The gap between peak electricity demand and average demand is widening in many jurisdictions. 

In 2013, one-third of New England’s generating capacity was only used to meet a level of demand that was only present for about 10% of the year. For 90% of the 2013, one-third of New England's generating capacity, ultimately paid for by utility customers, was idle. 

Each year these critical peaks get bigger, Jim O'Reilly, director of public policy at the Northeast Energy Efficiency Partnership, told Utility Dive. But the rest of the year's usage remains nearly the same, he added.

In Massachusetts, like New York and Hawaii before it, regulators are dealing with the problem head-on. the state Department of Public Utilities (DPU) has now released its vision for a new energy future: Two orders designed to modernize the grid and create a dynamic rate structure that rewards end-use energy efficiency.

How Massachusetts wants to modernize the grid

The first order, D.P.U 12-76 B, outlines four objectives that prioritize grid modernization and innovative technologies as a means to achieve long-term energy efficiency.

The first objective is to reduce the effects of power outages by minimizing the number and impact of outages through technology designed to quickly isolate problems on the grid, while also communicating with customers and providing them with information. 

The second objective for the DPU is to optimize demand, "which includes reducing system and customer costs.” In other words, reducing peak demand and driving greater overall end-use efficiency through smart grid and energy efficiency initiatives.

The third objective is to integrate distributed resources. Utilities in Massachusetts are finding growing penetrations of rooftop solar, energy storage and other customer-site energy resources in their service territories. 

The fourth objective seeks to improve workforce and asset management. End-use efficiency is more visible, but the DPU has asked utilities to can extend greater efficiency through their daily operations and infrastructure investments.

Massachusetts utilities have nine months to come up with a 10-year Grid Modernization Plan to meet these four objectives. The DPU wants utilities to provide a timeline for the various aspects of the plan, a business case analysis into possible costs and benefits, and a way to measure performance. 

Although ten years isn’t as far ahead as the Environmental Protection Agency’s 2030 emissions reduction targets, it is about as far as a utility can sensibly look ahead in terms of investments that don’t have too much risk attached, Brett Feldman, senior research analyst with Navigant Research, told Utility Dive. 

Under the order, utilities will also submit 5-year short-term investment plans for smart meter roll-outs. Regulators wants all customers in the state to have smart meters installed within five years of the DPU's approval of the Grid Modernization Plans.

In the second order, regulators have ordered utilities to switch their default flat rate pricing plan to time-variable and critical peak pricing plans. Under the plan, customers would pay three difference prices for electricity depending on whether they are using power on-peak, off-peak, or during critical peak demand periods. Customers who prefer the flat rate plan can opt out and pay a flat monthly fee with peak demand rebates.

In a statement accompanying the orders, DPU chair Ann Berwick said the orders “established the platform and the incentives for utilities and other businesses to innovate and invest in new technology, to continue to upgrade our current infrastructure, and to increase the use of renewable energy, electric cars, energy storage, and microgrids.”

Smart meter data key to modernization

Smart metering is essential to the success of the DPU’s orders. They enable demand response and energy efficiency by providing utilities with the real-time and historical data needed to incentivize customer participation. “You can’t really implement time-of-use pricing until you have the meter data to support it,” Feldman said. 

Utilities need to be able to track electricity usage so they can set appropriate off-peak and on-peak pricing structures that make sense to the customer, said O’Reilly. Customers seeing how much they use and where their energy usage goes can spur changes in behavior.

“It allows the consumer to be a bit more of a part of the solution. It gives them feedback, and it gives feedback into the grid,” he said. That feedback can help utilities tailor their offerings and services to suit consumer habits even further, he added, which helps the utilities monetize their investments.

Unlike states like California and Texas, where most customers have smart meters installed already, Massachusetts does not. But adding smart meters and bringing in a new rate structure could actually improve the utility-customer relationship, in addition to driving efficiency. 

A recent study by the Sacramento Municipal Utility District revealed that customers not only preferred time-variable and critical peak pricing rates, but also found that customers felt the flat monthly rate is more confusing and less fair. Under the time-variable and critical peak pricing plans, customers felt like they were saving money.

“It made sense, and people understood the concept [of time-variable rates],” said Feldman. “They felt they had the opportunity to save more.”

While utilities are reluctant to move customers away from basic default pricing plans, partly for fear of rocking the boat, utilities in Massachusetts are now tasked with making dynamic rates the default pricing plan. 

It is a radical change,” concedes O’Reilly, but one that he believes will pay off.

This is not New York

There has been a lo of noise surrounding New York’s ambitious Reforming the Energy Vision (REV), a plan to change the utility's role to become the operator of the distribution system platform and integrate distributed energy resources onto the grid. “New York wants to be different and make a name for themselves,” said Feldman.

If you compare New York's REV to what is going on in Massachusetts, the DPU orders could seem “scant,” said O’Reilly, noting there are some who feel the orders should have gone further.

But Massachusetts has different priorities. New York envisioned its long-term objective without setting up the road map to get there, and now “needs to be reigned in a bit,” Feldman said. Conversely, the rationale behind Massachusetts’ order is not reinvention, he added. 

Instead, the DPU orders are intended to deal with one of their most immediate issues -- peak load. “The grid of today is one in which we are frankly straining at peak and I think that is where the benefits of these two orders are going to go,” agreed O’Reilly.

Building on the state’s already robust efficiency efforts, the orders are part of the “pathway to the so-called utility 2.0,” he said.

An important aspect of the grid modernization orders is the decoupling of the "used and useful" requirement for cost recovery in research and development projects. That means that utilities can file with the DPU to recoup the costs of research and development projects that didn't necessarily pan out -- so long as they make a compelling case for them upfront. 

“We really want to see the utility regulatory world evolving a bit quicker,” said O’Reilly. "Traditionally, utilities are pretty conservative when getting out in front of new technologies.”

But while the orders could be more forward-looking -- for example, by using a forward test year rather than a past test year as stipulated -- what is in there looks promising. “We don’t want to allow for any more conservatism," O'Reilly commented. "What they have done at least is set themselves up on a pathway to a more efficient electric grid.”

Regulators should allow for more flexibility, O'Reilly added. "It will be vital."