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2018 Edition, 2018

Complete Document

Reviewing the Business Case and Cost Recovery for Grid Modernization Investments

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Over the past decade or so, several utilities and commissions across the U.S. have made investments into new grid technologies, tools, and techniques to modernize the electric grid. As some of these investments are reaching full implementation, it is important for the other utility leaders, who are contemplating similar investments, to learn from the experience of “early adopters” in terms of the planning, implementation, and regulatory processes involved. Similarly, it is instrumental for regulators in jurisdictions facing similar decisions of approving grid modernization investments to understand the potential impacts of these activities. This is especially true because while grid modernization efforts promise large benefits for the utilities, customers, and society as a whole, they come with a big price tag that will, at least in the short-term, increase rates.

The National Electrical Manufacturers Association (NEMA) recognized the importance of sharing the experience gained by these leading utilities and jurisdictions more widely. It retained The Brattle Group (Brattle) to review the recent Grid Modernization investments and clearly summarize how these technologies have benefitted customers and utilities, and the cost recovery and business cases related to these investments. In doing so, NEMA is aiming to present evidence to key decision makers of the value that these new grid capabilities can provide for utilities, customers, and the society as a whole and with the information compiled in this report, they can make more informed decisions about pursuing Grid Modernization investments.

This effort is particularly timely as the penetration of distributed energy resources is increasing and introducing many challenges, as well as opportunities, for the grid and its customers. In order to be able to tap into opportunities raised by DERs, such as peer-to-peer transactions and to avoid challenges such as cost-recovery issues due to uneconomic bypass of the grid, we need a smarter and more flexible grid that would facilitate innovations in the industry by acting as a platform. If the state of the grid is not at par with these innovations, then the customers who are served by that system will have limited access to these innovations.

In an acknowledgment of this reality, many jurisdictions across the U.S. have initiated grid modernization dockets with varying degrees of ambition. In this report, we present a broad review of 21 grid modernization efforts undertaken in the U.S. We then provide a detailed review for 10 projects that cover a wide range of investments, geographies, and regulatory status. For each of these 10 projects, we review business cases, cost-effectiveness tests, and cost recovery mechanisms among other important
ANSI/NEMA MW 1000, 2014