Illinois Grid Mod by Formula Rate & Next Grid

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1 Illinois Grid Mod by Formula Rate & Next Grid Ann McCabe, Consultant, Illinois Commissioner Customer Vision Stakeholder Group, July 23, 2018

2 Introduction Each state is different. Statutes/legislation largely determine IL Commission's purview, along with the record in proceedings/dockets. Regulators try to balance the needs of the utilities/shareholders and the customers IL EIMA 2011: Energy Infrastructure Modernization Act; ComEd and Ameren will fully deploy AMI in the next 1-2 years. IL FEJA December 2016: Future Energy Jobs Act NextGrid Illinois, non-docketed, report by EOY

3 EIMA Overview: Grid Mod via Formula Rate $3.2 billion investment by ComEd and Ameren over 10 years for upgrades, distributed automation, smart meter implementation. Formula Rate (FR) uses a streamlined process, quicker return on investment via annual process. FR calculation ensures the utility receives a more certain and timely recovery of the utility s investments and expenses. Utilities get pre-approval of their grid hardening/ami investment. Prescribed regulatory treatment of issues such as ROE, return on pension assets, incentive compensation, rate case expense and amortization of costs such as storm damage over a threshold.

4 EIMA Overview: Grid Mod via FR continued Return on Equity specified: average T-bond yield for 30-year plus 580 basis points (no risk, Discounted Cash Flow, Capital Asset Pricing Model, related testimony) 2.15% screen based on Average Annual Increase on or before July 2014; FR reviewed if exceeded By May 1, utilities submit filing with two main parts: 1) FR update that sets rates to recover actual costs for the next year using estimates based on the prior year, and 2) a reconciliation of the formula rates collected the prior year.

5 EIMA Overview: Grid Mod via FR continued 2013 EIMA update to clarify that, in determining the reconciliation revenue requirement, the interest rate is the weighted average cost of capital (WAAC) and the rate base is to be measured on a year-end basis. On Jan 1, new rates go into effect. June 1, utilities report on metrics. ComEd missed a few metrics, 5-6 basis point hit to ROE. 10 metrics include system reliability, reducing estimated bills and energy theft: 4 reliability, 4 customer benefit and 1 supplier diversity-related.

6 EIMA Results First four years saw a decrease in contested issues, days of hearings, legal and expert witness fees. In sum, lower rate case expense and more certainty. ComEd accelerated AMI and will complete 4m meters by year-end and minimize costs, 3 years ahead. Ameren chose to do 100% rather than 67% residential smart meters as well as gas meters.

7 EIMA Results per ComEd April 2018 FR case, the 8 th, calls for $23m decrease Since 2012, frequency and duration of outages reduced nearly 50% >7.7m avoided customer interruptions, including 1.5 m in 2017, due to digital smart switches that automatically reroute power, $1.5b in societal savings Customer bills stable for the last 10 years; average residential bill was $85 and now $86 Reliability improved 50% and >4,000 FT jobs created

8 EIMA, Rate Design Electric utilities under Formula Rates can t change their rate design in the annual FR cases. They must file a revenue-neutral rate design every three years. Every 3 years, a stand alone proceeding addresses rate design for FR. No rate design in FEJA (Dec 2016 legislation), either.

9 Residential Demand-related Costs 2 IL approaches to-date, both provide revenue stability: Recover through fixed monthly customer charge (e.g., SFV) or Decoupling rider that trues up revenues for the difference between actual usage in a given year with usage assumed for setting rates Future: Demand Charges With smart meter/ami almost complete, individual demand charge possible (recovered through usage charge at present) Would ensure that distribution system costs are adequately recovered Would require extensive customer education to explain why part of the bill is based on highest demand or usage from a prior period. Future: Time of Use (TOU), Performance-based rates (PBR)

10 Future Energy Jobs Act (FEJA) 2016 Dec 2016 legislation increases RE and EE targets, provides ZECs for 2 nuclear plants (Quad Cities and Clinton), overhauls the RPS for greater long term RE investment. IL Power Agency procures the ZECs, RE. Changed funding mechanism, not targets, for $5 billion for new wind and solar $5 billion in energy efficiency investments Lower bills due to energy efficiency, performance-based Utilities can earn a rate of return on EE investments ComEd 25% reduction x2030; Ameren 16%* - forces focus on LT measures ComEd will invest $1.4b over 4 years, 30 programs in approved plan Possible 50% reduction in CO2 emissions by 2030 (Accelerate Group) *ICC reduced Ameren s targets, per request.

11 Future Energy Jobs Act continued EE via FR; utilities can earn a return on EE investment Solar 3,000 MW new build; 15 year REC contracts Solar for all incentives third-party administrator Must provide energy and economic benefits Up to 5% for grassroots education Must include job training 25% of projects in Environmental Justice communities Wind 1,300 new build; 15 year REC contracts Installer Certification Rules for utility-scale solar, EE

12 NextGrid Illinois To identify, research, and develop options to address issues facing Illinois electric grid, its users, and utilities. Work Groups: 1. New Technology Deployment and Grid Integration 2. Metering, Communications and Data 3. Reliability, Resiliency and Security 4. Customer and Community Participation 5. Electricity Markets 6. Regulatory and Environmental Policy Issues 7. Ratemaking Final Report by December 2018