Smart Bet? Illinois Courts and Smart Meters Orijit Ghoshal Energy Law 2010

Illinois Courts and Smart Meters Presentation Overview 1. The Commission 2. The Program 3. The Study 4. The Court 5. The Future

1. The Commission Authority “[T]he Commission shall establish the rates or other charges, classifications, contracts, practices, rules or regulations proposed, in whole or in part, or others in lieu thereof, which it shall find to be just and reasonable.” [Public Utilities Act, Section 9-201(c)]

1. The Commission Proposal ComEd filed tariffs for $360 Million rate increase – Average consumer bill raised by 8% ComEd used an 18 month base-year ComEd proposed a Rider for a “system modernization project” – Pilot program called “Phase 0”

1. The Commission Order ICC approved “Phase 0” “ComEd is asking for special recovery for these projects that whatever their level, all parties agree – could have long-term economic benefits, but as proposed, ratepayers do not share the economic benefits.” BUT, ComEd has to come back for further approval

1. The Commission Fallout Smart Grid Ratings, President of Center for Smart Energy

2. The Program Location

2. The Program Technology

3. The Study Authority Illinois Statewide Smart Grid Collaborative ICC Order “[T]o develop a strategic plan to guide development of smart grid in Illinois … and to recommend policies that the Commission can consider for adoption.”

3. The Study Findings

3. The Study Arguments Arguments in Favor of Rider 1. Smart grid investments strain cash flow and could deny recovery due to regulatory lag. 2. Smart grid investment must compete with other priorities. 3. Utilities face more risk, which could raise cost of capital faced by the utilities. 4. Some smart grid benefits may not flow to utilities. 5. Unless a smart grid investment is needed to provide safe, adequate and reliable service, it may occur more slowly, if at all.

3. The Study Arguments Arguments in Favor of Rate Case 1. Base rate recovery promotes efficiency may reduce the likelihood of future costs. 2. Routine technology upgrades could be presented as warranting rider treatment. 3. Test year matching of expenses and income is needed to prevent excessive rates. 4. A rider allows excessive earnings and rates until the next general rate case. 5. Smart grid investment does not pass the “big, volatile, and beyond utility control” tests.

4. The Court Procedure ICC Order challenged by ComEd in Commonwealth Edison v. ICC Attorney General and Citizens’ Utility Board intervened I don’t think so, ComEd!

4. The Court Authority “Just and reasonable rates” – [Public Utilities Act Section 1-101] “Prudent and reasonable costs of service” – [Electric Service Customer Choice and Rate Relief Law Section ]

4. The Court Analysis Riders are approved if 1.The cost is imposed on the utility 2.The cost does not affect the utility’s revenue requirement “We conclude that the Commission committed reversible error because Rider SMP is not supported by substantial evidence.”

4. The Court Reasoning Expenses not unexpected, volatile, fluctuating Legislative mandate / ComEd’s decision Traditional ratemaking

5. The Future Illinois ComEd petitioned for rehearing Current rate case Smart Grid Innovation Corridor I got some money… who wants to build a smart grid??

5. The Future Stakeholders “If the wrong decisions are made in the regulatory arena and the courts for things like this, it really could leave Illinois behind.” – Vice President of Regulatory Policy “The smart grid pilot is going well. We think it’s important, and we wouldn’t want to see it jeopardized.” – Executive Director

5. The Future Other States Maryland Hawaii Michigan California Texas