Smart Grid pilot at $55M and counting
The cost for National Grid's Sustainability Hub at 912 Main St. in Worcester – the physical presence for its Smart Energy Solutions pilot program – skyrocketed from its $50,000 budget to nearly $800,000.
Unexpected cost overruns and planned financial contributions that didn't come through caused National Grid to exceed the total budget on its $45.5-million smart meter pilot initiative in Worcester by more than 20 percent with a little over sixmonths still to go, as the utility prepares for the potential full rollout of a grid modernization plan that could cost up to $830 million.
National Grid said cost overruns and lessons learned are part of the very nature of pilot programs, but the Massachusetts Attorney General's Office flagged the pilot, saying it had concerns about excess spending in some parts of the program.
Still, the Department of Public Utilities allowed for rate increases to cover pilot costs, subject to further investigation. The attorney general's office has called for an investigation after the end of the pilot into whether National Grid reasoably and prudently spent the extra money.
“Not only has it provided partial information about cost overruns, but it is unlikely that it will be able to provide the department with complete information regarding cost overruns until the completion of the pilot program,” said a brief filed by Jamie Tosches, assistant attorney general.
After filing a final version of its pilot proposal with DPU in 2011, National Grid launched the Smart Energy Solutions pilot initiative early last year in Worcester. The state's other electric utilities – Eversource Energy and Unitil – performed their own pilots years ago.
“The Department of Public Utilities recognized that the costs included in the pilot proposal were estimates and would need adjusting as the pilot learned key lessons and gained experience along the way,” said Mary-Leah Assad, a National Grid spokesperson.
The pilot, initially slated to cost about $45.5 million, has cost National Grid approximately $55 million so far, the company said. That overrun includes $20 million for electric distribution system investments and $35 million for all customer program costs, outreach and education and in-home technologies and solutions. National Grid said it has so far recovered $22 million of those costs from ratepayers through March 1, subject to further investigation and reconcilliation by DPU. This means DPU can order National Grid to return the money to consumers if it sees fit.
The company ran into extra costs in several parts of the program, including distribution and automation and costs associated with the Sustainability Hub, the program's physical embodiment. The hub alone ended up costing nearly $800,000 against the $50,000 National Grid initially planned to spend on it largely due to the fact that some expected financial contributions fell through, according to the company.
The hub received approximately $340,000 in community donations at its offset, including from the Worcester Business Journal.
The smart, modern grid
Electric companies are required to complete smart grid pilot programs as part of the Green Communities Act. The idea is that upgrading the aging electrical grid will create steadier power supply during extreme weather, encourage technological innovations and infrastructure investments and allow for cleaner and more efficient energy use.
In 2014, DPU ordered each electric distributor to implement a 10-year grid modernization plan. National Grid, which filed its plan last August, estimated the total cost of its plan to be between $225 million and $830 million over a five-year period. Assad said the lessons National Grid learned during the pilot phase were instrumental to the planning of the larger smart grid rollout.
Eversource's plan, also filed in August, was estimated to cost between $67 million and $120 million over five years. Unitil's proposed 10-year grid modernization plan could cost $23.9 million.
By offering more efficient tools, including thermostats, and giving customers the option to choose a rate plan and run their machinery and appliances at off-peak times, a smart grid could, in theory, allow consumers to save money and use energy more efficiently, said David Ismay staff attorney at the Boston-based Conservation Law Foundation.
Industrial and commercial customers stand to benefit the most, as they have power running all the time and can benefit from cost-shifting models during off-peak usage periods. Those benefits don't translate as easily to residential customers, Ismay said.
“For many families, for many homes, there isn't a lot of electric consumption that is easily shiftable. Part of the reason we have a load curve that peaks in afternoon is people come home from work at about the same time, and they get their kids off to school at the same time [in the morning],” Ismay said. “We need to be careful, as we move forward to not expect that a pure price signal that economists model will push behavior in certain direction.”
Cost overruns
Permitting processes, local opposition and unforeseen cost-related circumstances all contributed to the increased cost of National Grid pilot program, according to DPU filings.
For example, the company encountered delays in local permitting processes for the pilot's distribution and automation component, further complicated by community opposition to construction at substations. The cost for this portion also increased because National Grid saw the need for a network management solution to monitor advanced communications and quality of service.
The purpose of the pilot's distribution and automation component is to test improvements in system reliability so the company can better respond to outages.
On the grid-facing side of the operation, National Grid said it has learned a lot from the pilot, including a need to boost its workforce to keep up with technological advancements, establish a data analytics solution and information repository for evaluation data, and that a combination of connecting solutions can work together when alternate approaches are needed.
On the customer side, the company said it learned customers who take an active role in the pilot saw greater reductions in energy usage and bills, and that it needs to do a better job of educating customers about how peak events work.
At National Grid's Sustainability Hub at 912 Main St., customers can learn about the pilot program in a hands-on way. National Grid developed the idea for a physical embodiment of its pilot after a two-day stakeholder summit where the company sought to determine what the community wanted to get out of the pilot.
“The hub was to serve as a place where customers and members of the community could try out smart grid concepts and technologies and learn about energy with face-to-face interaction,” Assad said.
It has also been expensive. So far, the company said it has requested a total of $775,000 in recovered costs for the hub. Costs went up substantially because the hub's original budget was based on assumed community donations that didn't come through.
AG: Not worth it
In an initial brief, the attorney general's office argued that National Grid failed to determine the “prudence and reasonableness” of excesses in costs for the hub.
“In moving forward without first informing the department of the substantial budget increase for the Sustainability Hub, the company deprived the department and other stakeholders of the opportunity to assess the appropriateness of the expanded Sustainability Hub budget,” said a brief submitted by Tosches. “The magnitude of the budget increase ... certainly warrants such an inquiry. Despite this large increase, customers received few, if any, additional benefits.”
While the costs have increased, National Grid argues the benefits of the hub and the pilot have exceeded expectations. Students from Clark and Worcester Polytechnic Institute can apply to be interns at the hub, where they give tours, take part in community outreach and present and teach educational modules and activities.
Since it opened in 2013, the hub has had more than 6,000 visitors. Its model will be incorporated into future smart grid planning, Assad said. The pilot helped National Grid learn how to bring smart grid technologies to scale, which was key to the larger grid modernization plan, she said. The pilot will continue through the end of this year.
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