What the heck is going on in Illinois? 

Last May, the Illinois Commerce Commission told Commonwealth Edison it had to cut about $146 million from the rates it could expect to collect from customers in 2012.

A few days ago, the Illinois Senate voted 47-4 for a resolution that protests the rate cuts imposed by the ICC, which ComEd says have hurt its efforts to carry through with modernizing its electricity grid.

Some of that money had to do with smart grid, but much of it did not. While the rate plan was rejected, the ICC did approve ComEd’s smart grid plan. The final approval of ComEd’s plan came about a month after the ICC rejected the Ameren Illinois smart grid plan altogether.

The ICC said it is asking Ameren for more information about how the technology would benefit customers before it allows the plan to proceed. 

With the resolution that passed last week in the Illinois Senate, nearly nothing has changed, yet. The resolution is non-binding, but it “expresses the serious concern of the Senate over the Illinois Commerce Commission's orders implementing the Energy Infrastructure Modernization Act, commonly known as the smart-grid bill," Senate President John Cullerton (D-Chicago), told the Chicago Sun-Times.

The resolution calls for the ICC to allow for what the legislature’s Energy Infrastructure Modernization Act has already approved. Initially, ComEd had figured about $40 million to $50 million in cost reductions, but in May, the ICC told ComEd it had to quadruple the rate cut to about $146 million. 

Many of the costs included in that figure have nothing to do with smart grid or its planned four million smart meters, and instead are related to pensions and other business costs that are not part of infrastructure improvements. It was unclear with the resolution last week from the Senate if the costs will be teased out separately.

According to Ameren, the resolution calls for the utilities to file changes to their rate tariffs that:

1) Apply an interest rate set at the utility's weighted average cost of capital; 2) set rate base and capital structure using final year-end values reflected in the Federal Energy Regulatory Commission (FERC) Form 1 rather than average numbers; and 3) correct errors the regulatory authority made. 

This is hardly the final word in the Illinois smart grid saga, but rather the next chapter. Ameren said that it could not cover the investments of its smart grid plan based on the utility’s formula rate case, in which Ameren said its revenue would be cut by $48 million annually. But Ameren’s smart grid plan was not just rejected on a cost basis. In a news release after the rejection, the ICC stated that “Ameren’s Smart Grid deployment plan was 'vague and incomplete' and bordered on not being a plan at all, but rather a more of a general statement of intention to install smart meters in some parts of its service territory.”

Besides this issue being a multi-year power fight between legislators and regulators, the volleying over utility cost recovery in Illinois points to a larger issue that stretches beyond the state’s borders.

Last year, the ICC told Ameren Illinois and ComEd that it would have to prove the value of its smart grid investment, or pay the difference. 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 ten-year goals.

Other regulators are also holding investor-owned utilities’ feet to the fire, demanding that the technology investment -- which utilities argue will save millions in initial filings -- actually deliver those savings to customers. Many experts argue that it is the regulatory framework itself that also needs an overhaul.

This is the first year that some utilities are starting to show the value of some grid modernization projects. But clear examples of cost savings are still few and far between. Utilities that want to charge customers while reaping increased profits will increasingly be held to public scrutiny about what, exactly, the benefits are.

Moving into 2013 and beyond, measurement and verification of smart grid benefits -- from reduced outage times to better customer service -- will become not the exception, but the norm. In California, the three large investor-owned utilities need to report annually on various metrics to track the grid investments being made.

 In Illinois, however, the smart grid saga is far from over. Stay tuned as grid modernization continues to be politicized well into 2013.