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Massachusetts's Performance-Based Rate Plan

The Massachusetts Department of Public Utilities has authorized Massachusetts Electric Company and Nantucket Electric Company, each doing business as National Grid, to increase rates by a combined amount of $90.125 million based in part on a rate of return on equity of 9.60%. The decision also includes a new performance-based ratemaking (PBR) plan for the utility, as well as specific cost of service awards that will lead to investments in clean energy technologies, reductions in greenhouse gas emissions, and improvements in infrastructure resiliency, service reliability, and quality. The department found that the company had demonstrated that a PBR, as compared to a capital cost recovery mechanism, will provide it with greater incentives to reduce costs and will result in benefits to customers that are greater than would be present under current regulation.

The department approved several proposals that it said will help to accelerate the development of electric vehicle infrastructure and support growth of electric vehicle usage in the state. Furthermore, the order reflects the its support of National Grid’s effort to implement energy storage demonstration projects and commitment to the state’s objectives for energy storage as part of their Grid Modernization Plan.

The approved five-year PBR plans is made up of three components: (1) a PBR mechanism to adjust rates annually and provide revenue support for operations and capital investment; (2) a performance incentive mechanism (PIM) including scorecard metrics; and (3) a climate mitigation component of the plan that would adjust base distribution rates annually in accordance with a revenue cap formula.

In adopting the plan, the department pointed to a consumer benefit aspect under which the company would be eligible to file rate schedules to put new base distribution rates into effect no earlier than October 1, 2024 and an earnings sharing feature based on future company profits. It said that the rate case stay-out commitment reflects an expectation that productivity gains will be realized during the PBR Plan with a “consumer dividend” designed to share those benefits with customers. To accomplish this the earnings sharing mechanism would trigger a sharing of earnings with customers on a 50/50 basis when the actual distribution ROE exceeds 200 basis points above the ROE authorized by the Department. When the actual ROE exceeds 300 basis points above the authorized ROE, National Grid will share all earnings above 300 basis points 90% with customers and 10% with the company.

The department also said that National Grid had demonstrated that a primary effect of the state’s clean energy efforts has been: (1) a decline in its levels of kWh sales and that its distribution system is growing; and (2) its capital and operating costs are increasing in ways that it has not experienced in the past, partly driven by integrating distributed energy resources with its distribution system. It found that a PBR mechanism is superior to the company’s existing capital cost recovery mechanism in terms of its ability to satisfy the Department’s public policy goals and statutory obligations.  Re Massachusetts Electric Co. and Nantucket Electric Co., each dba National Grid, D.P.U. 18-150, Sept. 30, 2019 (Mass.D.P.U.).


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