This month Rhode Island’s dominant utility, National Grid, made its second-ever filing with the Public Utilities Commission (PUC) under Rhode Island’s “revenue decoupling” statute. Grid’s filing clarifies matters in a debate that swirled around the environmental community in Rhode Island (and the rest of New England) for years but ought now to be resolved once and for all – an argument over whether decoupling is a rip-off of utility rate-payers. CLF (and other environmental advocates) have argued for years that there are important environmental benefits to be reaped from decoupling. Opponents, including some ratepayer advocates, argued that decoupling would be bad for rate-payers because it would inevitably lead to unjustified rate hikes.

Grid’s highly technical, 59-page filing with the PUC this month is dense reading, with pages upon pages of complicated charts, but at the end of the day the filing resolves the controversy. Decoupling is good for ratepayers. In the year that ended on March 31, 2013, Rhode Island electricity ratepayers will receive a collective refund from National Grid of $4.2 million, including over $42,000 in interest on ratepayer overpayments.

Some explanation of what decoupling is and how this controversy has developed is in order.

Traditional utility regulation provides little incentive for utilities to promote energy efficiency. This is because reduction in sales equals a reduction in profits for the utility.

Decoupling is a way to address this problem and to align the utility’s pecuniary interest with the public interest in efficiency and conservation. Decoupling separates (that is, “decouples”) a utility’s income from the amount of commodity the utility sells. This effectively removes a major disincentive to utility enthusiasm for and participation in energy efficiency measures.

Decoupling is not all that is needed to achieve carbon-emission reductions through energy efficiency; but decoupling is one important and necessary ingredient. Many states have decoupled, and there is a high correlation between states that reduce carbon emissions the most (thereby lowering ratepayer bills the most) and states that have decoupled.

Work on “decoupling” is one aspect of CLF’s wider work on reducing carbon emissions in order to address the climate change emergency. More specifically, decoupling is closely linked to our work on energy efficiency. One of the most effective ways to reduce carbon emissions in the short- and medium-term is to work on energy efficiency.

In 2008, CLF participated in a litigation in the PUC in which we tried to get the PUC to decouple gas prices. The litigation, PUC Docket # 3943, took weeks, and CLF presented an expert witness, crossed examined witnesses of other parties, submitted briefs. But CLF lost the case; the PUC ruled that it would not decouple gas prices in Rhode Island.

In 2009, CLF tried again, this time trying to get the PUC to decouple electricity prices. This litigation, PUC Docket 4065, also took weeks – again, we presented an expert witness, cross-examined other parties’ witnesses, briefed the issue. Again we lost; the PUC ruled that it would not decouple electricity prices.

The main argument against decoupling was that it would hurt ratepayers. The Division of Public Utilities and Carriers (this is the statutory ratepayer advocate in Rhode Island, and is different than the PUC) opposed decoupling for this reason, as did others. One expert witness against decoupling put it this way: “[T]he plan would allow a broad range of automatic rate adjustments that would result in rate increases . . . .There is no down side to the Company. The only down side is to the ratepayers.”

In response, CLF introduced evidence that actually came from 28 natural gas utilities and 12 electric utilities in 17 states across the country that have operative decoupling mechanisms. This broad range of utilities showed two important results from decoupling. The first, and smaller point is that decoupling adjustments tend to be minor. Compared to total residential retail rates, decoupling adjustments have been most often under two percent, positive or negative, with the majority under 1 percent. The second, and larger, point is that decoupling adjustments go both ways, sometimes providing small refunds to customers, sometimes providing small surcharges.

Nevertheless, despite the evidence we introduced, we lost both cases. The PUC was persuaded that decoupling was just a trick whereby the utility could always ratchet rates upward.

In 2010, CLF, working with other environmental organizations supported a bill in the Rhode Island General Assembly that would require decoupling of both electricity and gas prices. On May 20, 2010, Governor Donald Carcieri signed the bill into law.

On October 18, 2010, the PUC opened a new docket in order to implement the new law that mandated decoupling. This time, the question wasn’t whether Rhode Island would decouple, but how. CLF participated as a full party in the docket in order to ensure that the decoupling mechanisms adopted would be designed to reap all the environmental benefits without unduly hurting or harming ratepayers. Nine months later, on July 26, 2011, the PUC approved an excellent set of decoupling rules for both electricity and gas.

A year ago, in May 2012, Grid filed its first-ever report under the then-new Rhode Island decoupling statute and under the PUC rules. That report showed that, on the electricity side, Grid needed to rebate to Rhode Island ratepayers just over a million dollars for the year that had ended on March 31, 2012.

This month, Grid filed its second-ever report under the now-not-so-new-anymore decoupling statute.  This year, the amount Grid is going to rebate to Rhode Island ratepayers has more than quadrupled, to $4.2 million.  Rhode Island ratepayers are getting rebates – not additional payments – in both of the first two years that electricity decoupling has been implemented in Rhode Island.

Remember the main point that CLF’s expert witnesses made in the decoupling dockets that we lost in 2008 and 2009: decoupling adjustments go both ways. Sometimes ratepayers pay a little extra; sometimes ratepayers get a rebate. Real-world results from the first two years of decoupling show that CLF’s main point was 100% correct.  And not only are Rhode Island ratepayers getting a rebate from Grid, but everyone in Rhode Island enjoys the savings and efficiency benefits that decoupling enables – and the environment enjoys lower carbon emissions.

As I suggested a year ago when the first-year figures came out, there may be two lessons that can be learned from this – one about CLF and one about the broader environmental movement.

About CLF: One of the things I love about working for CLF is the stick-to-itiveness that the organization (and my fellow and sister staff members) have. In 2008, we litigated decoupling, and we lost. So we tried again. When we lost again, we turned to a different forum, the General Assembly. When the law we supported passed, we were pleased – but we didn’t rest. We still had another litigation in the PUC to make sure that the law was properly implemented.

CLF is nothing if not persistent!

And about the broader environmental movement: So often our opponents argue that environmental protections are too costly to implement. Too often, the arguments made by environmentalists about the benefits and savings from environmental protections are just not believed by decision-makers and by ordinary citizens. With decoupling, everyone (including the PUC and so many others) just “knew” that decoupling would be an expensive rip-off. When evidence like this comes to light about the financial and pecuniary benefits of environmental laws, we should make sure that the public knows.

On June 26, 2011, Governor Chafee signed into law the “Distributed Generation Standard Contracts Act.”  The bill had passed both houses of the General Assembly unanimously. The “distributed generation” in the title of the law refers to small, local renewable energy projects.

The new law was designed to do three things: (1) increase the number of small renewable energy projects that are built in Rhode Island; by (2) making it easier, quicker, and cheaper for developers of these projects to get contracts to sell their electricity to Rhode Island’s dominant utility, National Grid; and (3) get those renewable energy projects distributed into more of Rhode Island’s cities and towns.

Not every law passed by the General Assembly works out the way it was meant to, but the Distributed Generation Standard Contracts Act has been phenomenally successful in accomplishing each of its three goals.

Previous renewable energy laws in Rhode Island have worked the way they were intended: to get National Grid to buy more and more of its electricity each year from clean, renewable energy sources. But Rhode Island’s previous renewable energy laws also had a significant flaw: they worked very well for big projects, like Deepwater Wind’s proposed offshore wind farm, but they worked less well for small projects (like a town that wants to set up a single wind turbine at its town hall, as Portsmouth did). That is because under the prior laws, developers would have to hire a small army of lawyers to negotiate an excruciatingly long, detailed contract with Grid, setting forth everything from the price of the electricity to delivery schedule. (For example, the contract that Deepwater filed with the Public Utilities Commission on December 10, 2009 ran 62 pages in length!)  Hiring lawyers to negotiate a 62-page contract was just too time-consuming and expensive for a developer who had a small project.

The new law fixed that problem. As the name of the law suggests, it provided for a “standard contract” for developers of small projects. The standard contract was short, written in plain English, and easy to understand. In addition, the law provided for a standard price to be paid, and established a mechanism for setting a fair price for each different type of project – wind, solar, and so forth. These prices were designed to be high enough to get projects actually built, but low enough to protect electricity rate-payers.

And that is exactly how the new law has worked. In the 15 months since the bill was signed into law, National Grid has held three separate sign-up periods. To date, 18 separate projects have been signed up.  Each of these 18 separate projects will be built right here in Rhode Island. Thus, Rhode Islanders will directly enjoy the environmental and economic-development benefits of these projects. The main purpose of the new law, to get more local renewable energy projects built, has been accomplished – in spades.

The developer of each of these 18 projects got a simple, standard contract to sign, and will receive a set price for the electricity produced.  Thus, another one of the law’s purposes has been accomplished.

The projects themselves are located in Providence, East Providence, Portsmouth, Lincoln, Westerly, Bristol, West Greenwich, East Greenwich, Hopkinton, Middletown, Cumberland, North Kingstown, North Smithfield, and West Warwick.  This geographical distribution of new renewable energy projects was a third purpose of the law.

Rhode Island’s new Distributed Generation Standard Contracts Act has been so successful that it is becoming a model for the rest of the country. Renewable energy advocates in New York and Iowa are hoping to replicate the Rhode Island law in their states. The California Public Utilities Commission has circulated the Rhode Island law to its in-house legal staff. A group of Oregon legislators is poised to introduce a bill in the coming legislative session modeled after the successful Rhode Island law.

The Distributed Generation Standard Contracts Act is a classic win-win. It addresses the problem of climate change by reducing the carbon emissions that cause climate change. And it helps the Rhode Island economy by facilitating local development of renewable energy projects.

This is a law that Rhode Islanders can be proud of. Its enactment reflects well on our legislators (who passed it unanimously) and on Governor Chafee (who signed it into law). The law has been administered carefully and diligently by our Office of Energy Resources. And National Grid, which receives an economic incentive when projects start producing power, has worked conscientiously with developers to help developers succeed.

This week Rhode Island’s dominant utility, National Grid, made its first-ever filing with the Public Utilities Commission (PUC) under Rhode Island’s newly enacted “revenue decoupling” statute. Grid’s filing resolves once and for all a debate that has been swirling around the environmental community in Rhode Island (and the rest of New England) for years – an argument over whether decoupling is a rip-off of utility rate-payers. CLF (and other environmental advocates) have argued for years that there are important environmental benefits to be reaped from decoupling. Opponents, including some ratepayer advocates, argued that decoupling would be bad for rate-payers because it would inevitably lead to unjustified rate hikes.

In response to Grid’s filing with the PUC, the PUC opened a new docket (case) to consider decoupling.  CLF has filed papers to intervene in (participate in) this new PUC docket as a full party; you can see CLF’s Motion To Intervene here.

Grid’s highly technical, 51-page filing with the PUC this week is dense reading, with pages upon pages of complicated charts, but at the end of the day the filing resolves the controversy. Decoupling is good for ratepayers. And in just this first year of operation, Rhode Island electricity ratepayers will receive a collective refund from National Grid of over a million dollars.

Some explanation of what decoupling is and how this controversy has developed is in order.

Traditional utility regulation provides little incentive for utilities to promote energy efficiency. This is because reduction in sales equals a reduction in profits for the utility.

Decoupling is a way to address this problem and to align the utility’s pecuniary interest with the public interest in efficiency and conservation. Decoupling separates (that is, “decouples”) a utility’s income from the amount of commodity the utility sells. This effectively removes a major disincentive to utility enthusiasm for and participation in energy efficiency measures.

Decoupling is not all that is needed to achieve carbon-emission reductions through energy efficiency; but decoupling is one important and necessary ingredient. Many states have decoupled, and there is a high correlation between states that reduce carbon emissions the most (thereby lowering ratepayer bills the most) and states that have decoupled.

Work on “decoupling” is one aspect of CLF’s wider work on reducing carbon emissions in order to address the climate change emergency. More specifically, decoupling is closely linked to our work on energy efficiency. One of the most effective ways to reduce carbon emissions in the short- and medium-term is to work on energy efficiency.

In 2008, CLF participated in a litigation in the PUC in which we tried to get the PUC to decouple gas prices. The litigation, PUC Docket 3943, took weeks, and CLF presented an expert witness, crossed examined witnesses of other parties, submitted briefs. But CLF lost the case; the PUC ruled that it would not decouple gas prices in Rhode Island.

In 2009, CLF tried again, this time trying to get the PUC to decouple electricity prices. This litigation, PUC Docket 4065, also took weeks – again, we presented an expert witness, cross-examined other parties’ witnesses, briefed the issue. Again we lost; the PUC ruled that it would not decouple electricity prices.

The main argument against decoupling was that it would hurt ratepayers. The Division of Public Utilities and Carriers (this is the statutory ratepayer advocate in Rhode Island, and is different than the PUC) opposed decoupling for this reason, as did others. One expert witness against decoupling put it this way: “[T]he plan would allow a broad range of automatic rate adjustments that would result in rate increases . . . .There is no down side to the Company. The only down side is to the ratepayers.”

In response, CLF introduced evidence that actually came from 28 natural gas utilities and 12 electric utilities in 17 states across the country that have operative decoupling mechanisms. This broad range of utilities showed two important results from decoupling. First, decoupling adjustments tend to be small, even miniscule. Compared to total residential retail rates, decoupling adjustments have been most often under two percent, positive or negative, with the majority under 1 percent. Second, decoupling adjustments go both ways, sometimes providing small refunds to customers, sometimes providing small surcharges.

Nevertheless, despite the evidence we introduced, we lost both cases. The PUC was persuaded that decoupling was just a trick whereby the utility could always ratchet rates upward.

In 2010, CLF, working with other environmental organizations supported a bill in the Rhode Island General Assembly that would require decoupling of both electricity and gas prices. On May 20, 2010, Governor Donald Carcieri signed the bill into law.

On October 18, 2010, the PUC opened a new docket in order to implement the new law that mandated decoupling. This time, the question wasn’t whether Rhode Island would decouple, but how. CLF participated as a full party in the docket in order to ensure that the decoupling mechanisms adopted would be designed to reap all the environmental benefits without unduly hurting or harming ratepayers. Nine months later, on July 26, 2011, the PUC approved an excellent set of decoupling rules for both electricity and gas.

And this week, Grid filed its first report under the new Rhode Island decoupling statute and under the PUC rules. It shows that, on the electricity side, Grid is going to rebate to Rhode Island ratepayers just over a million dollars for the year just ending.

Remember the two points that CLF’s expert witnesses made in the decoupling dockets that we lost in 2008 and 2009.

• First, decoupling adjustments tend to be very small, even miniscule.

• Second, decoupling adjustments go both ways. Sometimes ratepayers pay a little extra; sometimes ratepayers get a rebate.

Grid’s filing this week in the PUC shows that CLF was correct on both points. This time, ratepayers are getting a rebate. And, yes, the amount is small. For the average (500 kilowatt-hour per month) electricity customer, the rebate will be 7¢ per month, or 84¢ per year. (And, yes, the adjustments can go both ways, and next year there might be a miniscule surcharge.) Meanwhile, everyone in Rhode Island enjoys the savings and efficiency benefits that decoupling enables – and the environment enjoys lower carbon emissions.

I think there may be two lessons that can be learned from this – one about CLF and one about the broader environmental movement.

About CLF: One of the things I love about working for CLF is the stick-to-itiveness that the organization (and my fellow and sister staff members) have. In 2008, we litigated decoupling, and we lost. So we tried again. When we lost again, we turned to a different forum, the General Assembly. When the law we supported passed, we were pleased – but we didn’t rest. We still had another litigation in the PUC to make sure that the law was properly implemented.

CLF is nothing if not persistent!

And about the broader environmental movement: So often our opponents argue that environmental protections are too costly to implement. Too often, the arguments made by environmentalists about the benefits and savings from environmental protections are just not believed by decision-makers and by ordinary citizens. With decoupling, everyone (including the PUC and so many others) just “knew” that decoupling would be an expensive rip-off. When evidence like this comes to light about the financial and pecuniary benefits of environmental laws, we should make sure that the public knows.

The Cape Wind offshore wind project moved one big step closer to construction yesterday when the Massachusetts Supreme Judicial Court (SJC) affirmed the MA Department of Public Utilities’ (DPU’s) finding that the project’s costs are reasonable in light of the many benefits it will bring.

Massachusetts’s highest court upheld the November 2010 decision of the DPU, which approved a critically important contract between Cape Wind and National Grid in which the electric utility agreed to purchase half of Cape Wind’s output. Cape Wind opponents had appealed the DPU’s decision— the latest in an endless stream of ill-fated maneuvers intended to block the nation-leading clean energy project from being built.

CLF intervened in the appeal proceeding with fellow environmental groups NRDC and Clean Power Now, making the case that the DPU’s extensively-researched decision showed clearly that Cape Wind’s benefits would outweigh its costs. Among these benefits is the project’s close proximity to areas of high electricity demand, which gives it logistical advantages over obtaining power from more distant energy projects that have been proposed.

The High Court’s validation should make it easier for Cape Wind to secure a buyer for the other half of the wind farm’s output and attract project investors to help finance construction. When built, after more than a decade of exhaustive reviews, Cape Wind will be the nation’s first offshore wind project.

Encouraged by yesterday’s decision, Jim Gordon, president of Cape Wind, spelled out some of the benefits Massachusetts residents could anticipate when Cape Wind is built, including, “creating up to 1,000 jobs, providing Massachusetts with cleaner air, greater energy independence and a leadership position in offshore wind power.”

We at CLF say, “Bring it on…not a moment too soon!”

Map of Northeast Energy Link (potential route in yellow)

Earlier this week, National Grid, Emera, and First Wind announced preliminary plans for a major new transmission project between northeastern Maine and Massachusetts – the Northeast Energy Link (NEL).  The financing structure for the project, known as “participant funding,” is similar to the structure that federal regulators approved for the Northern Pass project in 2009.  NEL would consist of 220 miles of underground, high voltage direct current (HVDC) transmission lines, apparently to be sited in existing rights of way and transportation corridors, that would deliver 1,100 megawatts of power from future wind projects in northern Maine, as well as additional imports from Canada, to southern New England. National Grid and its partners have apparently found a way to make the economics of burying lines in already disturbed corridors work.  This development deeply undermines the continued refusal of the proponents of the Northern Pass project, despite CLF’s and others’ repeated requests, to consider the same approach.

NEL is an intriguing proposal, particularly because it emphasizes New England-based wind resources. As with Northern Pass, the proposal warrants thorough review through robust, comprehensive permitting processes.

More immediately, the proposal underscores the urgent need for the regional energy study CLF and others are requesting within the Northern Pass permitting process.  There simply is no comprehensive plan in place addressing the best approaches for facilitating imports of Canadian power, if needed, and for adequately connecting homegrown renewable resources in remote areas to customers in southern New England.  With no plan, all we can do is react, piecemeal, to each private proposal that comes along.  Our energy and environmental agencies should be assessing the need for new transmission projects and then should consider only the best approaches that prioritize energy efficiency, minimize environmental impacts, reduce our reliance on the dirtiest power plants, and provide real public benefits. 

The recent delays in the Northern Pass review mean that the U.S. Department of Energy has a golden opportunity to help develop a regional plan, along with other stakeholders in the New England states and elsewhere in the Northeast.  CLF-NH Director Tom Irwin and a number of the other organizations that joined our motion to DOE seeking such a study make the case on the op-ed page of today’s Concord Monitor.  You can access the op-ed here.

Earlier today in Rhode Island, the Public Utilities Commission (PUC) approved the Deepwater Wind/National Grid Power Purchase Agreement (PPA) for the construction of an eight-turbine wind farm in Block Island Sound, denying CLF’s Motion to Dismiss.

Here’s what CLF’s Rhode Island Advocacy Center Director Tricia Jedele had to say about the decision:

Today’s ruling was inevitable, a result dictated by the legislature in a law defined so narrowly that it could have only one outcome. Unchallenged, this law and the accompanying PUC decision set precedent that will only undermine the efforts to build a future for renewable energy in Rhode Island. The failure to allow the PUC any discretion in its decision-making is the very basis of CLF’s Separation of Powers argument, which we are likely to appeal to the Supreme Court.

The Deepwater Wind project in Block Island Sound first met with problems in April 2010 when its Power Purchase Agreement (PPA) with National Grid was rejected by the PUC on the grounds that it was not commercially reasonable. Rather than appeal the decision, Deepwater, with the support of the Governor and the legislature, sought to do an end run around the review process and rewrite the rules to produce a different outcome the second time around. CLF, a longtime champion of renewable energy done right, was one of the first to challenge the moves as unlawful, unfair and a terrible precedent. CLF contended that the amended law was designed to favor one project and one developer, creating an unlevel playing field that would make it impossible for developers to compete successfully for future projects.

“Renewable energy is too important to this state to do it in a way that could threaten its chances for success,” Jedele said at the time.

In July, in advance of a second review of the PPA required under the amended law, CLF filed a Motion to Dismiss, arguing that the PUC should not review the amended Power Purchase Agreement because the law violates the Constitutional doctrine of separation of powers, and the provision which requires that “all laws be made for the good of the whole.” CLF also argued that even if the PUC were to proceed, it could not review the PPA because the doctrine of res judicata bars litigation of a claim that has already been litigated between the same parties.

In response to objections regarding the cost of Cape Wind, CLF and 12 other organizations issued the following statement:

The news this week that National Grid has officially filed its contract proposal with Cape Wind is great news for everyone in our state who breathes the air and believes we need to reduce our dependence on foreign oil and fossil fuels in general. Any estimate of the real costs of Cape Wind must factor in the economic, environmental and public health benefits to consumers and the Commonwealth over the long-term. In addition to knowing how much the power from Cape Wind will cost, the public should also know how much it will save them. To accurately estimate the value of our investment in Cape Wind, we can’t just focus on short-term increases to electric bills – pennies per day, on average – but must consider the savings over time.

By making a 15-year commitment to supply customers with clean wind power, National Grid and Cape Wind together are taking an essential step toward bringing the nation’s first offshore wind project to life while delivering substantial economic and environmental rewards. As the contract goes through rigorous public scrutiny, we call upon the public and state decision-makers alike to ensure that it is compared to other electric power agreements on an apples-to-apples basis that fully credits the expected benefits.  These include:

▪  Because Cape Wind’s fuel is free, the long-term power purchase agreement can – and will – ensure price predictability over the long term, moving consumers off the volatile fossil fuel price roller coaster.

▪  The project’s zero fuel cost means that when the wind blows, Cape Wind will be first in line to deliver power to consumers – forcing the most expensive polluting fossil fuel-fired power plants to run less, reducing the market price for electricity and saving customers millions of dollars.

▪  The contract price, initially set at 20.7 cents per kilowatt hour, is an “all-in” price that includes not just the price of the electricity but also the transmission, renewable energy incentives that are required by law, the project’s capacity to contribute to the regional electric supply, and other environmental benefits.  It is inaccurate to compare this price to the stand-alone price of traditional electricity.

▪  Any comparison of Cape Wind’s contract price to the price we currently pay for traditional power must take into account the extraordinary environmental and public health costs of ongoing reliance on fossil fuels – including the costs of addressing the growing oil drilling catastrophe in the Gulf, increasing climate change impacts, and air pollution from coal plants that worsens lung and heart conditions.

▪  By making long-term price commitments, Cape Wind and National Grid are placing the risk of any increased development cost squarely on the shoulders of Cape Wind, not ratepayers.

▪  Cape Wind will bring significant economic development opportunities to the Commonwealth, from quality construction jobs to ongoing maintenance and operation, and will propel Massachusetts to the national forefront of offshore renewable energy development.

Contact: Sue Reid, CLF Senior Attorney (617) 850-1740, sreid@clf.org
Karen Wood, Director of Communications (617) 850-1722, kwood@clf.org

Today marks a critical milestone for the 130-turbine Cape Wind offshore wind energy project as the project has reached an agreement with electric utility National Grid, in consultation with the Massachusetts Department of Energy Resources, to negotiate a long-term commitment for the purchase of the project’s power. Cape Wind is one of New England’s most promising solutions for addressing climate change and reducing the region’s dependence on polluting fossil fuels.

“By committing to ensure that Cape Wind’s emissions-free energy will be delivered to tens of thousands of Massachusetts homes and businesses, Cape Wind, National Grid and the Patrick Administration are leading the way to a clean energy future,” said CLF President John Kassel.

CLF has been working across New England for more than fifteen years to promote long-term commitments for the purchase of renewable energy, like the one that is now expected for Cape Wind. Such agreements often provide critical support for the financing of renewable energy projects while also providing stable energy prices to electric customers for years to come, taking energy bills off the fossil fuel roller coaster.