National Grid’s New Rate Hike: A Wolf in Sheep’s Clothing

On October 1 2019, the MA Dept of Public Utilities (DPU) approved National Grid’s proposed rate hike that will go into effect on November 1, 2019. The first one since 2016, this rate hike will see the monthly residential charge go up from $5.50 to $7 bringing in a total of $90 million a year. National Grid’s proposal contained more than just rate hikes – it included plans of increasing battery storage, incentive payments for the company based on their own metrics, electric vehicle infrastructure and more.

Although the DPU rejected most of the proposed initiatives, National Grid still came out of rate case #18-150 a winner. The DPU approved National Grid’s performance-based ratemaking (PBR) mechanism, which would allow the company to move away from constantly filing rate cases. With the passage of PBR, National Grid will be able to increase its rate base and no longer need to file rate cases in order to account for this.  PBR will allow the company to measure and submit yearly increases to its rate base, and pending DPU approval, increase its counted investment accordingly. The model is more specifically measured as I-X, or inflation rate minus productivity factor. Essentially, as long as the company can control costs and operate efficiently, their ROE will not constantly decline as it has in the past (see here for more details). 

Traditionally, once a rate case has been filed, a utility’s Return on Equity (ROE) is at its highest point, as it is allowed to make those returns based on it’s rate year “rate base” calculation – the cost of all its plant investment and operation and maintenance (O&M).  As the rate case ages, the utility’s ROE begins to decrease, as it must continually invest in its plant, but these new, post-rate case investments do not receive concurrent recovery and cannot be counted into the company’s rate base until it files again. Therefore its investment is increasing, but it is only making a profit off of its investment that was counted during the rate year, which results in a continually decreasing ROE.  This is why utilities traditionally file a rate case every 2-3 years. But with the passage of PBR, National Grid will not be required to file any rate cases till 2024. This will put utility regulation out of the grasp of the most vulnerable elements in the process, the ratepayers. Our experience with empty “public” hearings held by the DPU already shows the company and the regulatory agency’s sheer negligence towards involving the public in the process. With this move, the public will essentially be forced out of the process for the next 5 years. Considering that National Grid planned to increase rates annually in line with a “revenue cap formula”, this would mean a guaranteed increase in burden on the ratepayers.

The DPU mostly denied the 2nd phase of National Grid’s Electric Vehicle (EV) proposal, which would have put a disproportionate burden on low-income ratepayers, limiting its ability to substantially change the Massachusetts infrastructure to better support charging stations throughout the state.  It did approve the provisions for increased research efforts, creation of an advisory group (read: lobbyists) to “advice government agencies” on the transition to increased EV infrastructure. While it may seem that the DPU finally may have acted in the interest of the public, there are indications that it might not be the case.

The Gateway Access program, part of the EV proposal, was denied not because the DPU is against it, but because they think it is cost inefficient for each utility to have separate plans for this.  They suggested National Grid to meet with other electric utilities in the area (aka Eversource which has the major share of the market) to form a cohesive plan and submit this together and it will most likely be approved. The DPU has been very favorable to the Eversource in recent history, to the point of allowing it to build an electrical substation in East Boston; the proposed site is in a flooding zone, close to a park and all the jet fuel storage for Logan airport. In fact, Eversource was the company contracted to fix the destroyed gas infrastructure in Merrimack Valley after the explosions last year. In the aftermath of the recent gas leak in Lawrence, the DPU has come down hard on Columbia Gas, the perpetrator of the explosions in the same area a year ago. However, no questions have been raised about Eversource’s repair work or responsibility in the recent incident. The EV program was also contested by the American Petroleum Institute, the largest oil and natural gas industry lobby group in the US. Considering the financial entanglements between state regulators, officials, and energy & utility companies, it is not unthinkable that some backdoor deal may have been cut to benefit everyone except the ratepayers.

Taking all of this together, it appears that although National Grid’s victories may be few in number, they will have prolonged negative effects on the ratepayers. The process and approval of this rate case has confirmed that the DPU is more likely to serve the interests of the corporations rather than the people. This undemocratic governance is what we are fighting against, and what energy democracy can lead us out of. Energy is a public good and its production and distribution should be controlled by the communities, not corporations; corporations will always put profits over people. With the climate crisis looming upon us, it is therefore imperative that we take back the grid.

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