May 22, 2013

1. MA Grid Modernization:Steering Committee Meeting – May 22, 2013Regulatory Policy Models &Cost-Effectiveness Issues May 22, 2013

2. Base Rate Case & SQI - AGO

3. Menu of Transition Options – National Grid

4. Grid Mod Planning & PBR

5. Targeted Complementary

6. Comprehensive Models – Summary & Key Issues

7. Comprehensive: Pre-Approved GM Budgets • Pre-approval for which activities: • All or some customer-facing GM? • Meters? • All or some grid-facing GM? • Where to draw the line between conventional and modern? • Differentiate between: pilot, evolving, and mature? • Pre-approval forum: • Base rate (historic) case does not allow for pre-approval. • Grid Mod planning case? • Future test year?

8. Comprehensive: Public Cost-Effectiveness • Cost-effectiveness applied to which activities: • All or some customer-facing GM? • Meters? • All or some grid-facing GM? • Where to draw the line between conventional and modern? • Differentiate between: pilot, evolving, and mature? • Should cost-effectiveness always be applied to activities that get pre-approval? • Cost-effectiveness forum: • Base rate case (historic) does not allow for cost-effectiveness. • Grid Mod planning case? • Future test year?

9. Cost-Effectiveness and Pre-Approval Linkages A straw proposal for discussion purposes: • Note the answers to these questions might depend upon how the activities are pre-approved: • Historic Year Rate Case: typically there is no pre-approval and no public C-E testing. • But with riders pre-approval and public C-E testing can be applied. • GM Planning Case: approval and cost-effectiveness can be applied any way. • Future Year Rate Case: DPU approval is an outcome of the rate case; cost-effectiveness analysis can be done or not.

10. Comprehensive: Cost Recovery • Base rates (historic). {AG proposals} • Amount of GM recovery is based on amount of GM investment in historic test year. • Utility recovers GM measure costs after measure is installed and (presumably) is used and useful. • Fixed rate of GM cost recovery between rate cases. • Base rates (historic) with riders. {Joint Utilities’ proposal} • Utilities recover GM measure cost in year of expenditure. • Amount can be fixed between rate cases (e.g., Grid Cap Ex), or can vary (e.g., reconciling rider). • Base rates (future test year). {National Grid proposals} • Utility recovers pre-determined amount of GM costs, equal to forecasted amounts. • Base rates (future test year) with reconciling rider. {PBR} • Utility recovers actual amount of GM costs in year of expenditure.

11. Straw Polling on Comprehensive Options • Steering Committee members indicate preferences regarding comprehensive regulatory models.

12. Complementary Models - I • Distribution Services Pricing (Nat. Grid) • Distribution rate design is not based on customer, energy and (for C&I) demand charges, but instead on specific distribution services. • Rate design would allow customers to pay for services specifically requested, rather than socializing all distribution costs. • Demand Response and TVR (Nat. Grid) • DR and TVR programs could be proposed by utilities in a rate case, or outside a rate case, under current rules. • Proposal would include reasoning and analysis for proposal, with analysis of costs and benefits. • Regulatory Review of Meter Upgrades (Nat. Grid) • When a utility determines a valid business case for a comprehensive change in meters and associated communications, it files a plan for pre-approval from the DPU. • Utility would be required to show the benefits exceed the costs. • DPU could open an investigation on its own.

13. Complementary Models - II • Storage Technologies (ESA) • Utility could be allowed to own storage technologies to optimize its use of the distribution grid. • Utility would have to demonstrate cost-effectiveness. • Utility could contract with third-party storage developers. • Emerging Technology Phase-In (ESA) • Phase 1: emerging technology; small budget for pilots. • Phase 2: developing technology; cost-effectiveness review required and pre-approval allowed. • Phase 3: mature technology; no regulatory review needed. • Meters and Data (RESA) • In addition to Regulatory Review of Meters (see above), meters would provide uniform platforms and formats for access to customer data for customers and competitive suppliers.

14. Complementary Models - II • Grid Mod Advisory Council (ENE) • Structured process for enabling stakeholder input and reducing the regulatory burden on the DPU. • Parallel to the Energy Efficiency Advisory Council. • Would work best with separate Grid Mod cases. • May not work for rate case proceedings.

15. Straw Polling on Complementary Options • Steering Committee members indicate preferences regarding complementary regulatory models.

16. Cost-Effectiveness – Threshold Issues • Should the DPU require explicit, public cost-effectiveness analyses? • For which GM activities? • Which cost-effectiveness tests should be used? • Program Administrator Cost, Total Resource Cost, Societal Cost • Should the choice of test vary by activities? • Should qualitative costs and benefits be included? • Which ones? • Reliability • Resilience • Risk • What is the objective of the cost-effectiveness analysis? • Lowest cost, for given performance goals • Net benefits, for given performance goals • Relative costs and benefits

17. Cost-Effectiveness – Overview of Key Tests

18. Cost-Effectiveness – Choice of Tests

19. Straw Polling on Cost-Effectiveness • Steering Committee members indicate preferences regarding complementary regulatory models.