What comes after formula rates may be even more lucrative for ComEd

https://ift.tt/3vnFSuc

The sprawling energy bill lawmakers are set to vote on this week is being marketed in part as recompense for Commonwealth Edison’s admitted bribery scheme aimed at winning Springfield favors over nearly a decade.

But the cornerstone of that effort—ending the annual formula-rate mechanism that’s allowed ComEd to dramatically increase its delivery charges over the years—opens the door to a new rate-setting process that easily could be more lucrative for ComEd than the current one.

The energy bill draft embodying Gov. J.B. Pritzker’s goal of a carbon-free power-generation industry in Illinois within three decades maintains one of the big victories ComEd won back in 2011 during a period in which it admitted to bribery in order to gain approval of what at the time was—and remains—an extraordinarily generous and lenient regulatory regime. The new process set forth in Pritzker’s bill would permit ComEd to continue reaping guaranteed profits each year.

Under the current formula approach, if ComEd (and downstate utility Ameren Illinois) don’t earn what they’re permitted to under each year’s formula proceeding, they add that difference to the next year’s rates to ensure they’re made whole. It works the other way, too. If they make more than they’re supposed to, they credit their customers. The net result, though, is a guaranteed profit—something utilities like ComEd had sought for years before winning the prize in 2011 that the Legislature passed over then-Gov. Pat Quinn’s veto.

ComEd last year admitted to a scheme in which it paid associates of former House Speaker Michael Madigan under lobbying contracts that frequently required little or no work in order to gain his support. Madigan pushed that 2011 bill through despite the objections of a governor of his own party. Madigan, though under investigation by federal prosecutors, has been charged with no crime and has denied any wrongdoing. ComEd, however, paid a $200 million fine under a deferred-prosecution agreement. Its CEO at the time, Anne Pramaggiore, is under indictment along with three others. All have pleaded not guilty.

Pritzker’s bill allows the annual formula procedure to expire at the end of 2022, as it was set to do anyway under current law. But the measure replaces it with a process in which the Illinois Commerce Commission will set ComEd and Ameren’s rates for four years. And, continuing the guaranteed-profit approach of the widely panned formula, it allows ComEd and Ameren to pass along unexpected costs in any given year to ratepayers in a surcharge the next year, ensuring their profits come in exactly as they expect.

For decades before the 2011 law, a utility’s rates gave it the opportunity to earn a specified amount. But it bore some risk in the outcome.

“That revenues and profits are not guaranteed under traditional regulation is intentional and important,” according to a report being released today by Illinois PIRG, a consumer advocate. “It encourages efficient spending and management; it means shareholders bear some of the operational risks inherent to the utility enterprise.”

Illinois PIRG Director Abe Scarr and Jeff Orcutt, a consultant with Chapman Energy Strategies, have been frequent critics of ComEd and the formula approach. Their report, “Formula Rates are Dead, Long Live Guaranteed Profits,” is aimed at influencing lawmakers as they prepare to vote. The message they’re hearing from Pritzker and others, including the Illinois Clean Jobs Coalition, is that the bill, among other things, represents some kind of comeuppance for ComEd.

Not only are guaranteed profits continuing. The measure doesn’t include a key goal of Pritzker’s when he unveiled his energy-overhaul goals last fall. ComEd will continue to be able to pass along its “costs” of charitable contributions to ratepayers. Illinois is one of just a handful of states that allow utilities to do that, and ComEd has effectively used the authority to call on non-profits depending on its largesse to advocate on its behalf during controversial “asks” from Springfield.

A Pritzker spokeswoman defended the measure, saying in an email that the "absolute worst parts of formula rates are gone."

In an emailed statement, ComEd took aim at PIRG, saying it didn’t understand the regulatory process and hadn’t participated in most of the ICC’s regulatory reviews of ComEd rates over the past decade.

“Our review of the public draft of the governor’s energy bill shows that if it’s enacted, Illinois will return to a traditional process for setting rates, with the ICC determining utility compensation based upon performance,” ComEd said.

Utility rates go up as they invest in the power grid. ComEd originally won support for the formula in return for a promise to spend $2.6 billion to install smart meters in every home and business and make the grid more reliable. It’s done that. But its capital spending budget for the next four years is at levels equivalent to the highest-spending periods during the smart-grid period. Given the higher returns ComEd is expected to earn on that investment, the effect on rates will be more dramatic than they were under the formula rate that all the parties now supporting the Pritzker bill profess to abhor.

As to charitable contributions, ComEd said, “It would be a loss for the region to decrease our charitable giving, which, like other investments we make to strengthen communities, regulators must review and approve only if they meet requirements for benefitting our customers.”

Asked if that meant ComEd would reduce its giving if it weren’t allowed to pass along all of those charges to ratepayers, a spokesman didn’t respond.

The Pritzker spokeswoman didn’t respond directly when asked why the bill continues to permit ComEd to charge ratepayers for its donations.

Pritzker’s bill places great faith in the ICC to keep consumers from experiencing rate shock. The bill would give the ICC more authority to rein in ComEd’s spending plans. But if regulators don’t do that, rates are likely to soar.

That’s because the return ComEd earns on its investments is much lower than the utility thought it would be back in 2011 when it agreed to tie its returns to long-term interest rates. Those rates later plummeted, leaving ComEd earning less than most utilities in fully regulated states do. Under Pritzker’s bill, those returns are expected to rise as ComEd will be able to argue they’re artificially low—something the administration acknowledges.

The PIRG report estimates that ComEd will collect at least $166 million more each year over the four years beginning in 2023 than it would have under the existing formula. That’s an annual benefit above the $694 million over five years that ComEd parent Exelon would get in subsidies to keep open nuclear plants that otherwise will close for lack of revenue.

ComEd didn’t respond when asked whether the process set forth in Pritzker’s bill would be more lucrative than the one currently on the books.

The bottom line: Keeping rates from soaring depends entirely on the ICC, an agency that has hardly been a stern taskmaster for ComEd over many decades and whose labor force and expertise were hollowed out over the years in which Madigan warred with then-Gov. Bruce Rauner over the state’s budget.

The Pritzker administration said it’s going to bolster staffing at the ICC.

"The ICC will not only have the authority to deny recovery of imprudent spending, but the ability," the Pritzker spokeswoman emailed.

via Crain’s Chicago Business

June 14, 2021 at 06:52AM

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s