Smart Bet? Illinois Courts and Smart Meters

Orijit Ghoshalorijit.ghoshal@gmail.com

Energy Law 2010

Illinois Courts and Smart MetersPresentation Overview

1. The Commission

2. The Program

3. The Study

4. The Court

5. The Future

1. The CommissionAuthority

“[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 CommissionProposal

• 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 CommissionOrder

• 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 CommissionFallout

Smart Grid Ratings, President of Center for Smart EnergyTier 1 Tier 2 Tier 3

California (stimulus, regulators, utilities) Texas (3 utilities)

Florida (load control, communications) Illinois (collaboration) Pennsylvania (installation leader 25%) West Virginia (comprehensive) Ohio (policy education)

New Jersey (standards and best practices) Connecticut (distributed generation and demand response) Colorado (private labs and research)

2. The ProgramLocation

2. The ProgramTechnology

3. The StudyAuthority

• Illinois Statewide Smart Grid Collaborative

• ICC Order “[T]o develop a strategic plan to guide development of smartgrid in Illinois … and to recommend policies that theCommission can consider for adoption.”

3. The StudyFindings

3. The StudyFindings

3. The StudyArguments

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 StudyArguments

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 CourtProcedure

• 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 CourtAuthority

• “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 16-108]

4. The CourtAnalysis

• Riders are approved if1. The cost is imposed on the utility2. The cost does not affect the utility’s revenue

requirement

“We conclude that the Commission committedreversible error because Rider SMP is not supported bysubstantial evidence.”

4. The CourtReasoning

• Expenses not unexpected, volatile, fluctuating

• Legislative mandate / ComEd’s decision

• Traditional ratemaking

5. The FutureIllinois

• ComEd petitioned for rehearing

• Current rate case

• Smart Grid Innovation Corridor

I got some money… who

wants to build a smart grid??

5. The FutureStakeholders

“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 FutureOther States

• Maryland

• Hawaii

• Michigan

• California

• Texas