The Nickel Report

As we reported in an earlier posting, on June 4, 2020, the Massachusetts Attorney General’s Office (“AGO”) filed a petition, which requested the Massachusetts Department of Public Utilities (“DPU”) to open an investigation into potential changes to local natural gas distribution company (“LDCs”) operations to support the Commonwealth’s legislatively mandated greenhouse gas (“GHG”) emission limit reductions (the “Petition”). Specifically, the AGO’s Petition seeks to evaluate the industry, regulatory and policy adjustments that are requisite to meet the state GHG limits, and to “determine what near and long-term adjustments are necessary to maintain a safe and reliable gas distribution system and protect consumer interests as the Commonwealth transitions” to carbon neutrality by 2050. In response to the AGO’s Petition, on October 29, 2020, the DPU issued an order to open an investigation into the role of gas local distribution companies as the Commonwealth achieves its target 2050 climate goals (the “Order”). This process will move concurrently with the pending update to the Commonwealth’s Clean Energy and Climate Plan, and the issuance of the Commonwealth’s 2050 Decarbonization Roadmap (the “Roadmaps”), both of which are expected to issue in December 2020.

In its press release to announce the investigation, the DPU Chairman Matthew Nelson states, “The Commonwealth continues to lead the nation on climate change mitigation, and this Order will help assess how to best achieve deep emissions reductions while ensuring a safe, modern and cost-effective heating distribution system for Massachusetts ratepayers.” The Order requires gas companies operating in Massachusetts to hire an independent consultant that will examine the various pathways for the companies to help the Commonwealth get to a net-zero future.

The Order directs the LDCs to initiate a joint request for proposals (“RFP”) for an independent consultant to conduct a study and prepare a report in accordance with the specified parameters of the Order. Those individual analyses are to be integrated into one, collective report that performs meaningful comparisons among the LDCs (the “Report”). For each pathway proposed in the Roadmaps and separately identified by the independent consultant(s), the independent consultant(s) will:

(1) Present a forecast, estimate or other quantification of the costs and actual economy-wide  GHG emissions reductions involved in transitioning the natural gas system. The evaluation of     costs shall include the following:

• • a discussion of possible mechanisms, methodologies or policies to address the recovery of cost or responsibility for cost incurrence, as well as mitigation of costs and impacts for customers, particularly low-income customers;
  • a forecast, estimate or other quantification of the electrification strategies, as well as other strategies identified through the analysis; and
  • for each electrification strategy, a transparent depiction of key assumptions used in the analysis and a calculation of GHG emissions reductions, inclusive of GHG emissions from generation sources.

(2) Present a discussion of qualitative factors such as impacts on public safety, reliability, economic development, equity, emissions reductions and timing.

(3) Develop proposed recommendations to reduce GHG emissions from the sale and distribution of natural gas to meet applicable goals in relation to the Roadmaps, with specific initiatives, actions and interim milestones.

The Order directs each LDC to submit a proposal to the DPU that includes the LDC’s recommendations and plans for helping the Commonwealth achieve its 2050 climate goals, supported by the Report on or before March 1, 2022. Prior to filing the Report and the LDCs’ proposals, the LDCs shall engage in a stakeholder process to solicit feedback and advice on both the Report and the proposals. Status updates on their retention of the independent consultant(s) and progress to date are due on or before March 1, 2021, and again on September 1, 2021. The LDCs are responsible for all costs associated with the RFP development, selection of the independent consultant and development of the associated Report on a pro rata share based on each LDC’s intrastate operating revenues as shown in its annual return currently on file with the DPU for the year ending December 31, 2019.

The Order sets an aggressive timetable for the development of the analysis required of the LDCs. Further, the scope of the Order contemplates a near-comprehensive look into the business and operations of natural gas LDCs, which will undoubtedly implicate issues from a commercial and rate setting standpoint, as well as fundamental considerations such as maintenance, repair, and upgrades to existing systems moving forward, as the Commonwealth transitions to a low carbon future. In addition, the Order notes that the implications for the anticipated electrification efforts extend beyond natural gas distribution systems. As stated in the Order, “The Department anticipates that the Roadmaps will identify strategies for the energy industry as a whole, and [DPU] further acknowledges that the Roadmaps’ recommendations regarding the gas industry may also affect the electric distribution companies. The Department will address this effect when appropriate and will solicit input from electric distribution companies at that time.”