_____________ bill NO. _____________

INTRODUCED BY _________________________________________________

By Request of the ****

A BILL FOR AN ACT ENTITLED: "AN ACT establishing grid modernization planning; providing for smart meter planning; PROVIDING DEFINITIONS; and PROVIDING AN IMMEDIATE EFFECTIVE DATE."

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MONTANA:

NEW SECTION. Section 1. Purpose. (1) The purpose of [sections 1 through 5] is to establish energy policies that promote reliable and resilient electric service, create a diverse portfolio of energy resources, provide economic development opportunities, mitigate risk, and result in the adoption of the lowest-cost resource options for the welfare and health of the citizens of this state. To this end, it is the policy of the state to:

(a) ensure the availability to consumers of affordable and reliable electric service;

(b) ensure the diversity of energy resources through the adoption of least-cost planning;

(c) include the consideration of demand-side options as part of the portfolio of resources serving customers, including energy efficiency and demand response;

(d) encourage innovation that spurs economic development and provides more options to consumers in how they use and manage their electricity needs;

(e) encourage cost-effective and efficient access to information to support customer participation in electric service transactions;

(f) encourage the development of distributed energy resources;

(g) modernize the electric grid to support two-way communication between the customer and the public utility, and to ensure a resilient system that is capable of withstanding or at least minimizing outages during severe weather and other events;

(h) facilitate the state's effectiveness in a global economy; and

(i) provide consumer protections in the delivery of electric service, including but not limited to protecting consumer privacy.

NEW SECTION. Section 2. Definitions. As used in [sections 1 through 5], unless the context clearly indicates otherwise, the following definitions apply:

(1) "Aggregator" means an entity that contracts with multiple customers to combine their loads for the purpose of either buying electricity or selling electric products, such as demand reductions, from those customers to the utility or into the market.

(2) "Commission" means the public service commission.

(3) "Critical peak pricing" means rates that dramatically increase on short notice when costs spike, usually due to weather or to failures of generating plants or transmission lines during a specified, limited time period.

(4) "Demand response" means a reduction in energy use in response to system reliability concerns or increased prices when wholesale markets are involved or generation costs in the case of vertically integrated utilities. Demand response must generally be measurable and controllable to participate in wholesale markets or be relied on by system operators.

(5) "Distributed energy resources" means any resource or activity at or near customer loads that generates energy or reduces energy consumption. Distributed energy resources include customer-site generation, such as solar photovoltaic systems and emergency backup generators, as well as energy efficiency and controllable loads such as demand response.

(6) "Distributed generator" means a power generator producing at the point of consumption, close to the end users of the power, rather than centrally located and dispatched.

(7) "Energy efficiency" means the deployment of end-use measures that achieve the same or greater end-use value while reducing the energy required to achieve that result over a period of time.

(8) "Energy resources" refers to all resources available to provide adequate service to end-use customers and includes both supply resources such as demand-side resources furnished by distributed energy resources or by utility or third-party-sponsored energy efficiency or demand response programs.

(9) "Green button connect" means a nonprofit, government-led initiative to provide customers with access to their usage data.

(10) "Grid modernization" means the development of a smart grid that uses information and communication technologies to manage electricity more efficiently and improve resiliency through the use of cutting-edge technologies, equipment, and controls that communicate and work together to deliver electricity more reliably and efficiently and reduce the frequency and duration of power outages.

(11) "Peak-time rebate" means a voluntary rate design program that provides a bill credit to a customer who reduces usage below a baseline level during a period of high peak demand or when system reliability may be at risk.

(12) "Real-time pricing" means a rate that adjusts as frequently as hourly, based on wholesale electricity costs or actual generation costs.

(13) "Renewable energy" means power generating facilities that use wind, solar, hydro, biomass, or other rapidly renewed or nondepleting fuel sources. In some states, qualified renewable resources exclude large hydro stations and some other types of generation.

(14) "Shadow bill" means an informational statement included with a customer's bill that clearly illustrates the amount the customer would have paid during the billing period if he or she was on a time-varying rate if the customer is still on a standard tariff rate, or the amount the customer would have paid on a standard rate if the customer has already switched to a time-varying rate.

(15) "Smart grid" means an integrated network of sophisticated meters, computer controls, information exchange, automation, information processing, data management, and pricing options that can create opportunities for improved reliability, increased consumer control over energy costs, and more efficient utilization of utility generation and transmission resources.

(16) "Smart meter" means an electronic device that records consumption of electric energy in intervals of an hour or less and communicates that information at least daily back to the utility for monitoring and billing. The device also provides the customer with more information to control energy consumption and monthly bills.

(17) "Stakeholders" mean interested parties that participate in commission proceedings, including but not limited to utilities, to residential, commercial, industrial, and low-income consumer advocates, and to local governments, environmental advocates, developers, third-party providers, and other organizations as determined by the commission.

(18) "Third-party provider" means an entity or business that provides energy services to an end-use customer.

(19) "Time of use" means a rate with set periods that vary based on the time of the day and the day of the week and that reflect the cost of generation during those times. The term includes at least an on-peak and off-peak rate.

(20) "Utility" means an electric utility that supplies, at a minimum, retail electric distribution service and is regulated by the commission.

NEW SECTION. Section 3. Grid modernization and smart grid. (1) The commission shall, within 30 days of [the effective date of this act], begin a regulatory proceeding that results in the issuing of an order not more than 9 months after [the effective date of this act]. The order must include the completion of a comprehensive plan that, at minimum, addresses the following policy objectives:

(a) providing guidance to utilities based on input from stakeholders about the contents of utility grid modernization plans; and

(b) additional considerations and steps to be taken to achieve grid modernization.

(2) A utility shall file a grid modernization plan no later than 12 months after the issuance of the commission's order as described in subsection (1). The plan must include but is not limited to:

(a) a detailed plan to modernize its electric grid, which must include but is not limited to:

(i) information on system vulnerabilities and proposed solutions;

(ii) a detailed plan and timeline for system upgrades; and

(iii) a detailed plan for incorporating distributed energy resources, where feasible and cost-effective, including:

(A) a hosting capacity analysis to establish a baseline of the maximum amount of distributed energy resources, including portfolios of distributed energy resources, that an existing distribution grid, consisting of feeder through substation, can accommodate safely and reliably without requiring infrastructure upgrades; and

(B) a detailed evaluation of the potential contributions from distributed energy resources, including a locational assessment of costs and benefits. The evaluation must be based on reductions or increases in local generation capacity needs, avoided or increased investments in distribution infrastructure, safety benefits, reliability benefits, and any other savings the distributed resources provide to the electrical grid or costs to customers of the utility.

(b) for each proposed technology to be adopted, as applicable:

(i) the cost;

(ii) the cost as compared to other alternatives such as distributed energy resources;

(iii) the value to each customer class;

(iv) whether the technology provides two-way communication;

(v) whether the technology strengthens the grid and improves resiliency issues;

(vi) whether the technology provides data that enables third party providers to improve customer service and provide grid services;

(vii) whether the technology enables customer interaction and options for the delivery and consumption of electricity; and

(viii) whether the technology enables multiple value streams, such as ancillary services, energy, and capacity;

(c) a detailed cost-benefit analysis of the grid modernization plan as a whole, which must include but is not limited to an analysis as to whether the long-term benefits outweigh the cost through:

(i) reduction in operating costs;

(ii) cost avoidance, such as through reduced storm damage and other examples; and

(iii) facilitation of new technologies that can help lower distribution and generation costs, such as strategically located distributed energy resources, implementation of time-varying rates, and improved system flexibility and demand response options;

(d) a plan for enabling increased demand response and efficiency programs by the utility or third- party providers;

(e) a discussion of the interoperability of the system and software proposed so that it can facilitate the exchange and use of information;

(f) a demonstration that the proposed technologies are adaptable to upgrades as technologies evolve, in order to avoid obsolescence and stranded cost;

(g) a detailed plan for how the plan will:

(i) address cybersecurity risks;

(ii) preserve customer privacy; and

(iii) educate customers;

(h) an analysis comparing the cost-effectiveness of the various options; and

(i) any other information, data, or discussion that the commission requires.

(3) The commission shall hold a hearing to allow stakeholders to provide comments on the plan, consider whether to approve the plan filed by the utility, and, if necessary, identify deficiencies in the plan and order the utility to improve and resubmit the plan until it meets the requirements identified in [section 4] in accordance with the policy goals in [section 1].

(4) The commission shall consider whether the proposed plan and the complement of proposed technologies:

(a) enable two-way communication between the customer and the utility;

(b) strengthen the grid and improve resiliency issues;

(d) provide data that enables third-party providers to offer customers and utilities more cost-effective and higher value service options;

(e) enable customer interaction and options for the delivery of electricity;

(f) enable multiple value streams, such as ancillary services and distributed energy resources;

(g) assist in renewable energy integration;

(h) pass a cost-benefit analysis showing that the long-term benefits exceed the costs through:

(i) increased system resiliency;

(ii) reduction in operating costs;

(iii) cost avoidance, such as through reduced storm damage or avoided cyberattacks; and

(iv) facilitation of new technologies that can help lower distribution and generation costs, such as:

(A) strategically located distributed energy resources;

(B) implementation of time-varying rates; and

(i) provide a reasonable tariff and plan for commencing the offering of a time-of-use rate option to all customer classes;

(j) enable increased demand response programs by the utility or third-party providers;

(k) demonstrate interoperability of the system and software so that it can facilitate the exchange and use of information;

(l) prove adaptable to upgrades as technology evolves, to avoid obsolescence and stranded cost;

(m) adequately address cybersecurity;

(n) adequately address customer privacy;

(o) provide a reasonable customer education plan; and

(p) addresses any other factors the commission deems necessary.

(5) The commission in its order on the utility's proposed plan shall include findings of fact and conclusions of law that address the items included in subsection (4).

NEW SECTION. Section 4. Smart meters. (1) Utilities seeking the approval of an application to install smart meters shall provide:

(a) a cost-benefit analysis with respect to the type of smart meter chosen for deployment to various customer classes;

(b) a list of metrics that track achievement of those benefits, and a plan to report and publish utility performance on those metrics during and after smart meter roll-out;

(c) a plan for commencing the offering of a time-of-use rate option for all customer classes, including proposed new tariffs for those rate options;

(d) a plan for the recovery of costs,

(e) an analysis of rate impacts on each customer class;

(f) a plan for protecting the privacy or customer information, including but not limited to:

(i) an acknowledgment that the customer owns the customer's own data;

(ii) a process for third parties to access individual customer data that requires written customer consent;

(iii) a process for providing data to third-party providers or aggregators in a manner that protects the identity of individual customers either through aggregation of similar customers with any identifying customer information excluded or through redaction of any information that can be used to identify a specific customer, or by any other means the commission deems appropriate to protect customer privacy; and

(iv) a plan for considering or implementing the green button connect program or a similar program that streamlines customer data acquisition.

(g) a description of how the utility plans to educate customers on how they can use the smart meter; and

(h) any other information that the commission requests.

(2) The commission shall establish the terms and conditions for the marketing and selling of demand response by electric utilities, third-party providers, or aggregators of retail customers, including enabling demand response from retail customers to be used by the utility or sold to the utility if provided through a third-party provider or aggregator or sold into the wholesale electricity markets by the utility, third-party provider, or aggregator.

(3) Utilities installing smart meters shall offer commission-approved time-varying rates within 1 year of installing the first smart meters. Time-varying rate options may include but are not limited to time-of-use rates, real-time pricing, and critical peak pricing and peak-time rebates as applicable to the appropriate customer class.

(4) Utilities shall provide each customer a shadow bill for a period of 1 year following the approval of any applicable time-varying rate, so that customers may evaluate their energy bill under its current tariff rate as compared with a time-varying rate.

(5) The commission has the authority to approve, disapprove, modify, or take any action it considers appropriate with respect to the utility application on smart meters.

(6) In its order, the commission shall include findings of fact with respect to each individual item set forth in subsection (1).

NEW SECTION. Section 5. Grid modernization and smart meter cost recovery. (1) The commission shall ensure that costs are just, reasonable, and prudent in regard to the policies set forth in [sections 1 through 5]. The commission may not approve any costs incurred by the utility in implementing its approved proposal that are found to be unjust, unreasonable, or imprudent.

(2) The commission shall consider the following when approving the costs for grid modernization and smart meters:

(a) the rate impacts on each customer class; and

(b) a requirement for periodic independent audits of costs.

(3) For both grid modernization and smart meters, the commission shall separately require the netting of the benefits against the costs, to reduce the overall cost by:

(a) reducing the overall project cost by netting the savings against the costs to be recovered;

(b) reducing the base rates and revenue requirements to reflect any costs or cost reductions no longer incurred; or,

(c) any mechanism the commission determines will accomplish the goal of capturing all of the cost benefits for the customer and reducing the overall cost to customers of modernizing the grid.

(4) The commission shall also:

(a) require enforceable reliability objectives, such as reducing the frequency and duration of outages, among other measures, through publicly transparent reporting requirements, performance metrics and incentives, or other mechanisms that the commission considers appropriate; and

(b) require that distribution investments are targeted to provide the most significant impacts.

(5) The commission shall determine the appropriate cost-recovery mechanism it deems appropriate in light of the policies articulated in [section 1].

(6) Any increase in rates to implement any aspect of a grid modernization plan must be proposed and considered as part of a rate case filed by the utility.

(7) In approving any costs for grid modernization in a rate case, the commission may also adopt criteria, benchmarks, and accountability mechanisms to evaluate the success of any investment.

NEW SECTION. Section 6. Codification instruction. [Sections 1 through 5] are intended to be codified as an integral part of Title 69, chapter 3, and the provisions of Title 69, chapter 3, apply to [sections 1 through 5].

NEW SECTION. Section 7. Effective date. [This act] is effective on passage and approval.