National Grid must remember its $55M lesson
Modernization of our electrical grid is not only overdue, but inevitable. The advent of today's superior technologies, including smart meters, make upgrading the infrastructure a common sense objective. Over the long run, it should yield significant efficiencies as well as monetary and environmental gains. Before going forward with that plan, however, the devil remains in the details of that implementation, and the return on investment must be closely examined.
To date, National Grid has already spent $55 million against its $45.5 million budget for a smart meter pilot program targeted at 15,000 businesses and residential users in the city of Worcester, and we're about halfway through the initiative's initial roll out timeline. Moving forward, it will be critical for the utility, regulators, public officials and the general public to make sure the costs are kept in check when phase two rolls out – a much larger grid modernization, with an anticipated investment of up to $830 million.
Part of the nature of pilot programs is to figure out what works and what doesn't, where the hidden costs are, and how to be more efficient if and when a much larger upgrade program should be implemented. Energy projects are more complex than most and the public is generally skeptical of infrastructure buildouts. In addition, updating old technology can create unexpected expenses, caused by the highly specialized nature of the work and the inefficiencies that come from trying to modernize a system built by a hodgepodge of projects over many decades.
Massachusetts' three major utilities – National Grid, Eversource Energy and Unitil Energy Systems – now have all completed their smart grid pilot programs and have asked the state Department of Public Utilities to approve their plans for a much larger grid modernization, which is required by the commonwealth's Green Communities Act. National Grid's budget estimate of $830 million on this project seems particularly high compared to Eversource Energy's $120-million proposal, especially because Eversource has more customers in the state – 1.4 million vs. 1.3 million. Just looking at these numbers, an $830-million project will have long-lasting ramifications on customer bills, so now is the time to determine whether the project is really delivering a sound return on investment.
For a variety of reasons, New England has the highest electricity prices of any region in the continental U.S., and high energy costs are one of the reasons businesses – particularly major users of energy like manufacturers – can be lured to relocate to other areas of the country. That structural disadvantage will not be erased in the short term by an upgrade to the electrical grid, as ratepayers will ultimately foot the bill for that transformation. However, our high-cost environment does mean that there is – and will continue to be – significant pressure on National Grid and other utilities tasked with managing these system improvements to do so in a cost-effective manner.
Clearly cost overruns on the $45.5-million smart grid pilot program can't be allowed to carry over to the larger phase two of that effort, and every effort needs to be made to see that ratepayers get a positive return on that investment.
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