Proposed energy legislation maintains key formula rate policies

Value to ComEd could be higher than Exelon subsidy

Illinois PIRG

Omnibus energy legislation under consideration by the Illinois General Assembly this week maintains key formula rate policies, the value of which could be higher than the legislation’s reported Exelon subsidy, according to new analysis published today by Illinois PIRG. 

The legislation maintains a key formula rate policy that guarantees utility profits, while also increasing utility profit margins, providing what could be a significant windfall for ComEd and Ameren. 

The report analyzed a scenario based on projections ComEd’s parent company Exelon presented to its shareholders, using a profit level in line with recent Illinois practice, to calculate an indicative view of potential ComEd profits under the legislation. Under such a scenario, ComEd would swiftly be authorized to collect over $1 billion in annual profits from customers, resulting in an additional $664 to $893 million in profits over four years.

“Completely ending formula rates is the bare minimum we should expect from our elected leaders in response to the ComEd scandal. This legislation fails to,” said Abe Scarr, Illinois PIRG Director. “Illinois needs to marshall all its resources to reach our climate and clean energy goals, not direct billions of dollars in excess profit to ComEd and Exelon.”

Drafts of the omnibus legislation circulated last Thursday allow the current formula rate law to continue through the end of 2022, meaning proposed ComEd and Ameren rate increases will go through this year, and both can file for an additional formula rate increase next year. 

Additionally, the legislation would allow ComEd and Ameran multiple end-of-year formula rate true-ups, or “reconciliations” based on actual costs, the key policy that guarantees their profits, beyond formula rate’s 2022 sunset.

The legislation’s new rate-making structure also includes an annual reconciliation based on actual costs, called an ‘Annual Adjustment” in the proposed legislation. The Annual Adjustment includes two of three accounting practices codified by a 2013 law ComEd advocated for after not getting its desired outcomes from regulators. 

Because the formula created in 2011 tied profit margins to interest rates, which have remained historically low, profit margins under formula rates have been relatively low. Under the proposed legislation, utility profit margins would be set by regulators who typically set higher profit margins than those set by formula rates.

Illinois PIRG is calling on Governor Pritzker and legislative leaders to amend the legislation to immediately end formula rate increases and to completely remove key formula rate policies from future ratemaking structures.