The dog ate my homework: How utilities avoid least-cost planning

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Donald M. Kreis, NH Consumer Advocate

Power to the People is a column by D. Maurice Kreis, New Hampshire’s Consumer Advocate. Kreis and his staff of four represent the interests of residential utility customers before the NH Public Utilities Commission and elsewhere. It is co-published by Manchester Ink Link and and distributed as a public service to news outlets across the state.

D. Maurice Kreis, Consumer Advocate

As ideas go, this one is a no-brainer:  Since we are captive customers of our electric and natural gas utilities, we should require the utilities to make their investment decisions in a manner that keeps rates as low as possible while still accomplishing everything they are supposed to accomplish as public utilities.  And we shouldn’t just take the utilities’ word for it; the Public Utilities Commission (PUC) should keep a vigilant eye on the process.

Indeed, the idea is such a no-brainer that it’s been on the books in New Hampshire since 1990.  That’s the year the General Court adopted, and Governor Judd Gregg signed into law, the Least-Cost Integrated Resource Planning (LCIRP) statute.

Alas, 29 years later, the utilities are more or less ignoring the statute and the PUC is letting them get away with it.

To be fair, they have an almost colorable excuse:  restructuring.  In 1990, we had vertically integrated electric utilities with plenary responsibility for producing and delivering electricity.  Now the monopoly is limited to poles and wires; consumers are free to look to the competitive marketplace for the electricity itself.  In these circumstances, it’s not reasonable to hold electric distribution utilities 100 percent responsible for planning and building everything about electric service on a least-cost basis.

This, however, does not explain the curious case of Energy North Natural Gas, the natural gas subsidiary of Liberty Utilities that serves customers in the Upper Valley and the I-93 corridor.

The Legislature only added natural gas utilities to the LCIRP statute in 2014 – well after the natural gas industry was deregulated (itself a prelude to electric industry restructuring).  Liberty filed its most recent natural gas least-cost plan with the PUC in October of 2017.  More than a year and a half later, the plan seems farther away than ever from PUC approval.

Ordinarily this would be inconsequential because regulators have in many cases approved arguably deficient LCIRPs subject to the caveat that, next time, the utilities must do a better job of complying with the statute.  But Liberty is also looking for PUC approval of its proposed Granite Bridge project, a plan to build a new pipeline along the Route 101 corridor between the seacoast and Manchester, construct a 2 billion cubic foot tank to store liquefied natural gas, and enter into some new wholesale contracts for natural gas to deliver via these facilities.  The estimated pricetag for the tank and pipeline is $432 million.

According to page 3 of the least-cost integrated resource plan filed by Liberty in 2017, the company seeks a “best-cost portfolio” that “appropriately balances costs with [Liberty’s] planning objectives, which are to maintain reliability and supply security, provide contract flexibility, and promote the acquisition of viable resources.”

Pushback ensued from two intervenors seeking to raise issues related to climate change – Conservation Law Foundation (CLF) and Keene City Councilor Terry Clark, represented by attorney Richard Husband of Litchfield.  They pointed out that, by statute, LCIRPs are supposed to demonstrate compliance with the official New Hampshire Energy Policy, enshrined in RSA 378:37.

Here’s what that policy actually says:  “It shall be the energy policy of this state to meet the energy needs of the citizens and businesses of the state at the lowest reasonable cost while providing for the reliability and diversity of energy sources; to maximize the use of cost effective energy efficiency and other demand side resources; and to protect the safety and health of the citizens, the physical environment of the state, and the future supplies of resources, with consideration of the financial stability of the state’s utilities.”

What Liberty filed begs almost all of the relevant questions, by assuming that the utility should just go out and acquire the most cost-effective natural gas portfolio it can.  The intervenors pushed back because Liberty never considers the possibility that climate change – i.e., the health, safety and environmental considerations in the state energy policy – might prompt the company to do something other than just buy more gas.

So far, the PUC has sided with the intervenors, at least to a degree.  The Commission ordered Liberty to improve its LCIRP.

That’s fine as far as it goes.  But LCIRPs are supposed to be something more than a homework exercise.  They are supposed to be evidence of how a utility deploys its capital so as to advance the state energy policy at as low an overall cost as possible.  Updating the plan after all the capital deployment decisions have been made is basically a waste of time.

Regardless of how urgent a problem you consider climate change, from a ratepayer standpoint it’s bad news if a natural gas utility is not considering the full extent to which so-called “non-pipeline alternatives” can substitute cost-effectively for more pipelines and more gas.  Examples include geographically targeted energy efficiency, heat pumps, and thermal storage.  Even if these resources cannot entirely eliminate Liberty’s need to expand its supply portfolio, experience in other jurisdictions has shown that the modular nature of these resources allows a utility to defer a project into the future, buying time to see if forecasted growth in demand actually materializes.

The equivalent for electric utilities is known as “non-wires alternatives.” Which brings us back around to least-cost planning on the electric side.

Eversource and Liberty each had electric LCIRPs due this summer, but the PUC just told them not to bother.  Under the LCIRP statute, the PUC can waive the homework assignment for “good cause.”

In this instance, “good cause” has to do with the fact that the PUC Staff is recommending that the agency transform least-cost integrated resource planning into “integrated distribution planning.” The idea is to update old-fashioned LCIRPs so that they become vehicles for implementing so-called “grid modernization.”

Ratepayers, did you just grab for your wallet?  If done wrong, “grid modernization” could become an excuse for utilities to put billions of dollars of new investments into rates so as to facilitate the deployment of new technologies that will increase the flexibility and responsiveness of the grid. 

We’re all for that at the Office of the Consumer Advocate, as the statutory representative of residential ratepayers.  Grid modernization could finally make the benefits of restructuring available to consumers who have paid billions in stranded costs associated with utility generation divestiture.  But grid modernization must not become a pretext for automatic cost recovery of investments utilities would be obligated to do anyway and are supposed to implement on a least-cost basis.

Based on a somewhat ambiguous May 29 order of the Commission, the PUC seems inclined to implement this LCIRP transformation without a hearing.  We’re asking the PUC to reconsider that one.

Meanwhile, I am struck by the fact that every LCIRP review the PUC has conducted since I took office three and a half years ago has focused on process rather than substance.  The PUC has not been looking at the actual planning decisions these utilities make to assure that they are least-cost and calculated to advance the state energy policy.

It is regrettable that least-cost integrated resource planning has been reduced to a homework exercise in such fashion.  Ratepayers deserve electric and natural gas service that really and truly is least-cost.

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