'Straight uphill': Power sector reforms face tough path in gridlocked Illinois legislature

An epic budget impasse in Illinois has stalled progress on legislation that is critical to several aspects of the state’s energy economy.

At stake is the status of the state’s nuclear power reactors, efforts to revive renewable energy development in the state, and initiatives to build microgrids, electric vehicle charging stations and energy storage facilities.

In the last session of the Illinois legislature three bills were introduced to address each of those issues. They all failed. Legislators and lobbyists are now working behind the scenes to revive key components of those measures and possibly roll them into a single energy bill.

Among the bills that failed were the Clean Jobs Bill (CJB) (HB 2607/SB1485) — a proposal that would raise efficiency standards and the state RPS — and a bill that would establish a separate clean energy portfolio standard aimed at providing extra income for Exelon’s Illinois nuclear plants (HB 3293).

Also put on hold was a bill backed by Commonwealth Edison (HB 3328/SB1879) that would have revised how consumers’ electric bills are calculated and paved the way for ComEd to build microgrids, electric vehicle charging stations and energy storage facilities.

It may not seem to be a recipe for success to combine bills that incorporate such disparate interests and could have conflicting aims, but from a legislator’s point of view, there is a benefit in reaching some consensus from stakeholders before introducing a bill.

The legislature has said “if you want to pass the Exelon bill, you have to get CJB on board,” Sarah Wochos, co-legislative director at the Environmental Law & Policy Center (ELPC), told Utility Dive.

Ending up with a single bill “is the aim of some stakeholders,” said State Senator Don Harmon (D), president pro tempore of the Illinois Senate. But when several issues are rolled up into a single piece of legislation, he added, many are subject to negotiation.

The Nuclear Option

Each of those three bills addressed issues that are critical to major segments of Illinois’ energy industry. The Low Carbon Portfolio Standard bill backed by Exelon would have required the state’s electric utilities to purchase credits from low-carbon energy sources, including nuclear energy, to match 70% of the electricity used on the distribution system.

It was to be funded by an electric bill surcharge of about $2 a month on households served by Commonwealth Edison and Ameren Illinois. That would have created more than $300 million of extra annual revenue that would have been distributed over five years to low-carbon energy sources. Under the provisions of the bill, most of the $300 million would have gone to Exelon’s six nuclear plants in Illinois.

The measure faced stiff opposition, particularly from critics who argued that all of the nuclear plants are not doing as poorly as Exelon says they are.

Four of Exelon’s six Illinois nuclear plants are fully profitable and a fifth is break-even, leaving Clinton as the sole loss making plant, says Dave Lundy, director of the Better Energy Solutions for Tomorrow (BEST) Coalition, an advocacy group formed to oppose the Exelon bill.

“Exelon is looking for a fleetwide fix for a plant specific problem,” Lundy told Utility Dive.

Exelon is still pressing its case, and power sector analysts have noted its fleet continues to be at risk of unprofitability in PJM markets, squeezed by low natural gas prices and high operating costs. But many stakeholders in the legislative process believe any bill that would raise rates for consumers has very little chance of becoming law while the state does not have a budget and basic social services are being curtailed.

“Exelon, ComEd and the Clean Jobs Coalition are in the midst of ongoing conversations to drive toward a comprehensive energy policy for the General Assembly to consider," an Exelon spokesman said in an email in response to a request for comment. "Those conversations have been productive and have focused on common interests among the various groups toward an integrated low carbon energy future that fairly serves all customers, encourages economic growth and creates jobs."

Fixing the RPS

The Clean Jobs Bill (HB 2607) sought to amend what many critics said was the state’s “broken” renewable portfolio standard. It also would have expanded the RPS by calling for 35% of electric consumption to come from renewable resources by 2030, up from 25% by 2025. It also would have required the state’s utilities to cut demand by 20% by 2025.

Critically, the CJB also would have amended the Illinois Power Agency Act to address factors that have led to a steep decline in renewable energy development in Illinois.

After Illinois implemented its RPS program in 2008, wind power development in the state began to climb. Then, in 2010, Illinois passed the Municipal Aggregation Act, and the mechanisms behind the state’s RPS began to go haywire. The act prompted about 70% of Illinois’ 4.4 million residential customers to leave Ameren Illinois and ComEd and switch to competitive suppliers. It also exposed structural flaws in the RPS.

Under Illinois law utilities and energy suppliers can comply with the RPS either by purchasing renewable energy or by buying renewable energy certificates (RECs).

The alternative suppliers can purchase up to half of their renewable commitment by buying RECs. For the rest, they have to make compliance payments to the Illinois Power Agency (IPA), which can use the funds to buy RECs or renewable energy.

This arrangement has created two problems. Because customers can switch between alternative suppliers and utilities, the purchasing authority, the IPA, only signs short-term power purchase agreements, but bankers want to see long-term PPAs to back up the financing of renewable power projects.

“There is no way to build new capacity under a constantly shifting consumer base,” Kevin Borgia, manager, public policy and membership at the advocacy group Wind on the Wires, said.

The other problem is that the funds collected from consumers served by utilities and alternative energy suppliers are maintained in separate accounts, and the agency can't spend funds from alternative suppliers unless it is simultaneously acquiring renewable energy for customers who still buy energy at the default rate from utilities.

That has created a growing pool of money – about $117 million currently – for renewable energy procurement that can't be spent. And, with the state’s budget crisis, there are growing concerns that the funds could be diverted for other needs. Just last year the legislature borrowed $98 million from the fund.

The net effect is that wind power development in Illinois has come to a screeching halt. In 2009, $1.3 billion was invested in wind power and 632 MW of wind turbines were installed in the state. The projects in the pipeline had enough momentum to carry development into 2012 when $1.6 billion was invested and 823 MW of wind power was installed, but since 2013 there has been essentially zero investment and no new wind capacity installed in the state.

That means that Illinois, which once ranked among the top five states for renewable energy growth, is virtually certain to miss its 2016 RPS target of 11.5%, ELPC's Wochos said.

To rectify the situation, the Clean Jobs Bill proposed amending the Illinois Power Agency Act so that the separate accounts could be joined, creating a larger pool of money that could be used to fund renewable development.

The bill also proposed changing the funding mechanism for the RPS. Under the current arrangement, the RPS is funded by a charge on the generation side of consumers’ bills. The CJB would have switched that to a fixed distribution service charge. That would also mean that the IPA would not take control of funds, only administer them, removing the risk that the funds could be appropriated by other branches of government.

The Future Deferred

A third proposed law, backed by Commonwealth Edison, was billed as the Future Energy Plan (HB 3328 and SB1879). In it, ComEd was seeking modification to Illinois Public Utilities Act to enable it to build six microgrids, up to 5,000 electric vehicle charging stations and provide voltage optimization via modified battery storage installations.

Critics say the real heart of the bill was a proposal to switch how ComEd charges residential customers for electricity service. On current bills, energy, capacity, transmission and distribution are all based on volumetric use. Under ComEd’s proposal, only energy charges would have been volumetric.

Currently residential customers pay about $0.11/kWh for usage, which includes energy, capacity, transmission and distribution charges, and residential solar customers can net meter the whole $0.11. Under ComEd’s proposal, residential customers’ energy charges would remain the same, $0.045/kWh, but all other charges would be based on peak usage.

For a homeowner, there is no guarantee that peak usage will coincide with solar production, so it is harder to project cost savings. In some cases, payback time for a solar installation could more than double. “That would make it harder for distributed resources to flourish,” Wochos said.

That’s one of the reasons environmental groups opposed the bill. It also drew opposition from those who see the proposal as a rate hike. But there could be room for compromise, especially when it comes to energy efficiency.

“There is some recognition that volumetric design misaligns incentives,” Senator Harmon said. In many energy efficiency programs, utilities are required to back programs that cut usage and are expected to absorb reductions in usage-based revenues. Harmon said he believes there is room for restructuring rate design in ways that would make utilities partners in the process.

Requests for comment from ComEd on the legislation were returned with the statement from an Exelon spokesperson saying the companies would continue to work with stakeholders to create a low-carbon energy future. But in an interview last month, ComEd CEO Anne Pramaggiore highlighted the efficiency provisions as an innovative component of the bill.

In the pending legislation, there is a provision that would treat investments in energy efficiency like any other utility spending project, allowing ComEd to earn its regulated rate of return on initiatives that draw down consumer demand.

“Today what happens with energy efficiency is we recover dollar-for-dollar what we spend on energy efficiency. This would actually put [efficiency programs] into a regulatory asset,” Pramaggiore said. “They would look like poles and wires that we recover over a longer period of time and we earn a return on it. So, it really treats a service like energy efficiency as an asset.”

The bill also would have amended the state’s Public Utilities Act to allow ComEd to own generation assets associated with microgrids and energy storage facilities.

Illinois utilities have been barred from owning generation assets since the state deregulated in 1997. In 2016, those restrictions now pose barriers to ComEd’s plans to invest $300 million to build six microgrids.

Any measures that would allow ComEd to return to owning generation assets will likely be “viewed with some degree of suspicion,” Harmon says.

The bill also included provisions that would allow ComEd to invest $100 million in electric vehicle charging stations. Those proposals rankle critics who argue that ComEd’s initiatives would limit competition by depriving developers of those opportunities. And, as with building microgrids, critics question why ComEd should be allowed to add those expenses to customers’ bill when there are companies that will foot the bill in order to build their business.

They point to companies such as NRG Energy, which has built EV charging stations at its own expense, and Glide Path Power, which developed two utility-scale storage projects in the Chicago metro area.

(Glide Path in September 2014 sold the projects to RES Americas. Those projects, 19.8 MW each, went live in late 2015. The Elwood Energy Storage Center is in West Chicago and the Jake Energy Storage Center is in Joliet.)

Harmon also pointed out that several significant stakeholders have yet to weigh in on the issues, including owners of fossil power plants in the state, such as Dynegy and NRG Energy, as well as organized labor and coal companies such as Peabody Energy.

'Straight uphill'

The fact remains that in the current legislative session, any energy legislation will face a tough battle. Even Pramaggiore herself did not sound particularly confident in her interview with Utility Dive.

"We've got a piece of legislation that is pending right now in Illinois," she said. "We'll see how far it goes. There's a lot of activity in Illinois right now."

The path for the energy legislation is “straight uphill,” Harmon said, especially for issues such as a low carbon portfolio standard or rate redesign, which have the “real or political potential for raising rates on consumers.”

In a state in the midst of a budget crisis that would be a tough sell. But, as Harmon said, “we are still chipping away at the edges” of a new energy bill.