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Smart Grid PDF

605 Pages·2016·8.71 MB·English
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BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF HA WAI'I In the Matter of the Application of ) ) HAWAIIAN ELECTRIC COMPANY, INC., ) HAWAI'IELECTRIC LIGHT COMPANY, INC., ) and MAUl ELECTRIC COMPANY, LIMITED ) Docket No. 2 0 1 6 - 0 0 8 ? ) For approval to commit funds in excess of ) $2,500,000 for the Smart Grid Foundation Project, ) to Defer Certain Computer Software Development ) Costs, to Recover the Capital and Deferred Costs ) through the Renewable Energy Infrastructure' ) Surcharge, and Related Requests ) ) APPLICATION OF HAWAIIAN ELECTRIC COMPANY, INC., HAWAI'I ELECTRIC LIGHT COMPANY INC., and MAUl ELECTRIC COMPANY, LIMITED EXHIBITS A • I VERIFICATION and CERTIFICATE OF SERVICE Joseph P. Viola ,., :::: e:: c;:: n. :.z: .'1 >- 3:- ::0 3:("") w -c= (J)--; (1)- -r- 11 0- z:::! W m (J) ,f:" •• .. Vice President, Regulatory Affairs Hawaiian Electric Company, Inc. Vice President hi -r m 0 Hawai'i Electric Light Company, Inc., Maui Electric Company, Limited P. O. Box 2750 Honolulu, Hawai'i 96840 i TABLE OF CONTENTS I. INTRODUCTION/EXECUTIVE SUMMARY ................................................................. 1 II. REQUESTED APPROVALS ........................................................................................... 12 III. APPLICANTS .................................................................................................................. 16 IV. CORRESPONDENCE ...................................................................................................... 17 V. EXHIBITS ........................................................................................................................ 17 VI. BACKGROUND .............................................................................................................. 18 VII. SMART GRID FOUNDATION PROJECT ..................................................................... 22 A. SUBPROJECTS .................................................................................................. 24 1. Advanced Metering Infrastructure ................................................................... 25 2. Customer Facing Solution ............................................................................... 26 3. Conservation Voltage Reduction ..................................................................... 27 4. Direct Load Control ......................................................................................... 28 5. Enterprise Data Warehouse ............................................................................. 29 6. Enterprise Service Bus ..................................................................................... 29 7. Meter Data Management System .................................................................... 30 8. Outage Management System ........................................................................... 31 B. CUSTOMER ENGAGEMENT .......................................................................... 32 C. PROJECT MANAGEMENT OFFICE ............................................................... 33 D. PROJECT SCHEDULE ...................................................................................... 34 VIII. SGF PROJECT BUSINESS CASE .................................................................................. 36 A. PROJECT COSTS .............................................................................................. 37 B. PROJECT BENEFITS ........................................................................................ 40 1. Quantified Monetary Benefits ......................................................................... 40 2. Non-Quantified Benefits .................................................................................. 42 C. PROJECT ECONOMIC ANALYSIS ................................................................. 42 IX. ACCOUNTING AND RATEMAKING TREATMENT ................................................. 45 X. REIP SURCHARGE COST RECOVERY ....................................................................... 47 A. MODIFIED REIP FRAMEWORK ..................................................................... 47 B. PRE-IN-SERVICE/GO-LIVE EXPENSES ........................................................ 48 ii C. DURATION OF SURCHARGE ......................................................................... 49 D. BILL IMPACT .................................................................................................... 50 XI. WAIVERS ........................................................................................................................ 50 A. BACKBILLING OF SLOW METERS............................................................... 51 B. IN-SERVICE PERFORMANCE TESTS ........................................................... 52 C. METER SOCKET REPAIR................................................................................ 54 XII. PROPOSED TARIFF ....................................................................................................... 56 XIII. REPORTING .................................................................................................................... 57 XIV. STATUTORY PROVISION OR AUTHORITY.............................................................. 58 XV. FINANCIAL STATEMENTS .......................................................................................... 58 XVI. IMPACT OF NEXTERA ENERGY MERGER ............................................................... 59 XVII. CONCLUSION ................................................................................................................. 59 BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF HAWAI‘I In the Matter of the Application of ) ) HAWAIIAN ELECTRIC COMPANY, INC., ) HAWAI‘I ELECTRIC LIGHT COMPANY, INC. ) and MAUI ELECTRIC COMPANY, LIMITED ) Docket No. ) For approval to commit funds in excess of ) $2,500,000 for the Smart Grid Foundation Project, ) to Defer Certain Computer Software Development ) Costs, to Recover the Capital and Deferred Costs ) through the Renewable Energy Infrastructure ) Surcharge, and Related Requests. ) ) APPLICATION TO THE HONORABLE PUBLIC UTILITIES COMMISSION OF THE STATE OF HAWAI‘I: Hawaiian Electric Company, Inc. (“Hawaiian Electric”), Hawai‘i Electric Light Company, Inc. (“Hawai‘i Electric Light”) and Maui Electric Company, Limited (“Maui Electric”) (collectively the “Hawaiian Electric Companies” or “Companies”) respectfully submit this Application in support of their Smart Grid Foundation Project (“SGF Project”). I. INTRODUCTION/EXECUTIVE SUMMARY The SGF Project is essential to the State’s energy future and the Hawaiian Electric Companies’ transformation into a more customer-oriented, flexible clean energy provider. The establishment of a more dynamic and secure power grid that gives customers more control, greater flexibility and more choices, responds to outages more quickly, seamlessly connects with 2 cleaner energy resources, and better secures the grid from attacks (“Smart Grid”) is a necessary step in order to achieve the State of Hawai‘i’s first-in-the-nation renewable portfolio standards (“RPS”) goal of 100% renewable energy by 2045. The success of Hawai‘i’s Smart Grid will require a collaborative effort by all stakeholders, including the utilities, regulators, government entities, business and community groups, and electric customers. Building a Smart Grid in Hawai‘i will not be accomplished in a single project, but will evolve over time, by growing and layering capabilities that deliver additional value to customers. The purpose of the SGF Project is to implement the initial Smart Grid capabilities that will serve as the platform to support not only immediate customer benefits, but also as the cornerstone for additional projects (separate and apart from the SGF Project) that can expand customer options, such as optimizing the integration of distributed energy resources (“DER”), implementing demand response (“DR”), time-of-use (“TOU”) rates and real-time-pricing (“RTP”), and increasing reliability through distribution automation (“DA”). As delineated in the Companies’ Smart Grid Strategy and Roadmap (“Smart Grid Roadmap”),1 these additional initiatives will be phased-in over the next several years through separate pending (e.g., DR Portfolio, DER TOU) and follow-on (e.g., DA Project, RTP Tariff) applications. When taken in their entirety, the overall bundle of benefits and capabilities set forth in the Smart Grid Roadmap supports an overall positive business case over the next 20 years. 1 See Exhibit A at 26, Figure 9 (Near Term Smart Grid Related PUC Filings). 3 The SGF Project will enable foundational Smart Grid capabilities in five key strategic areas: (1) Customer empowerment capabilities that that allow customers to monitor their energy use patterns and make informed adjustments that can reduce their consumption and lower energy expenses, as well as enabling a more convenient means to participate in money saving rate options such as TOU rates; (2) DER integration capabilities that will allow more customers to have DER sooner, as a result of smart meters providing increased visibility into a power grid that efficiently delivers reliable and safe energy to customers; (3) Grid efficiency, reliability and resiliency capabilities that will use smart meters as sensors to automatically detect power outages and enable faster restoration of power, as well as enable the Companies to burn less fuel to meet customer demand for energy; (4) Safety and workforce efficiency improvements enabled by remote capabilities that enable better detection of energy theft and also eliminate the need for the Companies’ personnel to enter customer premises, which means fewer accidents, faster service connections, more accurate billing and fewer interruptions for customers; and (5) Innovation, information and connectivity that will make it easier for new smart technologies (as developed) and customer-sited generation to build a smarter energy infrastructure that delivers the benefits of new technologies to 4 customers and leverages them for many uses, while proactively keeping customer data safe, private and secure. The SGF Project will consist of ten interrelated components: • Eight subprojects, the scopes of which have been tailored based on a “best- fit/least-cost” approach that utilizes commercially available and proven cost- effective technologies to deliver the key foundational Smart Grid capabilities and immediate value and benefits to customers, including: o Installation of Advanced Metering Infrastructure (“AMI”) to provide two-way communications and control between the Companies and the installed smart meters that support the innovation, information and connectivity capabilities of the Smart Grid; o Creation of a Customer Facing Solution (“CFS”) that uses information from smart meters, provided through online and mobile pathways, to give customers more information and control over how they use their energy, while improving the customer experience; o Implementation of Conservation Voltage Reduction (“CVR”) technologies that support the grid efficiency, reliability and resiliency capabilities by using voltage measurements from the smart meters to enable the Companies to improve efficiencies and burn less fuel to generate energy to meet demand; o A Direct Load Control (“DLC”) subproject to upgrade existing DLC switches on Oʻahu to improve monitoring and control of participating customers’ water heater operations and stabilize the power grid during peak demand, in support of the DER integration capabilities; 5 o Development of an Enterprise Data Warehouse (“EDW”) to serve as the central repository of the large amounts of data gathered over the AMI network and other company data used to improve electric service to customers; o Enhancement of the Companies’ existing Enterprise Service Bus (“ESB”) to enable seamless flow of data through the Companies’ various computer systems, also in support of the innovation, information and connectivity capabilities of the Smart Grid; o Implementation of a Meter Data Management System (“MDMS”) that will capture and manage the customer interval energy usage data obtained from the smart meters to enable automated billing and operational efficiencies such as reduced truck rolls from eliminated manual meter reads; and o Expansion of Hawaiian Electric’s Outage Management System (“OMS”) on Oʻahu to Maui Electric and Hawai‘i Electric Light in order to improve outage communications, and increase the speed and efficiency of power restoration; • A ninth component for Customer Engagement (“CE”) activities to help customers maximize the benefits of the new Smart Grid technologies and support the eight subprojects listed above; and • A tenth component for Project Management Office (“PMO”) services that also support the eight subprojects above, as well as the CE activities, in order to ensure smooth, cost-effective and coordinated project execution. The SGF Project is scheduled to commence in early 2017 upon a decision and order enabling the project to commence, and is expected to take five years to complete. Over the course of the implementation, the Companies will continue to emphasize and carry out focused 6 customer engagement activities similar to those conducted during their Smart Grid initial phase demonstration project on O‘ahu (“Initial Phase”), building upon the lessons learned from those activities to help customers maximize the capabilities of the newly enabled technologies and options. The Companies will also continue to reassess and update their data privacy policies and cybersecurity solutions in order to address the complexities that the new applications, network access points and data add to their enterprise systems. In general, the customer benefits of the SGF Project fall into the following three categories: (1) “Operational Benefits” that benefit customers by reducing the revenue requirements used to set base rates; (2) “Direct Customer Benefits” that inure directly to customers, such as through adjustments in their energy use patterns that reduce consumption, as well as through energy cost or other adjustment clause mechanisms; and (3) other benefits that cannot be readily quantified at this time (“Non-Quantified Benefits”). The benefits attributable to the AMI subproject (including benefits related to the MDMS, ESB and EDW subprojects), portions of the OMS subproject (i.e., related to outage operational efficiency) and the internal incremental labor offset are considered to be Operational Benefits, and are estimated at approximately $294 million over the expected 20-year project life (i.e., from 2017 to 2036). The benefits attributable to the CFS, CVR and DLC subprojects, as well as other portions of the OMS subproject (i.e., related to value of service)2 are considered to be Direct Customer Benefits, and are estimated at approximately $584 million over the 20-year project life. The sum of the Operational Benefits and Direct Customer Benefits is approximately $878 million in nominal 2 The value of service benefit is based on the cost of electric service interruption to a customer (e.g., loss of revenue, loss of materials/inventory due to interruption of refrigeration, etc.) 7 dollars. The present value of these benefits over the 20-year life of the SGF Project investment is approximately $345 million. As summarized in Table 1 below, the total estimated cost of the SGF Project over its five-year implementation period (i.e., the costs for which the Companies are seeking recovery in the accompanying Application) is approximately $340 million. Included in this $340 million cost estimate are approximately $206 million of capital costs, $75 million of deferred costs and $59 million of incremental expense items. SGF Project Implementation Costs (2017-2021) Cost Component Nominal ($millions) AMI Subproject 180 CFS Subproject 9 CVR Subproject 26 DLC Subproject 18 EDW Subproject 10 ESB Subproject 10 MDMS Subproject 50 OMS Subproject 18 CE 8 PMO 11 Total 340 Table 1 In addition to the $340 million of SGF Project implementation costs listed above, after the various releases of the subprojects are placed in service, the Companies anticipate that $345 million in additional costs will need to be incurred in order to support and maintain the investment over its life (“ongoing costs”). Another $51 million of expense will be incurred in connection with the Companies’ proposal to amortize the remaining book value of the existing non-AMI meters over a ten-year period (“non-AMI meter amortization”). The sum of the SGF Project implementation costs, on-going costs and non-AMI meter amortization is approximately 8 $736 million in nominal dollars. The present value of these costs over the 20-year life of the SGF Project investment is approximately $413 million. In order to evaluate the overall financial impact of the SGF Project on a typical residential customer, the Companies have performed an “economic analysis” that nets the twenty-year SGF Project costs and ongoing costs against the Operational Benefits and Direct Customer Benefits, taking into account the time-value of money, as shown in Table 2 below. Present Value of 20-Year SGF Project & Ongoing Costs and Benefits Smart Grid Capability Project & Ongoing Costs ($ millions) Benefits ($ millions) Automated meter reading, TOU support, interval billing, remote connect/disconnect, enable RTP 314 116 Improved customer experience, options and access 12 54 Enhanced EnergyScout water heater DLC program 14 10 Energy efficiency via CVR 36 151 Enhanced outage management and automation extension to Maui Electric and Hawai‘i Electric Light 30 7 Internal incremental labor offset 7 7 Total 413 345 Benefit-to-Cost Ratio (“BCR”) 0.84 Table 2 Although the overall bundle of benefits and capabilities of the larger spectrum of Smart Grid capabilities detailed in the Smart Grid Roadmap supports an overall positive business case, the SGF Project viewed in isolation has a BCR of 0.84. However, there are a number of benefits of the SGF Project that cannot be readily quantified at this time, but which add to its value proposition, including but not limited to: • customer satisfaction improvements; • increased data visibility to improve hosting capacity models for DER; • environmental benefits from decreased reliance on imported fuel; • economic growth in the local renewable energy industry; and 9 • reduced carbon footprint via a reduction of greenhouse gas (“GHG”) emissions by making the distribution and use of power more efficient. In addition, the BCR does not consider the positive impact of the future opportunities to increase functionality, flexible system capabilities, and expansion of customer options provided by the SGF Project. For example, it is not possible to offer RTP without the MDMS solution that is connected to an installed base of smart meters. Moreover, the Smart Grid network also delivers enhanced value to existing DR programs by providing near-real-time communications and usage information to customers and the utility. Other near-term initiatives also will build on the capabilities enabled by the SGF Project. Thus, the SGF Project is one of the cornerstones that will enable Hawai‘i to achieve the 100% RPS by 2045. The typical monthly difference in costs to residential customers due to the investment (i.e., taking into account SGF Project costs and on-going costs, Operational Benefits and Direct Customer Benefits) over the 20-year life of the investment will range between 20 to 35 cents, depending on factors unique to the Companies’ different service territories. This is projected to peak in 2022 for the typical residential customer at approximately $1.70/month for Hawaiian Electric and Maui Electric, and in 2020 at approximately $2.39/month for Hawai‘i Electric Light. By the 2029-2030 timeframe, the typical monthly difference in costs to the customer will begin to result in net savings, peaking at approximately -$1.59 for Hawaiian Electric, -$1.15 for Maui Electric and -$2.35 at Hawai‘i Electric Light. The accounting for the various SGF Project components generally follows the accounting for capital expenditure and software projects approved by the Commission in the past. In general, the cost of equipment and hardware and their related capital expenditures will be 10 capitalized in accordance with Generally Accepted Accounting Principles (“GAAP”) and the Companies’ current accounting for such costs. Until their first respective rate case(s) following completion of the SGF Project, the Companies are proposing to recover the SGF Project and related ongoing costs (net of Operational Benefits) through the Renewable Energy Infrastructure Program (“REIP”) surcharge (“Surcharge”) as described in the Joint Proposed Modified Renewable Energy Infrastructure Program Framework (“Modified REIP Framework”) filed by the Companies and Division of Consumer Advocacy of the Department of Commerce and Consumer Affairs (“Consumer Advocate”) on June 15, 2015 in Docket No. 2013-0141.3 There are certain nuances to the SGF Project that necessitated some tailoring of the application of the Modified REIP Framework to address fairness in the context of cost recovery issues that can arise in connection with complex undertakings such as the SGF Project. In order to address the unique and transformational nature of the SGF Project, as well as its interrelated components, magnitude and duration, the Companies are proposing certain measures to provide flexibility and further tailor the REIP Surcharge to address the costs, benefits and timing of the various project components – namely, the contemporaneous recovery of certain pre-in-service/go-live expenses via the REIP Surcharge. For purposes of calculating the bill impact of the SGF Project (i.e., the amounts to be included in the REIP Surcharge and subsequent regulatory rate reviews to determine energy rates), the SGF Project costs are offset in part by the Operational Benefits (but not the Direct 3 See generally Order No. 37235 (“Order 37235”), filed March 31, 2015 in Docket No. 2013-0141. 11 Customer Benefits, which are included in the economic analysis discussed above) of the investment. Over the twenty-year life of the investment, the bill impact for a typical residential customer will range between $0.56 and $4.43. The average bill impact at Hawaiian Electric, Maui Electric and Hawai‘i Electric Light is estimated to be $2.01, $2.05 and $2.75, respectively. The Companies are cognizant of the Commission’s direction that the Companies’ filings should not assume approval of the merger that is pending in Docket No. 2015-0022. However, in light of the Commission’s request in other pending dockets that a “merged scenario” be provided in order to allow for discussion on how the proposed change in ownership would impact the SGF Project, NextEra Energy, Inc. (“NextEra Energy”) has provided a SGF Project business case under a scenario that assumes the merger of NextEra Energy and the Hawaiian Electric Companies is approved (“Merged Business Case”).4 The major differences between the Merged Business Case and the Companies’ Business Case are that: (1) AMI implementation would be accelerated from five to three years; (2) supply chain costs for some equipment and outside service costs would be reduced by 5%; (3) some solutions being used by NextEra Energy’s subsidiary Florida Power & Light Company (“FPL”) could be leveraged (e.g., FPL’s MDMS and ESB); and (4) key FPL personnel would provide additional expertise, thus mitigating project execution risks. The Companies have already been working with NextEra Energy in planning the SGF Project and accordingly, many of FPL’s lessons learned have already been incorporated into the SGF Project during the initial design and development of the application. In sum, the Merged Business Case indicates that the merged 4 See Exhibit I. 12 companies will be able to bring SGF Project benefits to Hawai‘i’s residents faster, at a lower cost and with lower overall risk. II. REQUESTED APPROVALS The Hawaiian Electric Companies respectfully request a decision and order approving: (1) the total estimated cost to implement the SGF Project (“SGF Project Costs”) of approximately $340 million, including $206 million of capital costs (“Capital Costs”), $75 million of deferred costs (“Software Development Costs” or “Deferred Costs”) and $59 million of incremental expense items (“Expense”) as discussed in Section VIII.A below and further detailed in Exhibit B; (2) The accounting and ratemaking treatment proposed to be applied to the SGF Project, as discussed in Section IX below and further detailed in Exhibit F, including: (a) a commitment of funds in excess of $2,500,000, excluding customer contributions for the Capital Costs under Paragraph 2.3(g)(2) (“Rule 2.3(g)(2)”) of the Commission’s General Order No. 7, as modified by Decision and Order No. 21002 filed May 27, 2004 in Docket No. 03-0257; (b) deferral of the Software Development Costs pursuant to the Companies’ policy for Accounting for the Costs of Computer Software Developed or Obtained for Internal Use (“Software Accounting Policy”) and Decision and Order No. 18365 (“D&O 18365”) filed February 8, 2001 in Docket No. 99-0207 (“Hawai‘i Electric Light 2000 test year rate case) and accrue an allowance for funds used during construction (“AFUDC”) during the deferral period, and/or, if the Commission

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Most books are stored in the elastic cloud where traffic is expensive. For this reason, we have a limit on daily download.