Enclosed for filing in the above proceeding is the Initial Brief of the Department of Energy Resources. Sincerely, /s/ Tanya M. Larrabee Tanya M. Larrabee cc: Marc Tassone, Hearing Officer (Hand Delivery) Cheryl M. Kimball, Esq. (First Class Mail) Joseph W. Rogers, Esq. (First Class Mail) DPU Service List ( Enclosure

2 COMMONWEALTH OF MASSACHUSETTS DEPARTMENT OF PUBLIC UTILITIES ) Massachusetts Electric Company ) And Nantucket Electric Company ) D.P.U together d/b/a National Grid ) ) INITIAL BRIEF OF THE DEPARTMENT OF ENERGY RESOURCES I. INTRODUCTION On November 6, 2015, Massachusetts Electric Company and Nantucket Electric Company, together doing business as National Grid ( Company ) filed a petition with the Department for approval of a general increase in base distribution rate revenues of $211.3 million. The Company asserts that its petition requests a net increase in annual delivery revenues of $142.9 million, or a 21.8% increase in current annual delivery revenues, because adoption of its petition will also result in a $68.3 million decrease in revenues recovered in charges outside of base rates. The Company s petition also includes a tariff design proposal for light emitting diode street lighting, rate structure and design proposals, a proposal to establish an access fee for distributed generation resources, among other proposals. 1 Pursuant to 220 C.M.R. 1.11(3)-(6) and the Hearing Officer s Procedural Schedule, Service List, and Ground Rules issued on December 17, 2015, the Massachusetts Department of Energy Resources ( DOER ) respectfully submits this initial brief for the Department of Public Utilities ( Department ) consideration on the street lighting tariff, rate structure and design and access fee proposals. The DOER must weigh in on these proposals because they impact the DOER s mission to develop and administer programs relating to energy conservation and alternative and renewable energy development. See generally, M.G.L. c. 25A, 6. 1 The DOER s silence on any issues or arguments raised in this proceeding should not be construed as acquiescence.

3 II. STANDARD OF REVIEW In reviewing the propriety of rate increase proposals by a utility company under M.G.L. c. 164, 94, the Department must determine whether the proposed rates are just and reasonable. Attorney General v. Department of Telecommunications and Energy, 438 Mass 256, 264 n. 13 (2002); Berkshire Gas Company, D.P.U , at 6 (1996). The burden of proving the propriety of a rate increase remains with the utility seeking the increase. Town of Hingham v. Department of Telecommunications and Energy, 433 Mass. 198, (2001) citing Metropolitan District Commission v. Department of Public Utilities, 352 Mass. 18, 24 (1967); Wannacomet Water Co. v. Department of Public Utilities, 346 Mass. 453, 463 (1963). The Company bears the burden of proving every element of its case by a preponderance of such evidence as a reasonable mind might accept as adequate to support a conclusion. M.G.L. c. 30A, 11(6); Fitchburg Gas and Electric Light Company, D.T.E , at 7, n.5 (2001). III. ARGUMENT A. The Department Should Approve the Company s S-1 Tariff with Modifications Proposed by the Company and Herein. The Company proposes revisions to its Street Lighting Rate S-1 tariff that covers Company-owned and maintained luminaries and support. NG-PP-1 p. 22. Its revisions provide municipal customers a Company-owned light emitting diode ( LED ) street-lighting service option. Under this option, a municipal customer may elect to have the Company convert its street lighting to LED lighting. NG-JEW-1 pp The Department Should Adopt the Company s Further Revisions to Its Initial S-1 Tariff Proposal As initially proposed, the Company sought approval to use LED fixtures with wattages that range from 30W to 275W. NG-JEW-1 p. 6. Further, the installed costs of the LED options, 2

4 as initially proposed, includes material and installation costs, plus a stores handling fee of 8.83%, an imprest stock fee of 3%, and a plant overhead fee of 30.15%. See NG-JEW-2. As a result of the DOER s cross examination of the Company s witness and record requests, the Company has agreed to amend its proposal. RR-DOER-3, Tr., Vol. 6, pp The Company has agreed to amend this initial proposal by offering its municipal street-lighting customers a lower-wattage LED fixture than originally proposed. It would offer a 20W LED fixture that is an economically beneficial replacement for a 50W high-pressure sodium ( HPS ) fixture. Attachment RR-DOER-3-2. It would also offer a 30W LED fixture that is still slightly more expensive than the 50W HPS, but with reduced overhead costs than the original proposal, it is economic when used to replace a 70W HPS. Id. Based on the DOER s experience working with municipalities through its Green Communities Program and its Energy Efficiency programs, these changes are necessary to encourage municipal customers to convert to more efficient technology, like LED street lights. They help ensure that the Company s LED option provides municipal customers with the wattage that they want and need. They also help ensure that the LED lighting option is economic in comparison to the existing high-pressure sodium lamps by lowering material costs, energy costs, fees or all of the above. Therefore, the DOER recommends the Department require the Company to make these further revisions to its S-1 Tariff. 2. The Department Should Require the Company to Remove the 10% Annual Cap on LED Conversions From its S-1 Tariff Proposal The Company proposes to impose a cap on the number of LED fixtures that it replaces, should customer demand be high, to 10% per year of the total quantity of active and inactive street and area lighting fixtures per customer account. NG-JEW-1, p. 9. The Company has not provided any evidentiary support for the adoption of an annual cap on LED conversions of 10% 3

5 or any other amount. As such, the proposed 10% cap is arbitrary and unsupported by substantial evidence. Instead of imposing an arbitrary cap on LED conversions, the Company should prioritize LED conversions like any other capital project, and in the context of other proposed customer service priorities, capital investment plans, storage costs, and lost opportunities to capture energy efficiency savings through LED conversions. Therefore, the Department should require the Company to remove language from the S-1 Tariff that imposes a 10% annual cap on customer conversions to more efficient LED street-lighting. B. The Department Should Reject the Company s Proposed Demand Ratchet for the G-2 and G-3 Customers Because the Demand Ratchet Does Not Align With the Department s Goal of Establishing an Efficient Rate Design and Lowers G-2 and G-3 Customer Incentive for Investing in Peak Demand Reduction Measures. For G-2 and G-3 customers, 2 the Company proposes to recover more of each rate class s revenue requirement through demand charges, as well as include in the determination of billing demand the concept of demand ratchets in the definition of billing demand. NG-PP-1, pp For the G-2 and G-3 class demand ratchet, the Company proposes to revise its methodology for calculating demand charges from a charge based on each month s maximum-metered usage to a charge based on the maximum monthly-metered usage during the preceding 11-month period. The Company s proposed demand ratchet structure results in the customer s demand charge increasing immediately if the customer sets a new monthly peak demand, but taking up to a year before the customer sees a lower demand charge since the basis for the calculated demand charge only reduces after a customer maintains a lower peak monthly demand for 11 consecutive 2 G-2 customers are commercial and industrial users with estimated usage exceeding 10,000 kwh per month and demand exceeding 200 kw, whose current rates include a demand-based charge and an energy-based charge. NG- PP-1, pp G-3 customers, also commercial and industrial users, have an estimated demand exceeding 200 kw and their current rate includes a demand-based charge and time-of-use kwh charge with off-peak kwh charge set at zero. 4

6 months. Waiting 11 months to realize the benefits of seeing a lower demand charge provides a disincentive for G-2 and G-3 customers to invest in peak demand reduction measures. It also defies common industry practice that commercial customers must justify capital expenditures for investments in energy efficiency by showing payback periods 3 within a relatively short time (i.e. typically 1 3 years). The Company s demand ratchet proposal lengthens the payback period and thus will discourage G-2 and G-3 customers from making investments in measures that reduce peak demand. This contravenes the Department s goal of efficient rate structures since the Company s demand ratchet proposal does not provide strong signals to customers to reduce peak demand. See D.P.U , at 401 (citations omitted) (listing the Department s rate design and structure goals). The DOER defers to the Department on the actual dollar per kilowatt rates at which demand charges for G-2 and G-3 customers are set. The Department should reject the Company s proposed demand ratchet for the G-2 and G-3 consumers because the demand ratchet does not align with the Department s goal to establish an efficient rate design, and will also impede the Commonwealth s goal of achieving demand reduction and mitigating peak load growth. The Department should require the Company to refile the G-2 and G-3 tariffs without the demand ratchet in the compliance stage of this proceeding, and potentially require additional process for evaluation of the revised tariffs, as the Department deems necessary. 3 See generally JOHN DOWNES & JORDAN ELLIOT GOODMAN, DICTIONARY OF FINANCE AND INVESTMENT TERMS (BARRON S FINANCIAL GUIDES), 5 th ed (defining payback period in capital budgeting as the length of time needed to recoup the cost of a capital investment; the payback period is the ratio of the initial investment (cash outlay) to the annual cash inflows (for the purposes of this case cash inflows are cost savings ). 5

7 C. The Department Should Reject the Company s Proposed Phase II Tiered Customer Charge for the R-1/R-2/E and G-1 Rate Classes Because It Potentially Undermines Deployment of Energy Efficiency Measures, Violates the Department s Rate Design Goal of Fairness, and Is Not a Proxy for Demand. The Company proposes two phases for its requested rate increase. In Phase I, most customers will experience an increase in electric rates effective October 1, NG-PP-5, p. 1. In Phase II, residential customers (R-1, R-2, and E) and small commercial customers (G-1) would experience an additional rate change. Id. at 5. For the Phase II rate increase, the Company proposes a four-tiered customer charge for residential customers (R-1, R-2, and E) and small commercial customers (G-1) based on maximum monthly usage (kwh) during the preceding 11 month period for these rate classes. NG-PP-1, pp According to the Company, the residential customer charge would range from $6/month (tier 1) to $20/month (tier 4), and the small commercial customer charge would be $10/month (tier 1) to $30/month (tier 4). Id at 32-33, 36, and Further, the Company asserts that historical kwh usage is a proxy for customer demand. Id. Although the DOER does not take issue with the Company s Phase I rate structure proposal for the R-1/R-2/E and G-1 rate classes, the Department should rejected the Phase II tiered customer charge rate structure because it: (1) delays the benefits from energy efficiency measures thereby discouraging customer investment in energy savings measures; (2) disproportionately affects lower usage customers; and (3) does not serve as an appropriate proxy for a demand charge. The Department should require the Company to file a flat rate structure in the compliance phase of this proceeding, and potentially require additional process for evaluation of the revised tariff, as the Department deems necessary. 6

8 1. The Phase II Tiered Customer Charge Discourages Investment in Energy Savings Measures. Under the Company s Phase II tiered customer charge proposal, a customer s charge increases immediately if customer usage on a kilowatt-hour basis within a single month puts the customer in a higher tier. NG-PP-1 p. 44. For a customer to lower its tiered charge, the customer s usage must be lower than its current tier for 12 consecutive months, and only then will a customer drop to lower tier. Id. Under the Company s proposal, there is a danger that a customer that installs a more efficient heating and cooling system in the spring to save money for the upcoming summer will not see a reduced customer charge during the first summer after installation because the customer will still be paying for usage from the prior 11 months including the summer. This delay in monetary savings from the implementation of energy efficiency measures could discourage these investments and impact the Commonwealth s goal to reduce energy costs. The Company admits that it has not done any specific analysis around the Phase II tiers impacts on customer incentives to reduce consumption (DOER 2-18(c) and Tr. Vol. 5, p. 634, ll. 1-5) nor performed any specific analysis regarding how its proposed rate might affect achievement of its three-year energy efficiency plan. Tr. Vol. 5, p. 634, ll The Department should not approve a proposal that poses a risk of undermining one of the Commonwealth s top energy policy goals maximum deployment of energy efficiency. 2. Tiered Rates Will Disproportionately Affect Low-Income Customers. Lower consumption customers will incur higher percentage bill increase impacts under the Company s Phase II tiered customer charge proposal. A low-income customer with median average usage and a maximum monthly usage of 610 kwh would experience an increase of approximately 25% in the Company s Phase II tiered customer charge proposal. LI-JH-1, p. 14, 7

9 ll However, higher consumption customers with maximum monthly usage of up to 1000 kwh or 1250 kwh, would see smaller increases of approximately 14% and 16%, respectively. Id. This is particularly concerning because lower income customers tend to be lower usage customers. The Department should reject a tiered rate design structure that disproportionately negatively impacts lower and moderate income residents as it violates the Department s rate design goal of fairness. 3. The Phase II Tiered Customer Charge Does Not Provide an Effective Demand Signal. The Company has erroneously indicated in its testimony that maximum monthly energy use in a year is a coarse proxy for demand. See Vol. 5 p. 635, ll Under a rate structure where a customer s monthly bill is based upon maximum demand, each customer s monthly charges would consist of a customer charge and a per-kw charge based upon the customer s maximum kilowatt demand. A rate structure that assigns a fixed tiered charge based on kwh usage instead of maximum kw demand, fails to take into account a customer s use coincident with peak. Since the charge is based on total usage during the month, the customer does not receive a price signal to adjust when they consume energy during the month, which would be the case under an actual demand charge. For example, under the Company s proposed tiered design there is no difference in a customer s monthly bill if they are charging their electric vehicle concurrently with using their air conditioning and doing a load of laundry. A rate design that was a true proxy for a demand charge would result in a lower customer bill if these activities were staggered (with some ideally done during off-peak hours). Therefore, the Company s proposed tiered structure is not an efficient proxy for a demand charge. 8

10 D. The Department Should Deny the Company s Proposed Access Fee Because It Lacks Sufficient Evidence to Demonstrate that the Proposed Fee is Just and Reasonable. The Company proposes to implement an access fee applicable to selected resource types of new stand-alone generators that export energy to the grid. NG-PP-1, pp The proposed access fee would assess the selected stand-alone distributed generation ( DG ) facilities for their use of the distribution system based upon the size of the DG facility. Id. at 71. Although the Company states that the Access Fee is based on the demand-related cost of service to the Company s Rate G-2 and Rate G-3 classes which are substantiated and quantified in the Company s allocated cost of service study ( ACOSS ), the Company has been unable to show the cost of service to the Company s Rate G-2 and Rate G-3 classes is equivalent or correlated to the costs imposed by a standalone distribution generator. NG-PP-Rebuttal-1, p. 32. In its initial testimony and responses to discovery questions, the Company has been able to identify the types of costs attributable to DG that the Company expects to incur in order to manage the cumulative impacts of interconnection of larger volumes of DG, it concedes in its rebuttal testimony that these unquantified new costs are not components of the proposed access fee. Id. Further, the Company concedes that it has not and likely cannot analyze whether the cost burdens imposed by its customers in the G-2 and G-3 rate classes electricity usage is equal or correlated to the cost burdens imposed by a stand-alone DG facility importing electricity to the grid. AG 27-10, p.1. It stated, [t]he Company has not conducted an analysis on whether the reliance on the EPS by a typical stand-alone DG facility is greater than, equal to, or less than electricity customers on Rates G-2 and G-3, and the Company is not certain it could make such a determination. Id. The Company s conjecture that the incurred costs of one rate class s 9

11 consumption is representative to another structure s energy export without any evidence to support that claim is neither reasonable nor sufficient to meet the Department s preponderance of the evidence standard. The Company s assertion that this proposed access fee should only apply to stand-alone generators is also inconsistent with the Department s rate design goal of fairness. The Company has specifically targeted DG facilities that export all of their generation to the grid, but does not propose imposing any access fee on facilities that may consume some of their generation on-site. NG-PP-1, p. 70. In addition, the Company is not applying the access fee uniformly to similarly situated customers. The Company has specifically targeted only four types of DG facilities to be assessed an access fee, (solar, wind, anaerobic digestion, and hydroelectric facilities) but has not addressed other types of DG facilities. The Company is not assessing an access fee on customers with standalone biomass, biofuel, natural gas, oil, or other types of generators interconnected to the distribution system. Therefore, the access fee under the Company s proposal is discriminatory and does not meet the Department s goal of establishing a fair rate design. Attachment DOER 2-8. Further, the Company failed to provide support for its calculation of a DG facility s access fee. The Company endeavors to support its determination of the capacity availability factors on a very limited sample size of facilities, particularly for wind, anaerobic digestion, and hydroelectric facilities. In particular, the Company notes in its initial testimony that the anaerobic digester capacity availability factor was proposed until such time that it can fully analyze the output of these types of facilities and may propose a revision in the future. NG-PP- 1, p. 72. The Department should not approve an access fee until the Company provides sufficient analysis to support its proposal. Attachment DOER

12 The Company s proposal for its access fee in the instant filing lacks sufficient evidence to demonstrate that this fee is just and reasonable. Therefore, the Department should deny the Company s proposed access fee on DG facilities. IV. CONCLUSION The DOER respectfully requests the Department to adopt the following recommendations, as fully outlined above: require the Company to make revisions to its S-1 Tariff; require the Company to refile the G2 and G3 tariffs without the demand ratchet in the compliance stage of this proceeding, and potentially require additional process for evaluation of the revised tariff, as the Department deems necessary; require the Company to file a flat rate structure in the compliance phase of this proceeding, and potentially require additional process for evaluation of the revised tariff, as the Department deems necessary; and deny the Company s proposed access fee on DG facilities. Respectfully submitted, COMMONWEALTH OF MASSACHUSETTS DEPARTMENT OF ENERGY RESOURCES By its attorneys: /s/ Tanya M. Larrabee Tanya M. Larrabee Rachel Graham Evans Department of Energy Resources 100 Cambridge Street, Suite 1020 Boston, MA Tel. (617) DATE: June 17,

13 COMMONWEALTH OF MASSACHUSETTS DEPARTMENT OF PUBLIC UTILITIES ) Massachusetts Electric Company ) And Nantucket Electric Company ) D.P.U together d/b/a National Grid ) ) Certificate of Service I hereby certify that I have this day served the foregoing document upon all parties of record in this proceeding in accordance with the requirements of 220 CMR 1.05(1). June 17, 2016 /s/ Tanya M. Larrabee Tanya M. Larrabee 12