Politics behind the plug
Utilities play key role in energy debate, but who are they looking out for?
THERE IS A PATTERN that runs through the energy debate on Beacon Hill. The Baker administration wants to bring new natural gas pipelines into the region; utilities are tasked with arranging the financing. The Baker administration wants to bring hydroelectricity down from Canada; the job of soliciting bids for that work falls to the utilities. The state wants to promote energy efficiency; the utilities do the heavy lifting.
At every turn, utilities are involved, partly because, as state-regulated monopolies, they are effective agents for executing policy. But the state’s utilities, led by Eversource and National Grid, increasingly are doing more than just following orders. For example, the two utilities are not only orchestrating the purchase of natural gas pipeline capacity and hydroelectricity on behalf of their customers, they want to help build the pipelines that will carry the gas and the transmission lines that will carry the electricity. The two utilities have also plunged in a very public way into the high-stakes debate over solar power, pressing Massachusetts lawmakers to scale back what they say are the state’s lavish solar incentives.
Officials at Eversource and National Grid say in each of these cases they are merely looking out for the best interests of their customers. “It’s about what’s needed and what’s the best solution, and then, of course, the business model has to make sense. But that comes in third, after you’ve checked the other two boxes,” says Camilo Serna, the vice president of strategic planning and policy at Eversource.
Still, the perspective of Eversource and National Grid on what’s needed and what’s best is heavily influenced by their business interests, which are focused on natural gas and electricity delivery across multiple states in the Northeast. Willie Sutton once said he robbed banks because that’s where the money is. Utilities build pipelines and transmission lines because that’s where the money is. The companies typically receive a much higher rate of return on capital investments in power lines and pipelines than they do on energy efficiency initiatives. The utilities say they are fans of solar power, but they make no money on it.
In New York, Gov. Andrew Cuomo is trying to change the utility incentive structure with an initiative he calls “Reforming the Energy Vision,” or REV. The vision, which is still a work in progress, proposes “remaking New York’s utilities” into power grid managers who would be incentivized to promote renewable energy, embrace new technology, and reduce demand for electricity rather than constantly expanding their networks. “We need to change the utility mindset,” says Audrey Zibelman, the CEO of the New York State Department of Public Service.
In Massachusetts, state officials are also trying to build the utility of the future, but they see no need to change the utility mindset. Matthew Beaton, the secretary of energy and environmental affairs, seems generally comfortable with the job the state’s utilities are doing, acknowledging in an interview that the companies share the same mindset as the administration on most major issues.
Angela O’Connor, the chair of the Massachusetts Department of Public Utilities, says the Baker administration prefers a more incremental approach to grid modernization, one that relies on the existing market structure. “We didn’t give it a sexy name like New York did. Maybe we should have,” she says. “We’re not entirely convinced in Massachusetts that we need to reinvent the market, as New York does.”
UTILITIES HIGHLIGHTING COST OF SOLAR
Over the last year, Eversource and National Grid have launched an unprecedented public campaign to scale back the state’s solar power incentives. Company officials testified at public hearings, lobbied lawmakers, and enlisted six major business groups in the fight, which ended in a stalemate between the House and Senate just before the Legislature recessed for the holidays in December. At the height of the debate, Marci Reed, the president of National Grid Massachusetts, and Tom May, the CEO of Eversource, trooped up to Beacon Hill to personally lobby top lawmakers. Both met separately with House Speaker Robert DeLeo and May also met with Senate President Stanley Rosenberg. “That is a testament to how strongly we feel on this issue,” an Eversource spokesman told State House News.
The question is: Why?
Utility officials insist they are just looking out for their customers and have no financial interest in the solar debate. They say the cost of solar incentives is spiraling out of control in Massachusetts and eating up a greater and greater share of customer bills.
Like Reed, Serna of Eversource says his company only wants to protect its customers. “We’re not saying let’s not do solar,” he says. “We believe we need a diverse portfolio of solutions and solar, wind, and multiple other resources have a role to play in that solution. But why can’t we get the same amount of solar at a reduced price?”
Solar power generators in Massachusetts receive two types of incentives. Net metering reimburses them for the electricity they sell to the grid; the current net metering price is 18 cents a kilowatt hour. The generators also receive solar renewable energy credits for the power they produce. Companies selling electricity in Massachusetts are required to purchase the credits, which typically go for prices that translate to 30 to 45 cents a kilowatt hour. The two Massachusetts incentives combined add up to 48 to 63 cents a kilowatt hour, a sum that is five to six times larger than the current generation charge for electricity.
Serna’s company also does business in Connecticut, and he says the incentives there cost ratepayers significantly less. He says Connecticut utilities each year purchase a set amount of solar renewable energy credits (called ZRECs) in a competitive bidding process that results in prices in the 5 to 9 cent-a-kilowatt-hour range. Net metering in Connecticut works much the same way it does in Massachusetts, but its availability is more restricted.
“At the end of the day, you have to recognize that the solar industry is a for-profit industry and it’s looking out for its interests,” says Serna. “In this particular area, there is no financial impact on us. We’re just looking at the customer costs.”
Solar advocates say the utilities are misleading the public. They say utilities do have an economic stake in the outcome of the solar incentives debate and are framing the issue far too narrowly.
Sen. Benjamin Downing of Pittsfield, the co-chairman of the Legislature’s Telecommunications, Utilities, and Energy Committee, told his fellow senators during the legislative debate that the cost of solar incentives must be weighed against the benefits. He said a state task force earlier last year examined the costs and benefits of solar net metering and concluded that for every dollar invested in solar the state receives $2.50 in benefits.
Shattuck of the Acadia Center did an analysis of the economic benefits of solar and concluded a kilowatt hour of solar electricity has a value of 22 cents, which is more than the net metering incentive but well below the cost of the solar renewable energy credit. Shattuck says his analysis suggests the value of the solar renewable energy credit should probably be scaled back.
Downing also cast the debate over solar incentives in much broader terms, telling his colleagues that promoting solar power is a way to deal with the effects of climate change. Massachusetts spends more promoting solar than Connecticut, but it also has 950 megawatts of installed solar capacity, compared to just 190 in Connecticut.
George Bachrach, the president of the Environmental League of Massachusetts, says utilities aren’t looking out for their customers. “I’ve got a bridge to nowhere if you believe that,” he says. “This is a follow-the-money story. Utilities make their money on natural gas and hydro and they do not make their money on solar and wind. These are private companies with private investors who want a return on their investment. These are big businesses. These are not public utilities.”
Bachrach and others say utilities see solar power as a threat to their business model. Utilities are paid based largely on how many kilowatt hours of electricity they deliver to homes and businesses. Several years ago regulators decoupled rates from usage, promising utilities they would not be harmed financially if they were successful in promoting energy efficiency. Now, when electricity sales decline, the rate consumers pay for power is adjusted upward slightly so the utility’s overall revenue doesn’t decline. The growth of solar and wind power also causes electricity sales to ebb, which leads to higher electricity rates, which in turn leads to more energy conservation and more solar panels on rooftops. It’s a pattern that some call the utility death spiral.
Reed at National Grid and Serna at Eversource dismiss the death spiral argument, but some of the pricing initiatives their companies are pursuing suggest declining energy consumption is a rising concern. Both utilities are asking regulators to increase the company’s monthly customer charge, which has the effect of reducing the firms’ dependence on per-kilowatt-hour fees.
Eversource in Connecticut last year sought permission to raise its customer charge from $16 to $25.50 a month; regulators eventually approved an increase to $19.25. National Grid in its recent rate hike request in Massachusetts is also seeking to increase its fixed customer charge. Under Grid’s proposal, a customer using 500 kilowatt hours of electricity would see his fixed monthly customer charge rise from $4 to $9, while the per-kilowatt fee would fall a tenth of a cent. Overall, the customer’s distribution charges wouldn’t change that much, but the share coming from fixed fees would rise from 16 percent to 30 percent.
SMARTER USE OF ELECTRICITY
Richard and Linda Adams of Worcester keep a digital picture frame in their kitchen that offers a glimpse of the utility of the future. The picture frame tells the Adamses in real time how much electricity they are using and how much the electricity costs. That may not sound like earth-shattering information, but it has the potential to be revolutionary.
The power grid is currently a one-way street. Power flows from generators to homes and businesses, and customers pay a flat kilowatt-hour charge for their electricity over the course of a month even though the price changes minute to minute at the wholesale level based on regional demand and supply. The flat rate paid by consumers, which is essentially an estimate of the average price over the course of the month, means consumers have no incentive to change their usage habits since they pay the same rate whether prices are skyrocketing or falling through the floor.
The Adamses, who are both in their 70s, are participating in a pilot program in Worcester run by National Grid that allows two-way communication between the utility and its customers. The couple has a smart meter in their home that gives them real-time pricing information, but the pilot program eases them into the electricity marketplace. Instead of pricing electricity by the minute or hour, the pilot currently offers three rates: 12.45 cents a kilowatt hour from 8 a.m. to 8 p.m., 10.3 cents from 8 p.m. to 8 a.m., and 62.7 cents on peak demand days.
The couple say they responded to the new pricing by shifting more electricity use to nighttime. They run their dishwasher and their clothes washer after 8 p.m., when the price of electricity is less. On very hot days last summer, when electricity use in the region soared, the couple dialed back their power use as much as possible. Richard Adams estimates he and his wife have cut their power bill by about 25 percent, not by using less electricity but by using electricity when it’s cheaper. “We’re just utilizing our electricity in a smarter way,” he says.
Smarter use of electricity has enormous potential. The region’s power grid is designed to meet peak demand periods, those hot summer days when everyone has their air conditioning cranked to the max. A system designed to meet peak demand keeps the lights on, but it is incredibly expensive and wasteful since it requires that power plants be on call for times when demand soars.
If peak demand could be reduced, the cost of operating the power grid would decline substantially. Energy efficiency efforts are already moderating electricity consumption, but reducing peak demand remains a challenge. Overall, power consumption over the next decade is expected to remain flat. Peak demand in the winter is falling slightly, while summer peak demand is expected to rise six-tenths of a percent per year. National Grid’s pilot in Worcester is an experiment to see if more accurate pricing of electricity can convince customers to shift their electricity usage and ultimately reduce peak demand.
With some customers uninterested in changing their electricity consumption habits, utilities have offered to do the job for them. With two-way communication, the utility can remotely adjust a homeowner’s thermostat by several degrees, turn off appliances, or even slow down a freezer’s defrost cycle to curb energy usage. Officials say consumers would barely notice the changes, and the electricity savings across a utility’s massive customer base would be significant. But utility pilot programs have found that most consumers are reluctant to relinquish control to anyone outside the home.
Two-way communication between a utility and its customers would also allow the utility to better understand its customers. Who is generating solar power and when? Which customers are affected by a power outage? And where is the outage? All too often utilities still rely on customer phone calls and physical inspections to figure out where a problem is and what to do about it.
In June 2014, the Massachusetts Department of Public Utilities under former governor Deval Patrick ordered the state’s utilities to develop 10-year grid modernization plans with the goal of reducing the effect of power outages, optimizing customer demand, integrating renewables into the grid, and improving workforce and asset management. The companies were told to develop plans for installing smart meters across their system within five years.
“With this order, the department launches a new energy future for Massachusetts,” the DPU said in its order. “The modern electric system that we envision will be cleaner, more efficient, and reliable, and will empower customers to manage and reduce their energy costs.”
Eversource and National Grid filed their plans in August, reflecting very different views of smart meters. Eversource proposed offering smart meters only to customers who want them, citing evidence from its pilot programs suggesting a very small percentage of customers actually use them. “Not all customers will take advantage of the tools that come with smart meters,” says Serna. “It isn’t a cost effective investment.”
National Grid, by contrast, offered a range of options to regulators, two of which would require smart meters to be installed at every customer location unless the customer opted out of the program. National Grid officials say their pilot program in Worcester has convinced them smart meters have tremendous potential.
“Philosophically, we’re just different in how we view it,” says Edward White Jr., vice president of new energy solutions at National Grid. His colleague, Peter Zschokke, the company’s director of regulatory strategy, says pilot programs are helpful in understanding how customers respond to new technology. He says new technology often leads to changes that can’t be envisioned right now.
“Remember, this used to be just a phone,” he says, holding up his cell phone. “But I’m paying for my Dunkin’ Donuts coffee with it now.”
NEW YORK VS. MASSACHUSETTS
In 2014, Consolidated Edison looked at the fast-growing Brooklyn/Queens area of New York City and concluded it needed to build a $1 billion substation to meet growing electricity demand. Ultimately, however, ConEd chose to approach the problem from the opposite direction. Instead of building a new facility to bring more electricity to the area, the utility plans to invest a combination of $300 million on equipment upgrades and $200 million on programs to reduce customer demand for electricity. The goal is to downsize demand rather than build capacity to meet it.
The utility installed new energy-efficient lighting in businesses at no cost and is reaching out to homeowners and tenants in the area to reduce peak load, in some cases by installing smart meters and energy efficient appliances. The utility is also paying customers to use less electricity and experimenting with battery storage and building upgrades.
ConEd’s approach in Brooklyn and Queens is a foreshadowing of what may happen with New York’s REV initiative. Officials say they want to reinvent utilities, transforming them from companies that just deliver electricity to homes and business into grid managers who meet the needs of their customers with a tool box of initiatives.
Zibelman, the CEO of the New York Public Service Commission, says utilities currently make money when they invest in capital projects that move electricity around the power grid. She says her job is to incentivize them to view their role more broadly. “How do we use technology better and how do we use markets better to develop a more efficient system that integrates energy efficiency, distributed energy, and clean energy resources so that they’re no longer ancillary to the system but integral to it?” she asks.
She says utilities should embrace smart meters and renewable energy development, including solar. “Some utilities will say there’s a huge subsidy going to solar. People on the other side say, no, the full value of these resources is not being reflected in the pricing. So the debate goes on. What we’re saying is, hold on, let’s make sure we’re pricing the value of distributed resources correctly,” she says. “Then, rather than fearing rooftop solar, utilities should embrace it because we’re going to reward them for becoming more efficient. That’s the job of the regulator.”
While New York officials talk of remaking utilities and changing their mindset, Massachusetts officials talk about taking cautious, cost-effective steps to modernize the grid. O’Connor, the DPU chair, says her agency is still reviewing the grid modernization plans filed by utilities in August and will begin acting on them this year. She sees no need to remake the state’s utilities, particularly all at once.
Beaton, the secretary of energy and environmental affairs, says REV started off with a bang but it’s slowed down considerably as the cost of the proposed changes has begun to sink in. “We can think big and we should think big,” he says. “But we need to do it in a way that paces ourselves so we don’t have a dramatic negative effect on our economy through dramatic spikes in our utility costs.”
The Baker administration and the state’s utilities appear to have a close working relationship. After O’Connor was appointed, she initially talked weekly and later monthly with top utility officials to discuss ongoing issues; her predecessor in the Patrick administration held similar meetings, although less frequently. A public records request for O’Connor’s email exchanges with utility officials indicates they keep her closely informed about operations, storms, and their political activities, including testimony on solar incentives on Beacon Hill and op-eds on the same subject written for local publications. The emails also indicate O’Connor pressed the utilities for information on solar costs as a state task force was deliberating on the issue.
O’Connor says her exchanges with utility officials are an attempt to stay abreast of issues and head off problems early. She says matters pending before the commission are not discussed. She also says she has tried to get DPU staff out in the field to see first-hand the issues faced by utilities so they don’t do regulation in a bubble. “Communication, like it is in most industries, is the key to everything,” she says.
Reed, the president of National Grid Massachusetts, says her discussions with O’Connor are nothing out of the ordinary. “We are 100 percent regulated so she is very much a stakeholder in my world,” Reed says of O’Connor. “We have the meetings so we can keep up to date on topics of importance.”
Other parts of the Baker administration also stay in close touch with the utilities. When Baker was about to unveil his bill to import hydroelectricity from Canada last year, Ned Bartlett, the state’s undersecretary of energy and environmental affairs, sent an advance copy of the legislation to Eversource for review. Beaton’s undersecretary for energy, Ron Gerwatowski, is a former high-ranking National Grid official.
The utilities, particularly Eversource, are big political donors to Baker. On June 30 last year, for example, Eversource officials, including CEO Tom May and his wife, Donna, contributed a total of $9,600 each to Baker and Lt. Gov. Karyn Polito.Beaton and O’Connor say they interact regularly with utility officials, but the secretary says the administration also has regular meetings with other stakeholders on energy decisions. “They have to be part of the conversation, but they are one voice in the conversation,” Beaton says of the utilities. “We take a wide range of viewpoints.”
The utility viewpoint appears to carry considerable weight, however. When it was suggested that utilities, as state-regulated monopolies, are useful tools in setting policy, Beaton balked at the description. “I don’t know if I’d use the word tools,” he says. “Maybe partners. They are an integral player in all of our energy challenges and our energy needs.”