8732427615_0a54567a27_zDuring its September term, the Illinois Supreme Court heard oral argument in Commonwealth Edison Co. v. Illinois Commerce Commission, which poses important issues about the scope of the Illinois Commerce Commission’s jurisdiction over Illinois utilities. Our detailed summary of the underlying facts and court rulings is here.

In 1997, the Illinois legislature sought to restructure the electric industry in order to promote competition and customer choice by separating the sectors of generation and delivery. The Act created Alternative Retail Electric Suppliers (“ARES”), which competed with one another to sell electricity directly to consumers. Before an ARES can get a certificate of service authority from the Illinois Commerce Commission, it must show that it sources some of its electricity from a clean coal facility. The petitioner utilities remained responsible for delivering electricity to ARES customers over their distribution networks, as well as to customers within their service areas who have not yet chosen an ARES. The legislature also created the Illinois Power Agency to guide the utilities’ procurement of electricity. The Agency develops annual electricity procurement plans for the utilities and submits the plans for approval by the Commerce Commission.

The Illinois Power Agency Act provides that by 2025, one quarter of all the electricity used in the State must be generated by cost-effective clean coal facilities. In late 2013, the Illinois Power Agency filed a proposed procurement plan with the Commission, requiring the petitioner utilities to enter into sourcing agreements with FutureGen 2.0, a nonprofit corporation formed to create a coal-fueled, near-zero emissions electric power plant by retrofitting a facility in Meredosia, Illinois. The plan provided that the utilities would recover the additional costs through a competitively neutral charge added to ARES customers’ bills. The utilities petitioned for administrative review of the Commission’s order approving the procurement plans, and the Appellate Court affirmed.

Counsel for the Illinois Competitive Injury Association began the argument. Counsel argued that FutureGen had trouble finding investors because it would produce energy at five times the current market rate. Therefore, they approached the Commission, seeking an order requiring utilities and ARES to sign long-term contracts. The Commission issued the order, pointing to the retrofit provision of the Act, but the retrofit provision doesn’t give the Commerce Commission the necessary powers, according to counsel. The Commission is seeking to ignore the definitions of the relevant terms set forth in the statutes. Justice Thomas asked counsel how he addressed the point that an ARES is excluded from the terms electric utility and public utility, but not the generic term “utility” in the statute. Counsel answered that the argument was absurd – the appellees hadn’t cited a single instance where the term “utility” referred to anything other than public and electric utilities. Procurement plans were never meant to be a backdoor regulation of the ARES – they were intended to regulate utilities. The Commission, counsel argued, claims that because the Act doesn’t explicitly bar using procurement plans to regulate ARES, the Commission is free to do so. But the absence of any provision doesn’t mean the authority exists; agencies can’t lay claim to implied administrative power except in situations where it’s similar in kind to expressly granted power, and doesn’t contradict the statute. Justice Theis pointed out that there was no appropriation, nor any FutureGen 2. So why wasn’t the appeal moot? Counsel answered that the suspension of federal funding could be reversed at any time. The orders impose a $700 billion dollar obligation on ratepayers to guarantee the FutureGen investments, and as long as the Alliance exists, the case isn’t moot. Justice Theis suggested that many things might happen, but should the Court be deciding the case in a vacuum? Counsel answered again that as long as the Alliance and the orders are in place, the issues are live. The Commission reviews procurement plans annually, counsel noted; if the Commission believes they can regulate ARES this way, they will try to do so again. Justice Thomas suggested that the converse was equally true – if there was no power to force these contracts, there was probably no point in building FutureGen. Counsel agreed, but said there was nothing to stop the investors from figuring out another financing plan. Justice Kilbride asked what the effect of these orders is today, and counsel answered that they brought ARES within the procurement planning power of the Commission. Justice Thomas asked whether, if ARES were out of the picture, the petitioner’s customers would get a rate increase. Counsel answered that the amount of the charge is capped by the statute.

Counsel for the Commerce Commission took the podium next. He noted that the Illinois Power Agency was created in 2007 to purchase electricity in a competitive bidding process for fixed bundle retail customers. Two years later, the legislature passed the Clean Coal Portfolio Standard law, which added the ARES clean coal sourcing mandate. Looking at the statutory scheme as a whole, the legislature clearly intended that both utilities and ARES would source electricity from a clean coal facility. It made no sense, counsel argued, to suggest that the legislature would allow utilities to propose sourcing provisions, but not allow the Commission to require them to enter into contracts.

Counsel for one of the petitioner utilities was next. He explained that the utility was interested in only one paragraph of the order – the provision that utilities could recover costs from ARES customers. It was vital that that provision be affirmed. There is an ongoing contractual obligation involved in the case, counsel argued. If FutureGen managed to keep going, the petitioners had the contractual obligation in place, and this case was the only chance to address the legality of that. The Chief Justice asked what happened if FutureGen doesn’t keep going, and counsel answered that the matter might become moot in the future, but it wasn’t now. Chief Justice Garman asked whether the resolution of the appeal was critical to the ability of the Alliance to get replacement funding, and counsel answered that he didn’t know. Counsel concluded by arguing that requiring a competitively neutral charge to ARES customers was well within the Commission’s discretion, and if the charge wasn’t affirmed, the utility’s customers would experience a significant rate increase.

Counsel for FutureGen followed. He explained that since supplemental briefing, the Alliance has entered into an interconnection agreement, as well as a renewed option agreement to buy a power plant. Also, the Alliance is engaged in continuing discussions to protect federal funding; therefore, the project remains a going concern. Counsel argued that the retrofit provision of the statute was perfectly suited for these orders.

Counsel for the Association concluded in rebuttal. Counsel argued that there was a very big difference between being ordered to get clean coal generated electricity, and being ordered to get it from a particular place. The ARES are required to get clean coal electricity, but counsel argued that they’re entitled to figure out to how meet that mandate themselves. Counsel concluded by arguing that as long as the orders remained in place, the competitively neutral charge could still be imposed. Utility customers might ultimately see some increase, but they cannot be required to pay the entire charge of the arrangement.

We expect Commonwealth Edison to be decided in four to six months.

Image courtesy of Flickr by Sam Howzit (no changes).