Utility transformation | Daymark Energy Advisors

On August 24, 2018, the Rhode Island Public Utilities Commission (PUC) approved a comprehensive settlement[1] resolving Narragansett Electric Company’s[2] gas and electric distribution rate case and its Power Sector Transformation plan. Power Sector Transformation covers the broad range of grid modernization topics being discussed across the country.[3]

Transformational elements include:

  • Earnings sharing with customers if net income exceeds the authorized 9.275 percent return on equity
  • Expansion of performance-based incentive mechanisms related to system efficiency and consideration of additional metrics relating to installed energy storage capacity, electric vehicles, and government and commercial fleet electrification
  • Funding in base rates for certain grid modernization initiatives including a system data portal, geographic information system (GIS) upgrades, an Advanced Meter Functionality (AMF) cost-benefit study, and initiatives for electric transportation and electric storage
  • Recovery of certain multi-year business process investments and system investments including Gas Business Enablement,[4] cyber security, and information technology modernization
  • Reporting and recovery provisions that provide additional customer protections for certain multi-year, multi-jurisdictional initiatives

The settlement also incorporates a reduction in revenue requirement to account for the Tax Cut and Jobs Act of 2017.

Daymark Energy Advisors provided advisory and expert witness services to the Rhode Island Division of Public Utilities and Carriers in gas and electric revenue requirements, gas business enablement and cost allocation and rate design.

Daymark insights:

  • Modernizing the distribution grid to make it “smarter” and more resilient requires tremendous investment by the nation’s electric and gas utilities.
  • Indeed, capital spending by U.S. distribution utilities has increased by more than 54% over the past few decades.[5] A key challenge lies in how to address these demonstrated needs without inducing rate shock among utility customers.
  • The Rhode Island settlement mitigates cost impacts by introducing a multi-year rate plan with performance metrics and deferral mechanisms. It provides a levelized funding path with appropriate true-ups that aligns utility and customer incentives and benefits. While multi-year rate plans are not unique nationally, they are new to Rhode Island.
  • Performance incentives are an effective way to align utility incentives with customers and state policy. However, embedded metrics need to be clearly measurable, achievable, and promote the right set of behaviors without introducing undue complexity. Common approaches as employed in the settlement include: performance target incentives, shared savings incentives, and rate of return incentives.
  • Power Sector Transformation discussions started in February 2016 in Docket 4600 proceedings and continued through the Power Sector Transformation stakeholder process initiated in early 2017 demonstrating the importance of stakeholder engagement in the context of achieving balanced, cost-effective grid modernization solutions.
  • Rate design can help drive efficient investment in technology and infrastructure on both sides of the meter by providing customers with price signals that will help them better manage their energy use. We expect Rhode Island to begin to look at rate design more closely in 2019 in the context of evaluating advanced meter functionality.

Daymark’s collective experience advising a wide variety of regulatory stakeholders---including utilities, commissions, and other interested parties---on rate case strategy and execution allowed us to assist in crafting a practical and effective path forward that carefully evaluated the interests of the Division in light of the broader issues at stake with all participants. This was accomplished by respecting the health and investment needs of the utility while offering fair and reasonable protections to customers.

Want to learn more about how we can help your company meet its grid modernization goals? We’re looking forward to continuing the conversation,

Tina Bennett | Principal Consultant 

Michael Ballaban | Managing Consultant


[1] Parties to the settlement include the Company, the Rhode Island Division of Public Utilities and Carriers, and other intervening parties.

[2] Narragansett Electric Company is a wholly-owned subsidiary of National Grid USA with electric and natural gas operations in Rhode Island.The settlement agreement is between Narragansett Electric Company, the Division of Public Utilities and Carriers, the Office of Energy Resources and twelve stakeholder intervenors.

[3] According to the North Carolina Clean Energy Technology Center’s Q1 2018 Report, “The 50 States of Grid Modernization,” 37 states and the District of Columbia took actions related to grid modernization during Q1 2018.

[4] The Gas Business Enablement program is a multi-year, multi-jurisdictional investment aimed at modernizing its customer connection and engagement, gas safety compliance, and capital planning systems and processes to ultimately making the business run more effectively.

[5] According to Energy Information Administration Today in Energy, July 20, 2018. See link: https://www.eia.gov/todayinenergy/detail.php?id=36...

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