The Illinois Commerce Commission’s “NextGrid: Illinois’ Utility of the Future” study, which began with grand hopes three years ago, ended with barely a whimper Friday.
“A lot of eyes are on Illinois as an early adopter,” then-FERC Commissioner Robert Powelson told an audience of more than 400 stakeholders at the NextGrid kickoff event at the University of Illinois at Chicago’s Dorin Forum in September 2017.
“This is really a terrific opportunity for the ICC and the state of Illinois to lead the nation in terms of the thinking around what the grid is going to look like in the next 10 to 15 years,” said then-ICC Chair Brien Sheahan.
But Sheahan lost his chairmanship and then saw his term expire before his legacy project was complete. And on Friday, the ICC quietly agreed to settle a lawsuit that claimed Sheahan had allowed Commonwealth Edison and Ameren, the state’s two dominant distribution utilities, to exclude some consumer advocates and others from participating in the study.
Although the ICC did not admit wrongdoing in the settlement, it agreed to pay $220,000 in plaintiff legal fees and to add a disclaimer that the study is “not a consensus document, and it is not intended to advise or guide legislators, regulators or other policymakers, or to otherwise be used as a basis for legislation, regulation, policy or ratemaking.”
The disclaimer appears to be moot, however: “The ICC will not be releasing the study,” spokeswoman Vicki Crawford told RTO Insider.
A Case Study in Regulatory Capture
While the study may be a dead letter, Sheahan’s stewardship of NextGrid could provide lessons for public policy classes on the subject of regulatory capture. The ICC’s disavowal of the report also leaves uncertainty about the state’s plans for addressing issues such as vehicle electrification, energy storage and ratemaking. Crain’s Chicago Business headlined its story on the settlement: “Plaintiffs win unusual concession from ICC: Please disregard our report.”
The Illinois Public Interest Research Group’s (PIRG) Education Fund and GlidePath, an energy storage developer and independent power producer, sued Sheahan and the ICC in June 2018, complaining they had been excluded from NextGrid working groups.
The suit also accused Sheahan and the ICC of violating the Illinois Open Meetings Act by refusing to allow the public to attend working group meetings. Days after the suit, the ICC admitted that its meetings did not comply with the law and agreed to open meetings going forward. (See Groups Sue ICC over NextGrid Study Process.)
Utilities Dominated Membership
Although the commission had publicly invited applicants to volunteer for the seven NextGrid working groups, the plaintiffs said depositions and discovery showed that ComEd and Ameren worked with Sheahan to determine which companies and individuals would be allowed to participate. ComEd, a PJM member, serves 4 million customers in Chicago and Northern Illinois; Ameren Illinois, a MISO member, serves 1.2 million electric customers in Central and Southern Illinois.
Of the 196 task force members, 19 were from the utility sponsors: nine each from Ameren and ComEd, and one from ComEd parent Exelon, according to a count by RTO Insider. No other organization had more than four representatives.
Interestingly, Sheahan’s three-page introductory letter, which described the purpose of the study and the roles of the participants, made not a single mention of Ameren or ComEd.
“The documents in this case show a state regulator working to benefit the very utilities it should be regulating by cherry-picking utility-friendly participants and excluding those that would challenge the utilities’ control,” GlidePath founder Dan Foley, a former ComEd risk manager, said in a statement Friday.
“When utilities are allowed to shape energy policy and regulation, the public suffers,” said Abe Scarr, executive director of Illinois PIRG.
Scarr said PIRG agreed to sue after it, like GlidePath, was initially blocked from participating in the working groups.
“We have been one of the most outspoken utility critics in the state. Our positioning in the policy debate had taken a stronger line than even some of the other consumer groups,” he said, noting that PIRG opposed the 2016 Future Energy Jobs Act, which the state’s Citizens Utility Board and major environmental groups joined ComEd in supporting. In addition to increasing energy efficiency requirements and creating a community solar program, the act authorized $2.4 billion in zero-emission credits (ZECs) for Exelon’s Clinton and Quad Cities nuclear units.
Foley had clashed with ComEd in 2014 over the utility’s fees for its “Smart Grid Test Bed,” and in 2017, he challenged its application to construct a microgrid in the Bronzeville area of Chicago.
When the lawsuit was filed, Crawford, the ICC spokeswoman, denounced it as “frivolous.”
She had a different message Friday, after the commission voted unanimously to approve the settlement.
“The current administration had no part in the formation or implementation of the NextGrid process and inherited this legacy litigation,” she said. Sheahan, who had been appointed by former Republican Gov. Bruce Rauner, was replaced as chairman in April 2019, when Democratic Gov. J.B. Pritzker tapped current Chair Carrie Zalewski. His term expired in January 2020.
Crawford said the commission approved the settlement “so that ICC efforts and resources may be better spent dealing with our response to the COVID-19 pandemic and other emergent issues. The commission is committed to fortifying openness and transparency as we move forward.”
Sheahan declined to comment. “Unfortunately, I cannot comment while the litigation is pending, but I would be happy to discuss after the case is finally resolved,” he told RTO Insider on Saturday.
Sheahan’s ‘Pet Project’
The ICC approved the NextGrid study in a resolution in March 2017. Although it was to be led by facilitators from the University of Illinois at Urbana-Champaign, it was to be funded by ComEd and Ameren.
Peter Gray, a spokesman for GlidePath, said attorneys in the case would not release documents obtained during discovery. But he shared some of the highlights, including testimony by the head of a local business group who said Sheahan told him, “I choose the participants in the working groups, and [your chosen representative] will not be allowed to participate.”
Gray said ICC attorneys acknowledged that commission staff met with ComEd and Ameren representatives to select the working group facilitators and advisors. Staff testified that ComEd objected to the participation of specific employees from independent energy businesses, Gray added.
ICC staff also testified that they were directed by Sheahan to disconnect the phone line of an individual during a working group meeting.
Ameren and ComEd did not respond to requests for comment Friday.
The lead facilitators for the study were UIUC professors George Gross, a Ph.D. in electrical engineering and computer sciences, and Peter Sauer, a Ph.D. in electrical engineering. Sauer did not respond to a request for comment.
Gross said in an interview that he and Sauer worked with Sheahan and two ICC staffers to select the working group members. He said he worked to ensure a diversity of interests, including the American Petroleum Institute on a panel discussing electric vehicles, and technology experts in addition to regulatory “policy wonks.”
“We basically met and talked about the candidates and then we came up with a list,” Gross said. “The chair had two assistants put full-time on this. … I’m sure the chairman was informed about all of those developments because he took a personal interest in this. This was basically his pet project, and he was shepherding it through.”
Gross said he did not recall Ameren or ComEd making any comments about the composition of the working groups and had no knowledge if Sheahan gave the companies veto power.
“They did not veto anything I did,” he said. “The contract said the veto power came from the commission. The commission had to bless with their holy water the work that we did.”
Despite the controversy, Gross said, “I thought we had a very good representative segment of the industry. … I think [the report is] a very complete and thorough representation of all the views that were aired. We didn’t try to hold back anything. This was not supposed to be a consensus document.”
The seven working groups looked at subjects including new technology deployment and grid integration, metering, electricity markets and environmental issues. After more than 40 meetings over 21 months, the ICC opened the final draft report to public comments on Dec. 14, 2018, with plans to release the final report a month later. But the plaintiffs won an injunction from the Cook County Circuit Court preventing the release until the litigation was resolved.
The disclaimer the ICC agreed to states in part: “This report was funded by Commonwealth Edison and Ameren at a cost to the ratepayers of Illinois. The contract executed as part of the process states that the report is to be compiled for the ICC, under the direction of Commonwealth Edison and Ameren, and requires prior review by Commonwealth Edison and Ameren to be deemed complete.”
Reports Paved Way for Utility Spending
Reports like the NextGrid study have been used to justify several major spending initiatives that benefited ComEd and Exelon. In 2014, the ICC and other state agencies prepared a report on potential nuclear plant retirements that helped build support for the ZEC subsidies.
In 2010, the Statewide Smart Grid Collaborative issued a report that provided the foundation for the Energy Infrastructure Modernization Act, which authorized ComEd and Ameren to spend $3.2 billion over 10 years for upgrades, distributed automation and smart meter implementation. The spending was done under a streamlined formula rate process to reduce regulatory lag and allow quicker inclusion of costs into rates. The rate of return on equity, incentive compensation, rate-case expense and other variables were set in advance. ROEs could be reduced for failing to meet performance targets.
An analysis by Scott Madden management consultants after the first six annual formula rate filings concluded that the utilities had increased their earnings despite below-average ROEs. It said ComEd and Ameren Illinois’ rate bases had increased by 34% and 24%, respectively, boosting their authorized earnings by 16% and 6% since 2012.
PIRG’s Scarr said he believed ComEd hoped to use the NextGrid report to justify additional smart grid investments and to extend the formula ratemaking.
“They seemed to make headway until mid-May 2019,” he said, when news broke of an FBI investigation into “pay-to-play” allegations involving state House Speaker Mike Madigan and lobbyists for ComEd and Exelon. Last October, Exelon Utilities CEO Anne Pramaggiore — who had been a featured speaker at the NextGrid kickoff as ComEd’s CEO — abruptly retired, less than a week after Exelon disclosed it had been subpoenaed in the probe. (See Exelon Pledges Reforms amid Grand Jury Probe.)
“Had the study been published,” Scarr said, “they would have used that to say, ‘Here’s all this stuff we need to do. That’s why we need to continue regulatory treatment.’”
Three Recommendations
The final draft report made three main recommendations, at least two of which could result in new revenue streams for ComEd and Ameren if they are endorsed by the ICC.
In addition to calling for enhanced privacy protections in response to the growing digitalization of the grid, the report urged an expansion of EV-charging infrastructure to address climate change and “to maintain Illinois’ leading position in grid modernization.”
“For many years now, a major causal factor of the slow growth in EV sales has been tied to the lack of an adequate EV-charging infrastructure,” it said. “There is a need to put an end to this chicken-and-egg syndrome so that the rapid adoption of EVs can proceed in order to remove the millions of polluting fossil-fueled internal combustion engine vehicles from the roads.”
The report also bemoaned the “slow pace” of energy storage resource (ESR) development in Illinois, saying the need for storage is increasing with the rising penetration of renewable energy resources in the distribution network.
“There is the opportunity to formulate meaningful incentives for utilities or other entities” to install storage, it said, adding that the ICC “can play a leadership role” in increasing ESR deployment.
The report did not, however, endorse continuation of Ameren’s and ComEd’s formula rates, which have been extended twice beyond their initial sunset in 2017. The current extension ends in 2022.
“Some contend that utility customers have benefited from formula rates through improved resiliency and stable rates [while maintaining the ICC’s ability] to review the prudence of all costs included in customer rates,” the report said. “There is a contention by others that rate stability has been due primarily to wholesale power costs, not delivery-service rates, which are the only component covered by formula rates. …
“Some stakeholders expressed concerns that formula rates have allowed utilities to pass through costs without adequate review, and that utilities are effectively guaranteed their authorized rate of return. In effect, they argue that formula rates have shifted risks from utility shareholders to customers. This was an issue over which different [working group] members strongly disagreed.”
