Op-ed: Time to end ComEd’s automatic rate hikes

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A ComEd truck sits at a headquarters building on July 17, 2020, in the 3400 block of Chicago's North California Avenue in July 2020.

A ComEd truck sits at a headquarters building on July 17, 2020, in the 3400 block of Chicago’s North California Avenue in July 2020. (Brian Cassella / Chicago Tribune)

Last July, northern Illinois’ electric utility, ComEd, admitted to actions prosecutors described as a bribery scheme — giving out jobs and contracts to allies of then-House Speaker Michael Madigan, who has not been charged with any wrongdoing, in exchange for legislation that benefited the company’s bottom line.

ComEd and its parent company, Exelon, continue to benefit. Automatic annual rate hikes are leading to record ComEd profits, consumers are on the hook for $2.3 billion to prop up two Exelon nuclear plants, and ComEd’s government regulator, the Illinois Commerce Commission, has been stripped of critical authority.

ComEd’s punishment — a $200 million fine — is a slap on the wrist compared with the billions in additional profits the bribery scheme raked in. Worse, if ComEd gets its way in the state legislature, the bad policies resulting from its scheme will be made even worse, with more harm to consumers.

Utility regulation is a tool Americans use to guarantee a public good — a universal, affordable and reliable essential service — while creating the opportunity for private profit. The first law passed during ComEd’s scheme flipped this goal on its head. By instituting automatic rate hikes through “formula rates,” that 2011 law guaranteed ComEd’s private profit while failing to ensure the public good.

The usual rate-setting process is an occasional proceeding in which rate hikes must be justified by the utility and can be contested by consumers. Formula rates overturn that process, substituting an annual accounting exercise in which ComEd’s financial filings are run through a predetermined formula.

With formula rates, what had been an opportunity for the company to profit was turned into a guarantee. ComEd executives said as much when advocating for the law, arguing that the company needed “certainty” before making $2.6 billion of investments to improve reliability and build its “smart grid.”

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Any large investment entails risk, whether of waste, inefficiency or straight-out failure. By bearing risk, the company is forced to take responsibility; risk incentivizes discipline and more responsible decision-making. If a company like ComEd makes bad investments, or goes over budget as the company infamously did with its budget-busting nuclear power plant construction in the 1980s, it should suffer financial losses, rather than force customers to pay for corporate mistakes. But ComEd wanted “certainty” and the formula rates it won shifted risk onto customers, guaranteeing utility profits but not public and customer benefits.

With this “certainty,” the more ComEd spends on its power grid, the more it profits and the more customers pay for utility service. ComEd said it needed formula rates to invest $2.6 billion over 10 years. But in just eight years since formula rates were established, the company has spent a whopping $5.8 billion, and plans to spend $2.2 billion more in the next two years alone. Over 10 years, ComEd is on track to spend almost three times what it said formula rates were for, all with guaranteed profit and rate increases.

We’re already paying ComEd 37% more to deliver electricity to our homes and businesses than we did before formula rates. The ongoing spending spree could lock in higher rates for decades to come.

What is all this additional spending for? We don’t know, and ComEd doesn’t have to tell us due to the lax regulatory structure it won for itself.

It would be one thing if customers were getting value in return, but we’re not seeing the customer benefits ComEd promised, especially when it comes to the “smart grid.” Reliability has improved, but those improvements were achieved by 2015 and 2016, while ComEd continues spending at record levels.

You would think Illinois politicians would act swiftly to reverse these policies and usher in a new era of utility accountability. To his credit, Gov. J.B. Pritzker released a strong utility accountability agenda in August. But ComEd remains powerful in Springfield. Last week, the House Public Utilities Committee advanced legislation that would re-create formula rates under a new name, while making them even more profitable for ComEd, more than doubling its annual profits in under a decade, to $1 billion annually.

In classic form, supporters claim this legislation would end formula rates. Doubling down on formula rates and calling it reform adds insult to consumers’ injury.

It’s time to stop the abuse of consumer trust — and money. We need to end formula rates, now. We need to not only restore oversight, but strengthen it. We need a thorough independent investigation of ComEd’s grid and spending over the past decade and a new, transparent, multi-stakeholder grid planning process. And we need to give the Illinois utility regulator the resources and staffing it needs to carry out its mission.

Over the past decade, ComEd’s actions not only broadsided Illinois government, but utility regulation itself. It’s time to take our power back.

Abraham Scarr is the director of Illinois PIRG, a member of the Take Our Power Back coalition.

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April 21, 2021 at 10:51PM

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