Massachusetts lawmakers voted this summer that non-coincident peak demand chargers are inappropriate for solar customers, overturning the Massachusetts Department of Public Utilities (DPU) approval of Eversource’s proposal for the new charges last year.
A little background: As part of their most recent rate case, Eversource proposed a demand charge for their “Monthly Minimum Reliability Contribution.” In 2016, the Legislature passed an energy bill that included a provision for an MMRC. The MMRC provision stated:
Any such minimum contributions shall ensure that all distribution company customers contribute to the fixed costs of ensuring the reliability, proper maintenance and safety of the electric distribution system. (M.L. c. 164 § 139(j))
The common understanding in 2016 was that this provision was meant to allow the distribution companies to propose minimum bills. A minimum bill requires customers to pay at least a predetermined amount (e.g. $10) each month. As such, a minimum bill would require net metering customers to pay the minimum bill each month, even if they had enough monetary credits to cover the full amount of their bill.
Eversource took a different approach. When Eversource filed their rate case on January 17, 2017 (Docket D.P.U. 17–05), the company included a completely different rate design for future net metering customers. Instead of a minimum bill, Eversource proposed to put all future net metering customers, including residential and small commercial customers, on a mandatory three-part rate. Residential customers in the Eversource service territories — and in the vast majority of the country — are not billed based on demand. Additionally, many small commercial Eversource customers currently are not on a three-part rate.
Not a single intervenor in the case supported Eversource’s MMRC proposal. Ten parties actively opposed the proposal. One of the parties opposing the MMRC proposal was the Massachusetts Department of Energy Resources; the DOER is the energy office of the administration and carriers out the energy policy of the administration.
Furthermore, Eversource proposed a non-coincident peak demand charge. As many witnesses pointed out (including myself), an NCP demand charge is not representative of the costs small customers impose upon the distribution system. Even transformers are shared assets for small customers. In Massachusetts, the only infrastructure costs that are directly attributable to small customers are the line drop and the meter, and these costs are recovered in the customer charge.
Below are three charts that illustrate the diversity of demand of residential customers in Massachusetts. The first chart demonstrates the month in which a customer’s yearly NCP occurs. I note that even though many customers experienced their yearly NCP in the winter, Massachusetts distribution companies are summer peaking systems. The second chart shows the NCP demand for each day of the week. Finally, the third chart shows the NCP demand for each hour of the day. These charts show that residential customers’ NCP demand occurs over every month of the year, every day of the week, and every hour of the day. The diversity of demand leads to a sharing of resources by customers. This data is from the National Grid service territory; I tried to get the same information from Eversource, but the Company denied me access to anonymized customer usage information.
Non-coincident peak demand charges are not representative of cost causation. In practice, NCP demand charges can actually impose greater costs on the distribution system. If a customer’s peak demand occurs during off-peak hours, then the customer has a financial motivation (if they understand and can respond — I’ll get to that in a minute) to shift their demand to other times and lower their instantaneous demand. The outcome could be the customer shifts their demand to on-peak hours, which is a terrible outcome for all ratepayers.
For residential customers (and some small commercial customers), non-coincident peak demand charges are also complicated, difficult to monitor, and do not send an actionable price signal. These problems with NCP demand charges all illustrate why NCP demand charges are not appropriate for residential and small commercial customers.
Furthermore, the Eversource proposal did not meet the intent of the MMRC provision. The Eversource proposal still allowed net metering customers to offset all charges on their electric bill with monetary net metering credits. This means that net metering customers could still have a $0 bill at the end of each billing period. As such, the Eversource proposal appeared to be less about net metering customers contributing something every month, and more about a punitive rate design for net metering customers.
Despite the overwhelming opposition — and evidence — to the NCP demand charge proposal in the MMRC, the Massachusetts Department of Public Utilities approved the proposal on January 5, 2018. Vote Solar appealed the decision because it is: (1) based upon errors of law; (2) unsupported by substantial evidence, and (3) arbitrary, capricious, and an abuse of discretion.
When the DPU approved the Eversource proposal, the Legislature immediately heard an uproar from constituents. The Joint Committee on Telecommunications, Utilities, and Energy at the Legislature took the unusual step of calling an oversight hearing on January 30. I have never seen the members of the Joint Committee so upset with Eversource and the DPU. The members of the Joint Committee — first implicitly and then explicitly — were shocked and revolted that Eversource would take the language of the MMRC as an opportunity to propose an NCP demand charge.
The disdain for the Eversource proposal lasted throughout the legislative session. On the last day of the legislative session (July 31, 2018), both chambers passed an energy bill. The bill included provisions for an expansion of the renewable portfolio standard, expansion of allowable technologies in the energy efficiency programs, an energy storage goal, an opportunity for additional offshore wind, a clean peak standard, and revised MMRC language that vacates the Eversource MMRC. Ultimately, the Legislature intervened on behalf of ratepayers to prevent an inappropriate rate design from going into effect.
The MMRC provision does still allow for the distribution companies to propose an MMRC in the future. Stakeholders (and likely the Legislature too) will evaluate any proposals that are submitted. Nonetheless, everyone can rest assured that the inappropriate and fundamentally flawed rate design of non-coincident peak demand charges will not be a part of any future MMRC proposals.
Nathan Phelps is Vote Solar’s regulatory director in the Northeast. Visit votesolar.org to learn more.