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The People Ex Rel. Lisa Madigan, Attorney General of the State of Illinois v. Illinois Commerce Commission

March 19, 2012

THE PEOPLE EX REL. LISA MADIGAN, ATTORNEY GENERAL OF THE STATE OF ILLINOIS,
PETITIONER,
v.
ILLINOIS COMMERCE COMMISSION, COMMONWEALTH EDISON COMPANY, ET AL., RESPONDENTS.



On Petition for Administrative Review from the Illinois Commerce Commission. No. 09-0263

The opinion of the court was delivered by: Justice Burke

JUSTICE BURKE delivered the judgment of the court, with opinion.

Justices McLaren and Schostok concurred in the judgment and opinion.

OPINION

¶ 1 Commonwealth Edison Company (ComEd) is a public utility company that distributes electricity to consumers in northern Illinois. In October 2007, ComEd petitioned the Illinois Commerce Commission (Commission) to restructure and alter the rates ComEd charges, seeking a $360 million increase. ComEd calculated its revenue requirement using 2006 as an historical "test year" and included certain new distribution assets, referred to as "plant." The Commission ultimately granted ComEd a rate increase of about $274 million.

¶ 2 As part of the rate case, the Commission approved "Rider SMP," which ComEd had proposed to immediately recoup the costs of modernizing its delivery system toward a "smart grid," including a new technology called advanced metering infrastructure (AMI) that would allow meter reader and supervisor positions to be phased out. On appeal, the Attorney General (AG) and the Citizens Utility Board (CUB) challenged Rider SMP, having intervened separately to protect the rights of consumers to "just and reasonable" rates as prescribed by the Public Utilities Act (Act) (220 ILCS 5/1-101 et seq. (West 2006)). See Commonwealth Edison Co. v. Illinois Commerce Comm'n, 405 Ill. App. 3d 389, 409-15 (2010) (ComEd).

¶ 3 While the appeal in ComEd was pending, ComEd petitioned the Commission to implement the order that had authorized Rider SMP. Specifically, ComEd sought approval to recover through the rider the costs of installing 141,000 AMI meters and implementing a "Customer Application Program" (CAP) designed to measure how customers respond to the new technology. The Commission ruled that ComEd could recoup through the rider the costs of 131,000 AMI meters and the CAP. The AG filed a notice of appeal from the Commission's implementation order, and we stayed the appeal while ComEd was pending.

¶ 4 On September 30, 2010, we reversed the authorization order. We held that the Commission erred in approving Rider SMP, because the rider violates the rule against single-issue ratemaking. ComEd, 405 Ill. App. 3d at 415. On April 12, 2011, after we denied ComEd's petition for rehearing and the supreme court denied ComEd's petitions for leave to appeal, we lifted the stay on this appeal of the implementation order.

¶ 5 On appeal, the AG argues that (1) principles of collateral estoppel and the law of the case bar ComEd and the Commission from relitigating whether Rider SMP, now renamed Rider AMP and Rider AMP-CA, is improper single-issue ratemaking; and (2) even if we were to address the issue, Rider AMP and Rider AMP-CA qualify as improper single-issue ratemaking under the test we set forth in ComEd. We agree with both of the AG's arguments and reverse the Commission's implementation order as an abuse of discretion.

¶ 6 THE RATE CASE

¶ 7 On October 17, 2007, ComEd filed tariffs that incorporated a general increase in rates for delivering electricity and revised other terms and conditions of service. See 220 ILCS 5/9-201 (West 2006). ComEd proposed no change in the price of the electricity itself. ComEd asserted that a $360 million increase in its delivery rates was necessary because the existing rates were based on costs that were years out of date.

¶ 8 ComEd used the 2006 calendar year as an historical test year and included certain pro forma adjustments. ComEd proposed to increase its 2006 rate base investment amount by $1,498,317,000 based on new plant that had been or would be implemented over a 21-month period from January 2007 through September 2008.

¶ 9 On November 28, 2007, the Commission suspended ComEd's proposed tariffs and initiated the underlying rate case. The Commission assigned two administrative law judges (ALJs) to take evidence and issue a proposed order. To protect their interests, the AG and other parties intervened. Testimony and documentary exhibits were submitted, and evidentiary hearings were held from April 28, 2008, to May 5, 2008.

¶ 10 DOCKET 07-0566: RIDER SMP

¶ 11 As part of the rate case, ComEd proposed Rider SMP, a "system modernization project" charge to customers, to immediately recoup the costs of modernizing its delivery system toward a "smart grid." According to ComEd, the rider was new and innovative and created a mechanism for funding discretionary projects that are not necessary for the distribution service. One of the building blocks of the new technology is AMI, which consists of a communication system, advanced meters, and computer software and hardware to process the information collected from the new meters. The first step toward an AMI system is a pilot program called "Phase 0," which involves installing 200,000 advanced meters. AMI would allow ComEd to save costs and improve efficiency by phasing out 675 full-time meter reader and supervisor positions, eliminating meter reading equipment, improving bill collections, reducing billing errors, and disconnecting nonpaying customers more efficiently. ComEd argued that Rider SMP would give customers the benefits of the technology earlier than might otherwise occur, because ComEd could not afford the project without the rider. As proposed, ComEd would provide the Commission with an annual list of projects for Rider SMP recovery. The Commission would have an opportunity to approve or deny recovery for each project, but the Commission could not alter the list.

¶ 12 The Commission approved Rider SMP for the limited purpose of implementing Phase 0, commending ComEd for its initiative in pursuing a smart grid but criticizing ComEd for taking a project-by-project approach without a clear goal. The Commission noted that "[t]he estimates of cost in the record have varied greatly and the estimates of benefits have been sporadic at best." The Commission further found that "[t]he lack of a consistent, thorough analytic approach to estimating [smart grid] benefits simply highlights another shortcoming: ComEd is asking for special recovery for these projects that-whatever their level, all parties agree-could have long-term economic benefits, but as proposed, ratepayers do not share the economic benefits." The Commission ruled that, after the completion of Phase 0, ComEd may file Rider SMP again to seek recovery for additional smart grid investments.

ΒΆ 13 On September 10, 2008, the Commission issued its order authorizing ComEd to file new tariffs to implement a $273,573,000 rate increase. The authorization order allowed recovery through a rider for Phase 0 but required ComEd to first "engage in a workshop process with interested stakeholders in order 'to develop project goals, timelines, evaluation criteria and Phase 0 technology selection criteria.' " Because the order required ComEd to define the exact scope of Phase 0 by engaging in discussions with interested parties, the Commission did not "approv[e] a recovery of specific costs" but, rather, required ComEd to file "a request for approval of the AMI pilot after completion ...


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