United States: Highlights From The Massachusetts Department Of Public Utilities Order In The National Grid Rate Case

Rejection of Significant EV Expansion, Concern Regarding Interconnection Issues, and a Management Audit

On September 30, the Massachusetts Department of Public Utilities ("Department") issued its order ("Order") in D.P.U. 18-150, National Grid's ("National Grid" or the "Company") rate case filed in November of 2018. The Order offers important insight and direction on a number of pressing issues pending in the Commonwealth, including electric vehicle ("EV") adoption, utility ownership of electric vehicle supply equipment ("EVSE"), and on the interconnection struggles facing distributed generation ("DG") developers in National Grid's service territory. With respect to EVs, the Department's Order rejected nearly all of the Company's EV Phase II program request and expressly disallowed the Company's request to own and operate EVSE. On the ongoing interconnection issue, the Department expressed its concern regarding the Company's failure to engage with either the Department or stakeholders on critical interconnection issues affecting timely DG deployment. Based on its concerns related to the Company's EV program staffing and on interconnection delays, among other things, the Department Order called for an independent audit of the Company's management practices to be paid for by National Grid shareholders.

EV Developments

National Grid's filing included a request for authorization to spend approximately $166.5 million of ratepayer funds to implement Phase II of its EV program. The Company's request for the Phase II funds was filed approximately two months after the Department approved the expenditure of more than $20 million for the implementation of the Company's Phase I EV program (D.P.U. 17-13, Order (Sept. 10, 2018)). Importantly, and fundamentally different from its Phase I EV program, National Grid's Phase II EV program proposed that National Grid own and operate EVSE, including ownership of up to 50%, or about 3,200, of the Phase II Level 2 charging ports installed at multi-unit dwellings, public parking areas, and for government and private fleets, and up to 50% of the Phase II direct current fast charging ("DVFC") charging ports. Once deployed, National Grid then proposed to include the EVSE it owned in rate base, and earn a return on it. On top of the rate of return, the Company asked for additional ratepayer dollars in the form of performance incentive measures, or PIMs, if it reached certain goals in EV adoption and EVSE deployment.

What the Company's Phase II EV program request failed to include, however, was any evaluation or program metrics from the Phase I EV program by which the Department could measure success. In analyzing the Phase II program, the Department noted that National Grid: (1) had not filed its first annual reconciliation for the Phase I EV program during the course of the proceeding and had thus failed to provide any formal evaluation results of its Phase I EV program; (2) had not overseen the installation of any EV charging stations; (3) had not yet retained an independent evaluator; and (4) had not finalized any evaluation results from the Phase I EV program. Based on its inability to measure the success of the Phase I EV program, the Department deemed the Phase II EV proposal "premature" and rejected the bulk of the Phase II EV request. The Company's PIMs related to these program elements were similarly rejected by the Department. Reiterating its commitment to EV development in the Commonwealth, however, the Department approved three components of the Phase II proposal:

(1) residential off-peak charging rebate; (2) fleet advisory services plan; and (3) category 2 of the R&D plan, together valued at approximately $9 million.

With respect to National Grid's bid to own EVSE, the Department indicated that it was "not convinced" that utility ownership of EVSE effectively addressed some intervenors claims, i.e., that utility ownership of EVSE is needed. Instead, the Department determined that National Grid had failed to demonstrate any market failures that would prevent the competitive market from deploying EVSE. Nor, according to the Department, did National Grid demonstrate that its ownership of EVSE would address any such market failure.

Despite disallowing cost recovery for the bulk of National Grid's Phase II EV program, the Department indicated that the Company, once it has gained experience from its Phase I EV program and the three program components approved in the current Order from its Phase II EV program, could file future EV proposals in the grid modernization proceedings. The Department added, however, that the Company was precluded from making any such request before it had filed with the Department the evaluation results from year two of the Phase I EV program.

Audit Issues

In calling for an independent management audit, the Department noted its general supervisory authority to ensure that management decisions are consistent with the public interest and further noted that management audits can be an effective "diagnostic tool" in determining the health of an organization's management. During the course of the rate case proceeding, the Department identified areas that it believed warranted further investigation into National Grid's management and personnel. These matters include the Company's IT strategy and cybersecurity plans, its Phase I EV and Phase II EV programs, and the interconnection process in light of the ongoing transmission study, i.e., the Cluster Study, being performed in the Company's service territory in central and western Massachusetts.

With respect to the Company's management of its Phase I and Phase II EV programs, the Department noted that two different groups were involved in the development of the two phases of the EV programs and that National Grid intended to hire new staff for the Phase II EV program. The Department emphasized that it expected National Grid to maintain a certain level of continuity in programs like the EV programs because of the steep learning curve such programs usually involve. Because these programs typically benefit from that experience, the Department noted that "constant reorganizations have the potential to systematically disenfranchise and deskill the workforce."

The Department also expressed its concerns about the Company's management of the DG interconnection process as affected by the transmission Cluster Study. Because the Cluster Study resulted from system impacts identified in previous distribution system studies, the Department determined that the Company was "aware of the magnitude and scope" of these issues prior to commencement of the Cluster Study. Accordingly, the Department was "troubled" by the Company's failure to inform it of the potential need for a Cluster Study, especially given the likelihood that the study would delay the interconnection of more than 900 megawatts of distributed solar under the Commonwealth's SMART program. "The Company's failure to meaningfully engage with the Department and stakeholders prior to the commencement of the Cluster Study raises serious concerns about management decisions made at the Company..."

Based on these concerns, the Department concluded that the Company and its ratepayers would benefit from a comprehensive independent management audit to address, among other things, such issues as National Grid's strategic planning processes, staffing decisions and their effect on the Company's operational efficiency and employee productivity, and potential management problems. The Department opened the audit proceeding as a new docket and indicated that stakeholders would be allowed to comment. Finally, the Department provided that the costs of the audit would be borne by National Grid shareholders, not ratepayers.

The Order sends clear signals regarding the future of EV and EVSE programs in the Commonwealth, both in terms of the Department's continued support of them and the metrics by which it will evaluate them. It also signals the Department's continued concern regarding interconnection issues and their effect on DG solar deployment, as well as its expectations regarding communication among utilities, stakeholders, and the Department related to that deployment.

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