The Massachusetts Department of Telecommunications and Energy (the "Department") has ordered two new studies. The first study, initiated by order dated June 21, 2002, Docket No. D.T.E. 02-40, will investigate all aspects of the provision of default service to ensure its compatibility with a competitive market, and the second study, initiated by order dated June 13, 2002, Docket No. D.T.E. 02-38, will identify technical, economic and regulatory barriers to distributed generation.
With respect to the default service study, standard offer service is scheduled to end in Massachusetts in February of 2005, leaving default service as the generation service of last resort and substantially increasing the role of default service in the electric industry. Default service is intended to provide basic service, but also to incentivize customers to switch to the competitive market. Current customer migration data indicates, however, that an active competitive market has yet to develop among residential and small commercial and industrial ("C&I") customers. Against this backdrop, the Department seeks to identify any aspects of default service that may hinder the development of a competitive market.
The defined scope of the study is broad and will take into account a range of possible assumptions. On one extreme, the study will assume that distribution companies remain the providers of last resort, and that market forces alone will cause customers to migrate to competitive supply. On the other extreme, the study will assume that the development of a strong competitive market requires that default service be obtained in the competitive marketplace, and that distribution companies will therefore not continue as providers of last resort.
The study will specifically examine existing policies regarding 1) price components for default service rates, 2) default service pricing options and 3) procurement strategies. In particular, the default service rates currently exclude administrative, bad debt and marketing costs. Also, there are currently two available pricing options—a variable price that changes monthly based on the prices the distribution companies pay to their default service suppliers, and a six month fixed price based on the average monthly price. Finally, the Department currently requires distribution companies to procure default service supply competitively for periods ranging from between six months to one year, and with prices bid separately for residential, commercial and industrial customers.
The Department anticipates that the study may indicate a need for initiatives that exceed its statutory authority, and stands ready to develop a report from which the legislature could consider statutory changes.
Regarding the distributed generation study, the Massachusetts Restructuring Act (General Laws c. 164 § 1) defines distributed generation as "a generation facility or renewable energy facility connected directly to distribution facilities or to retail customer facilities which alleviate or avoid transmission or distribution constraints or the installation of new facilities or distribution facilities." The Department acknowledges the importance of distributed generation in reducing peak load and thereby relieving transmission and distribution constraints and preventing outages, and is concerned that there may be "technical, economic, and regulatory barriers to distributed generation." The study will identify and consider how to address any such barriers.
For example, technical interconnection standards currently vary among distribution companies, some of which standards may unduly inhibit installation of distributed generation. The study will consider whether Massachusetts should adopt uniform interconnection standards and, if so, whether to adopt any of the uniform standards now in effect in several other states or the uniform standards under development by the Institute of Electrical and Electronic Engineers.
In addition, customers with on-site generation generally rely on the distribution company to provide standby or back-up power, and standby or back-up rates that are too high may discourage installation of distributed generation, but rates that are too low shift costs to other customers. The study will investigate the appropriate method for determining such rates.
Finally, recognizing that distributed generation potentially allows utilities to defer or postpone upgrades and additions to their transmission and distribution systems, the study will consider the role of distribution companies in identifying areas where distributed generation would be a lower cost alternative to such upgrades or additions, and in otherwise encouraging distributed generation in their service areas.
The orders initiating the default service study and the distributed generation study were both issued in June and both request initial public comments by August 1, 2002.