This month, the Rhode Island Public Utilities Commission has been conducting an evidentiary hearing on a comprehensive settlement to address all issues associated with National Grid’s rate case and Power Sector Transformation filing. The Commission’s decision is expected by September.
Even though Rhode Island is the smallest state in the union, the settlement is a big deal, and we expect (read: hope) that other states will look to Rhode Island as an example of how to modernize the utility business model and make utilities proponents of distributed energy resources (DER). Here are four major ways the outcome of this settlement will impact the utility business model, clean energy, and customers.
Utility Business Model
The settlement is a three-year rate plan, rather than the typical one-year rate plan. The three-year rate plan includes all traditional capital investments in addition to grid modernization investments and clean energy programs. This means that all technologies are included holistically in distribution system planning.
The settlement includes the introduction of performance incentive metrics (PIMs), which is big news for reforming the utility business model.
Under the current business model, utilities earn a return on equity for building infrastructure like power lines and substations, which is typically referred to as cost of service regulation. This approach has resulted in reliable electricity services for decades, but it also sends a financial motivation to utilities to minimize the deployment of distributed energy resources that are owned by customers. An alternative to cost of service regulation is performance-based regulation (PBR), which should better align the financial interests of utilities with customer ownership of DER. The PIMs are a form of PBR.
To be clear, Rhode Island has not switched from cost of service regulation to PBR; changing the utility business model will not happen overnight. Instead, the settlement establishes the foundation to start the transition. That transition will likely take many years and involve shifting the earning potential away from cost of service regulation to PBR in lumps, and actually starts with a relatively small portion of the earnings potential in the form of PBR.
There are many grid modernization investments in the settlement, but I’ll just touch upon a few.
Perhaps the most notable is advanced metering (sometimes called smart metering). The settlement includes a process for the evaluation and eventual deployment of advanced metering throughout Rhode Island. Advanced metering is essential for several reasons, including the ability to develop time-varying rates that will send better price signals to customers, and to better understand the usage of the distribution system in order to deploy DER, including solar. Advanced metering is integral to the future of a modern grid.
In addition, the settlement includes investments that will enable a modern grid. The investments include:
- A system data portal, which will provide better information to DER developers;
- Geographic information system enhancements, which will identify areas where DER will benefit the electric distribution system;
- Other technologies that will enable National Grid to better monitor and control the electric distribution system, which should make the interconnection and integration of DER easier.
Clean Energy Programs
The settlement also includes several provisions that will facilitate National Grid working with clean energy advocates and developers. Most notably, National Grid will now procure energy storage from third-party developers, introduce a new electric heat pump rebate program, facilitate the deployment of electric vehicle charging infrastructure, and develop an off-peak charging rebate program for electric vehicle owners.
All of these initiatives should result in increased deployment of DER in Rhode Island, and benefit all customers.
Low-income customers in Rhode Island will also benefit from the settlement. The settlement establishes a low-income discount of 25% off of the total utility bill, with the potential of an additional discount of 5% if the customer meets additional eligibility criteria. The low-income discount essentially doubles the current discount. This provision will reduce the financial burden of energy services for the most vulnerable segment of the population.
Furthermore, the settlement also targets low-income communities for the deployment of DERs. All parties to the settlement explicitly recognized that low-income communities should not be left behind in realizing the benefits of DER. As such, the settlement aims to deploy electric heat pumps for low-income customers and electric vehicle charging infrastructure will be deployed in low-income neighborhoods.