RI Energy Under Fire, Misled PUC During Smart Meter Hearings
Did PPL intentionally mislead Rhode Island’s Public Utilities Commission about secret smart meter contracts? This bombshell hearing reveals the power company’s subterfuge, risking both the utility’s case and ratepayer trust.
At a Public Utilities Commission (PUC) hearing last Friday, Commission Chair Ron Gerwatowski took Rhode Island Energy parent company PPL to task for filing misleading documents and misrepresenting their relationship to smart meter company Landis+Gyr. During the last eight minutes of the hearing Chair Gerwatowski accused PPL and their lawyers of not only failing to disclose necessary information, but also of intentionally deceiving the Commission until, under oath, a witness was compelled to admit the truth.
“There was no mention of the fact that the company already had firm commitments under contract for some of the pricing to which the company sought confidential treatment,” said Chair Gerwatowski. “In fact, the language of the pleading left the clear impression that all costs were still subject to negotiation. It wasn’t until extensive questioning took place at the April 14th hearing that it was finally disclosed to this commission that the company had binding agreements with the vendor that went beyond a mere two-page confidentiality agreement.”
You can watch the video of Chair Gerwatowski’s words here, followed by a fuller explanation of what happened last Friday.
Public Utility Commission dockets can be highly technical and difficult to to wrap your head around. What follows is an overview of the docket, which will hopefully put Chair Gerwatowski’s words and actions into perspective. Thank you to the subject matter experts who have helped me understand this issue.
Back in 2018, when National Grid still owned exclusive rights to electric distribution in the state, before PPL [doing business as Rhode Island Energy] took over, it was decided that the electric company would present a case to replace all our electric meters, before the Public Utilities Commission. Right now, Rhode Islanders have meters that can be read from trucks that drive though the neighborhood, but new, more modern meters would have what essentially amounts to built in cellphones and small computers that can provide extremely accurate, second by second – even a hundredth of a second – information about electricity use, and send that info to PPL directly.
Updating our “dumb” meters with “smart” meters is not just about newer, better, shinier tech – the old meters are beginning to age past their rated lifetime usefulness.
This brings us to a series of hearings before the PUC called the AMF Case [Advanced Meter Functionality]. The case was filed by National Grid but then paused when talks of a PPL buy out began. With that sale complete and Rhode Island Energy now firmly ensconced as the state’s energy provider, the AMF Case was picked back up in November.
Essentially, PPL needs to show that the old meters need to be replaced, that this new technology is beneficial to consumers, and that PPL have a plan to install them. Of interest to the PUC is that this meter replacement comes at a cost that will be 100% subsidized by ratepayers, so getting the best deal possible is important.
The way this normally works is that the utility goes ahead and make the changes, and then, when it came time to assess charges to ratepayers, the company would open what is called a rate case with the PUC. During a rate case all sorts of things can be discussed and opened up, not just about the meters but all sorts of other things as well. Theoretically the PUC works to get the best deal for ratepayers while also guaranteeing the power company’s profit margins. It’s the way we regulate monopolistic energy companies.
But a rate case is impossible right now because, as part of the deal when PPL took over Rhode Island’s grid, the state agreed to not have any rate cases for three years. (We are now about one year into that deal.) Also, remember that replacing these meters will be very expensive, and PPL wants to begin cost recovery now, so they won’t be seriously out-of-pocket for this transition. Spreading the cost of replacing these meters over more time also lessens the impact on ratepayers, who are already facing rising energy costs.
So PPL and the PUC have opened what they are calling the AMF Case to narrowly focus on meter replacement, trying to come up with a plan by which the company can begin rate recovery now, ahead of and during the work to replace all the meters. This narrowly focused docket allows cost recovery for PPL without addressing the wider energy rate issues a full rate case would bring.
This is where the comments of Public Utilities Commission Chair Ron Gerwatowski come in. I present them below, in full, with some light editing for clarity, and some explanatory text as well. You can also watch the video above.
Chair Gerwatowski: I just have a general comment which relates to process before this commission and the relationship that the company has with this commission – issues of trust. It doesn’t relate to what occurred today, but relates to what led up to today. I have some notes here I’m going to follow and I think it’s very important for for the company to listen to this.
The filing was made in November November of 2022 and it’s apparent that the company knew, long before it made its filing, that it intended to contract with Landis+Gyr for a substantial amount of the work on a sole source basis. The filing made no mention of the intention to rely so heavily on that one vendor, for so much. The only statement that was made by the company in its filing that mentioned sourcing was very, very general. It wasn’t specific at all, but less than three months later the company entered into some key agreements with Landis+Gyr and didn’t disclose that to the commission. When the commission was asking about claims of confidentiality over what appeared at the time to be only estimated costs, the company alluded to non-disclosure commitments, but never disclosed that it had agreements which already committed the company to pricing for some of the fees over which the company sought confidentiality.
What Chair Gerwatowski is saying is that the company was not being honest with the commission about their sourcing for the new meters. In order to get the best savings for ratepayers, best practice demands that the company create parameters for the proposed program, and then seek bids from an array of smart meter companies for tech that can meet those parameters. These parameters and discussions with suppliers are oftentimes kept confidential because trade secrets and proprietary information that might be useful to the competitors of those involved can’t be disclosed without a risk to the companies profits.
PPL was insisting on confidentiality on the grounds that they were seeking to get the best deal for customers. In their filings PPL disclosed a bias for Landis+Gyr tech, due to having worked with them before, but did not admit they have already made a binding deal with the company, meaning there would be no competitive bids from other companies that might lower ratepayer costs.
The PUC is designed to keep confidential information secret, and the three members of the commission, along with various state officials such as the Attorney General, routinely have access to confidential information. This is a necessary power of regulators like the PUC, because otherwise there’s no way to check the power of natural monopolies like PPL.
What PPL did was to file misleading information with the PUC, giving the false impression that they were in the process of seeking a smart grid company – when in fact they already had a deal with Landis+Gyr.
Chair Gerwatowski: In fact, on February 17, the company filed a memorandum in support of its motion for confidentiality and in it there was the following assertion, “the categories of costs for which the company seeks protective treatment contain vendor specific costs for monthly maintenance fees, operations, service fees, and software costs. Revealing this information publicly likely would impact the ability of the company to get best cost pricing in future negotiations and would reveal the confidential information of third party vendors.”
There was no mention of the fact that the company already had firm commitments under contract for some of the pricing to which the company sought confidential treatment. In fact, the language of the pleading left the clear impression that all costs were still subject to negotiation. It wasn’t until extensive questioning took place at the April 14th hearing that it was finally disclosed to this commission that the company had binding agreements with the vendor that went beyond a mere two-page confidentiality agreement.
During the hearings, when PUC commission members were asking questions about the sourcing of the new smart meters, legal counsel and witnesses for PPL were not forthcoming, until Commission Member Abigail Anthony asked the right question, using the right words, during an April 14th hearing. Under oath and the threat of perjury, a PPL witness admitted to the existence of the Landis+Gyr agreement, which lead the company to disclose finally the information in writing to the PUC at last Friday’s hearing.
Chair Gerwatowski: Even then, the disclosure only occurred because Commissioner Anthony asked a direct question about whether the company had a signed contract with pricing established. We got copies of the agreements. Now, having had the opportunity to review those agreements, let me make this clear to the company. These agreements were not entered into merely in the ordinary course of business. Those agreements related directly to the commission’s inquiry relating to confidentiality of cost figures that were present in the company’s filing. The fact that the company did not disclose them to the commission is completely unacceptable. But even worse, when the commission was questioning the claims for confidentiality about what appeared to be estimated costs, and I spent time issuing written orders to provide clear directives and guidance to the company that provided ample opportunity and time for the company to appeal to the full commission, the company still continued to hide the existence in general content of those agreements from the commission.
I also went back over the transcript of the April 14 hearings, and it was troubling to say the least. It is one thing to argue for confidentiality, where the commission has access to the data on a confidential basis and the only question is whether it should be public. But it is quite another when the regulated utility masks the existence of material information related directly to the request for recovery, preventing the commission from obtaining the information on a timely basis. It appears that the company apparently [felt it] okay to dodge disclosure of those binding pricing agreements, other than to make vague assertions regarding an NDA [non-disclosure agreement], until it came time for a witness to testify under oath to a direct question. Only then did the company disclose the information.
And I don’t let counsel for the company off the hook either. At the hearing, when addressing the question whether the vendor’s name should be disclosed, I mistakenly assumed that the company did not have a binding agreement other than an NDA. Counsel for the company made would appeared to be a clarification, but now I see it as misleading in how [it] materially omitted important information about the agreements. Specifically during the hearing, I made the statement, “So I don’t think there’s a basis, you know, for keeping the vendor’s name out. You’ve made clear that you have no agreement with them yet, so there’s no obligation here.”
Counsel then followed up with this statement, “Mr. Chair, could I just clarify one point? When we said we don’t have an agreement in place, that’s for the actual purchase of the meters, that agreement is not in place. There’s an overarching non-disclosure agreement in place between the vendor and the company. So that agreement is in place, and that’s in part what we’re relying on is the basis for confidentiality. I just wanted to clarify that there are a few agreements in place, some of which are final and some of which are not.”
The company’s witness may have later disclosed the details after precise questions asked, but that is beside the point. This is a regulatory proceeding. It is not civil litigation where the attorneys might answer questions or instruct their client to answer questions as narrowly as possible, placing a burden on the person asking the questions to ask the question very precisely before a transparent disclosure is required to be made. Practicing before this commission and pursuing approvals before this commission requires candor and transparency, we will accept nothing less from a utility. Rhode Island Energy’s first priority should be to this commission, not to the desires of the company’s vendor who seeks to charge millions of dollars through the program being funded by ratepayers of the state.
Equally important, this is not a case where the company has exercised its management discretion to contract as it sees fit, and then seek rate recovery after the fact with all the risks inherent in the regulatory review occurring in the rate case. It is a case where the utility is essentially asking this commission to approve its plan in order to obtain what amounts to a virtual guarantee of cost recovery in advance of implementing it, completely avoiding the risk of a rate case. When the utility is asking for rate recovery, the utility has the burden of proof to put on evidence to support its entire case.
PPL doesn’t face much in the way of consequences for misleading the Commission and withholding information. All PPL has done is put the schedule of the AMF Case into jeopardy. According the PUC’s Chief Economic and Policy Analyst Todd Bianco, “The goal of the Friday communication was to hopefully avoid extending the hearing schedule past July. On Friday afternoon, Commission Counsel sent a request for Supplemental Testimony to Rhode Island Energy along with another set of data requests. The next Technical Session has been moved out to June 13, 2023 and will be on functionality and roll-out of the technology. The quality of Rhode Island Energy’s filings together with other parties’ responsive filings, if any, will dictate whether the AMF hearing schedule needs to be changed.”
Chair Gerwatowski: At this stage, it cannot be said that the company has filed even a prima facia case regarding the reasonableness of the prices already obtained from this single vendor, not withstanding what happened today in this technical session. Now, the company’s long resistance relating to confidentiality, which ultimately tripped into the revelations about the contracts, may have placed the current hearing schedule in jeopardy. Council for the Commission will be in touch with the parties as to what the schedule’s going to be doing and what modifications might be necessary. I do appreciate everyone coming today, but we have a long road ahead.
In the new filings, due on June 13th, PPL must answer the following:
- Please explain why the contractual arrangements with Landis and Gyr are the most cost-effective solution for customers.
- Please explain whether and how the Company assessed the reasonableness of the pricing in the contractual arrangements and separately, the reasonableness pricing of the meters as listed in the Rhode Island Energy Hardware Pricing letter dated December 7, 2022, with the later clarification.
- Referencing the AMF Program and TSA Exit Program Statement of Work, please explain how the Company is separating and tracking costs for each work type. Where there is an allocation of cost for one activity (or group of activities) between AMF and TSA, please explain how the allocation was developed and why it was a reasonable methodology. For the MDMS, the Company should indicate whether it received pricing from the vendor for “MDMS for AMR” separately from “MDMS for AMI.” The Company should also explain how it is allocating costs between CapEx and OpEx, citing any accounting rules it is following. The Company should also specifically address how training costs are being treated.
- Referencing the Software as a Service and Services Agreement, with respect to the work in each of the Service Orders, the Company should calculate the costs to be paid to the vendor over the 20-year period by type (Production/Disaster Recovery – electric and gas) and tie those costs to how the Company is accounting for them in terms of CapEx versus OpEx. The Company should cite any accounting rules it is following.
- The Company should provide an illustrative revenue requirement that clearly reflects the testimony responsive to issues 3 and 4 in this list.
- If there are licenses that are being capitalized and others that are being expensed, please provide a clear explanation of the differences between the licenses.
- Identify other products or services that are included in the project cost estimates that will be competitively bid. For any other related activities for which the Company has chosen a sole source vendor (or will be choosing a sole source vendor), please identify the activity, justify not bidding, and explain how the Company evaluated (or will evaluate) the reasonableness of the pricing received.
At the very end of the hearing a lawyer for PPL made the following statement in their defense:
PPL Lawyer: As I am sure you can understand, I feel it’s necessary to say something in response to that before we close. And I do want to thank you for your comments. I want to speak for myself and for everyone at PPL that we are certainly listening to your feedback. We are taking it back. We are sharing it with the larger group. And speaking for myself and everyone here, I know it is no one’s intention, here, to hide anything from the commission. So we certainly take your comments seriously and I think what we’ve tried to do here today is to provide the best information we can to help the commission and the other parties and stakeholders do their job to be able to evaluate this proposal. [That] is certainly our intent and we take your message and we’ll continue to try to do that and be as forthcoming as we can and provide the information to this body that it needs to make an appropriate decision.