Exelon/ComEd Rate Increase Legislation Signed by Governor Rauner
February 7, 2017
It took last minute negotiations and ten amendments, including one to reduce the number of votes needed for passage, but ComEd and Exelon were successful in their effort to have Illinois ratepayers bailout two underperforming nuclear plants and change the way energy efficiency programs are structured.
On the last day of the 2016 veto session, the bill’s proponents, who insisted that the legislation must be passed and effective immediately to save the Clinton and Quad City nuclear plants, amended the Senate Bill 2814 to make it effective in June of 2017. To be effective immediately, the bill would have required two-thirds majorities in each chamber. Those votes were simply not there, but by changing the effective date to next year, the bill, which will have a statewide cost of $12.6 billion, was able to pass with simple majorities. And it did.
Opponents of the legislation, including BOMA/Chicago, AARP, the BEST Coalition, and the Illinois Manufacturers Association were dealt a setback when Governor Rauner announced late in the process that he had reached a compromise deal with the utility giants. The compromise centered largely on caps agreed to by ComEd and Exelon which ostensibly provided protections to consumers. However, the details of the cap arrangements raised serious doubts about whether or not they provided any real protection to consumers.
What does this legislation mean to BOMA/Chicago members?
It will take a while longer to analyze the impact of the final version of the bill – some amendments were in excess of 400 pages long and had to be reconciled with further amendments which were passed only hours later. Initially, through a study commissioned by BOMA/Chicago, the impact on members was a $417 million increase over 23 years. Subsequent versions increased that amount to $425 million, but opposition by BOMA/Chicago and others was successful in having several costly parts of the legislation removed, ultimately lowering the cost $228 million over the next 13 years.
Why is this legislation so costly to commercial energy consumers?
The two primary cost factors of this legislation are the nuclear bailout and the restructuring of the energy efficiency program. The legislation provides a subsidy, through Zero Emissions Credits (ZEC), to the two Exelon nuclear plants that are currently underperforming. In effect, the subsidy provides more than $10 billion in rate payer dollars to bailout the unnecessary nuclear plants and pads the profits of a Fortune 100 company that made more than $2 billion last year.
The other major change allows ComEd to include energy efficiency programs into their rate base. By putting energy efficiency into rate base, it allows ComEd to earn a 9.5% annual profit on programs that are currently treated as a pass-through expense.
ComEd/Exelon has gamed the rate cap by using an artificially high base against which the 1.3% rate cap is applied, costs ratepayers $100 million more than a market-based cap would allow.
Don’t the caps provide protection to energy consumers?
Exelon agreed to impose hard rate caps on all customers, but with more than $835 million in annual spending it is difficult to make the math work. While the proponents touted that residential rate payers would see only a twenty-five cent increase on their monthly bills, they will actually see an average rate increase of $4.54/month to pay for the $835 million/year in new spending. The cap increase was “on average” and computed across the entire rate class. The cap is not extended to individual customers.
Also, by cleverly using “electric service” as the baseline against which Exelon applies its 1.3% rate cap for commercial and industrial customers, the potential rate increase almost doubles. “Electric service” includes not just energy but many other energy products. The subsidy through the ZEC, by comparison, is simply priced as a megawatt hour (MWh) of energy. By comparing “electric service” to the ZEC, Exelon is ensuring far more money is available than the 1.3% suggests.
For the 106 largest industrial customers (>10MW), the legislation specifies that $59.80/MWh for “electric service” despite $30-35 being the market price for large commercial and industrial customers in Illinois. Exelon gets a maximum increase of $0.78/MWh instead of market-based $0.39 - .46/MWh. For all other C&I customers the legislations baseline is $89.00 instead of the market price $35-40. For these customers, Exelon’s maximum capped increase is $1.16/MWh instead of $0.50/MWh.
While costs will appear on everyone’s bill, there is no credit that appears for energy efficiency savings. It only shows up in the ICC’s annual analysis. There will be no savings line item on customers’ bills.
Governor Rauner signed the legislation on Wednesday, December 7 in Clinton and the Quad Cities, where the two nuclear plants are located. Due to the many unresolved issues in the final bill, there will likely be future legislation introduced to address these issues. The BOMA/Chicago legislative team will continue to monitor all related legislation and actively participate in the legislative process.