Illinois utilities are about to have to prove their smart grid can do what it promises. For utilities ComEd and Ameren Illinois, that means cutting outages, inactive meters, estimated billing, energy theft and other money-wasters the smart grid was meant to prevent -- or paying penalties out of their profits.

Those are the rules under a bill that Illinois legislators passed in a veto-proof majority last month, after a long battle over the companies’ $3.2 billion in smart grid plans. Gov. Pat Quinn vetoed a similar bill in September, saying it was “a dream come true for Commonwealth Edison, but it's a nightmare for Illinois consumers." The latest version is tougher as a result, though it will still allow the state’s two big utilities to add about $3 per month to customers’ bills.

To justify it, however, the utilities will have to reduce outages by 20 percent, energy theft by 50 percent and inactive meters (those delivering power to unoccupied homes) by a whopping 90 percent under the new rules. These are the kinds of efficiencies that most smart meter projects out there promise they’ll deliver, but under Illinois’ new law, they’ll now be measured for year-by-year progress against those 10-year goals.

ComEd and Ameren will also be asked to cut estimated billing by 90 percent over the next decade and eliminate bad debt and unpaid bills by $30 million, a measure of the importance of backend IT support for today’s complicated smart meter systems. Miss those goals, and the utilities will face losing a certain portion of their profits.

Illinois is among the first states to tie financial penalties to utilities that fail to meet their smart grid goals. The Chicago Tribune says ComEd’s $2.6 billion smart grid package is the first such project by a major investor-owned utility to have its right to charge customers tied to performance measures in this way.

But given the negative reaction many smart meter deployments have been getting from state regulators, it may be far from the last. In fact, we’re already seeing state utility commissions ordering utilities to reduce customer rate increases for smart grid projects at Baltimore Gas & Electric, Hawaii Electric Co.Consumers Energy in Michigan and Duke Energy in Indiana, to name a few big ones.

ComEd, a subsidiary of Exelon Corp., was also facing the threat of having to pay back customers about $48 million in collected rates after a state court ruled last year that it had to revisit its 2008 rate case for a 141,000-smart-meter pilot project. No doubt the utility -- along with partners like Silver Spring Networks, Tendril and General Electric -- will be glad to see ComEd’s broader smart meter rollout to its 3.8 million customers get the go-ahead.

As for ComEd’s broader smart grid goals, it’s easy to see the theoretical path to proving their value. Take reducing outages, which the Galvin Electricity Initiative have estimated cost Illinois power customers about $20 a year. Cutting those by 20 percent could yield a $4-per-year economic benefit, or about 33 cents per month. Let’s call it one-tenth of the way toward paying back customers for the extra $3 a month ComEd is charging.

Other costs, like inactive meters, are spread out across all customers, which means there are incremental savings over time for fixing them. Certain programs, like ComEd’s plan to expand rooftop solar net metering from residential to include business customers, should be a direct benefit to customers.

Still, it’s important to remember that the lion’s share of benefits of the smart grid go toward utilities’ bottom lines, by reducing operations costs and deferring capital expenditures. It only seems fair they should be held to some standard in proving they’re helping their customers, as well for the money they're charging them to implement the new technology.

We’re going to see more and more emphasis on smart grid technology that can prove its worth. Siemens’ acquisition of eMeter, a software startup that holds about one-fifth of U.S. market share in smart meter data management, indicates that managing meter data is a big business, and enterprise smart grid software is going to be an $8.5 billion business by 2015, GTM Research predicts.

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