What is the new Illinois Energy Law?
The Climate and Equitable Jobs Act, or SB 2408, is Illinois’ ambitious state-level energy legislation signed into law by Governor J.B. Pritzker on September 15, 2021. Generally speaking, the law is a set of reforms and policies aimed to ensure Illinois can transition to a carbon-free energy sector. The main motivation behind this legislation are the significantly emerging problems related to human consumption of energy sources that contribute to climate change.
What are the goals?
The law puts Illinois on track for a carbon-free power sector by 2045 and 100 percent clean energy by 2050. Illinois became the first Midwest state to mandate a carbon-free future, joining Hawaii, New Mexico, New York, California, Virginia, and Washington. The law includes various goals and establishes programs to achieve the overarching goal of net-zero carbon emissions.
Further, the law hopes to implement an environmentally sustainable energy sector, by including several mandated energy transition benchmarks for industries to meet. The Act also includes a plan for the implementation of diversity initiatives to ensure minority populations will be represented in the new energy sector. Alongside these goals, the Act further updates the consumer protection provisions and creates a plan for investments in the workplace development.
Combatting Climate Change with Transition to 100% Renewable Energy Sector
The Act provides a detailed plan outlining Illinois’ path to becoming a carbon-free power sector. This plan includes the following steps:
- Amending the Illinois Power Agency (“IPA”) Act to double the state’s investment in renewable energy;
- Creates a coal-to-solar program to spearhead the transition of coal plants to renewable energy facilities;
- Sets an ultimate of 100% renewable energy by 2050, with benchmarks of 40% by 2030 and 50% by 2040;
- Requires every private coal-fired and oil-fired electric generating units to reach zero emissions by January 1, 2030;
- Requires all private and municipal gas-fired units to reach zero emissions by 2045;
- Requires all units utilizing heat and power or cogeneration technology to reach zero emissions by 2045, unless companies convert to green hydrogen or comparable technology that is capable of achieving zero emissions;
- Allows schools to lease property for up to 25 years to support renewable energy projects;
- Mandates municipal coal, including Prairie State and CWLP Dallman, to be 100% carbon-free by 2045, with an interim emissions reduction goal of 45% by 2035;
- Requires the IPA, Illinois Environmental Protection Agency, and the Illinois Commerce Commission (“ICC”) to conduct a joint study, every five years starting 2025, on the state’s progress toward its renewable energy recourses development goals; and
- Sets a goal of adopting 1,000,000 electronic vehicles in Illinois by 2030 and approves rebate program rewarding citizens up to $4,000 for purchasing an electric vehicle.
Workforce Development Investments
The Act also implements labor and community assistance programs aimed at invigorating the push towards renewable energy, including:
- Establishes the Energy Transition Assistance Fund to allocate funding from ratepayers to support $180 million in state clean energy programs;
- Assists transitioning energy sector workers by directing state agencies to promulgate a displaced energy workers bill of rights;
- Creates a Clean Jobs Workforce Network Hubs Program, which establishes 13 program delivery hub sites that coordinate with community-based organizations to ensure minority populations have the opportunity to obtain credentials to compete for clean energy-related jobs;
- Establishes three Climate Works Hubs throughout the state, which will recruit, prescreen, and provide pre-apprenticeship training to equity-focused populations.
- Creates a clean energy contractor incubator program to provide access to low-cost capital and financial support for small clean energy businesses and contractors; and
- Creates a jobs and environmental justice grant program to provide seed capital to support community ownership and development of renewable energy projects.
Consumer Protection Provisions
As mentioned, the Act implements revisions and additions to consumer protection laws to eliminate harmful energy sector practices, including:
- Protecting low-income utility residential customers by eliminating customer deposit requirements and late fees;
- Abolishes online payment fee for all customers’ utility bills;
- Mandates that utility companies accurately report the number of shutoffs and reconnections on a monthly basis;
- Directs ICC to conduct a comprehensive study analyzing whether low-income discount rates for residential customers are appropriate; and
- Prevents municipal and cooperative electric providers from imposing discriminatory financial outcomes on customers who generate their own electricity.
What does Bill Provide for the Energy Sector?
On the first read of the bill, one might think the energy sector is getting the short end of the stick due to the stringent deadlines imposed on them to reform their energy production systems completely. However, some provisions in the bill provide windfalls and financial assistance to traditional energy companies to offset these imposed obligations.
The Act will essentially guarantee the profits of ComEd via extending the company’s formula rates. ComEd and Ameran have multiple end-of-year formula rate true-ups, or “reconciliations” based on actual costs, the key policy that guarantees their profits, that are set to expire in 2022.
Instead of letting these formula rates expire, the Act maintains key formula rates that Illinois’ large electric utility companies have. This is based on the idea that they cannot invest in their infrastructure that would achieve the Act’s carbon-neutral goals unless they have “certainty.” In other words, a guarantee to profit on every dollar they spend.
Furthermore, the legislation provides an extra boost by incorporating these formula rates into a new rate-making structure. The formula created in a 2011 law tied profit margins to interest, which have been historically low, resulting in lower profit margins to ComEd and Ameran. However, regulators will now set utility profit margins that typically set higher margins than formula rates.
Illinois RIPG conducted an analysis of the potential windfall ComEd could receive under the Act’s new rate-making structure. That analysis found that ComEd would be authorized to collect over $1 billion in annual profits from customers, ultimately resulting in an additional $664 to $893 million in profits over four years.
Exelon, ComEd’s parent company, is set to receive a $694 million bailout to keep their nuclear power plants in Byron and Morris open for another five years after threatening to cut off its power supply if a subsidy was not granted to it. The Act also provides a $350 million increase in renewable energy subsidies to motivate companies to adopt renewable energy sources.
Costs Involved
Estimates for the Act’s costs have ranged from $3 to $4 monthly added to ratepayer bills according to the Citizens Utility Board to $15 according to the senior advocacy group AARP. In terms of percentages, bill sponsor Sen. Michael Hastings, D-Frankfort, said residential electric bills would increase by about 3-4 percent, commercial bills by about 5-6 percent, and industrial bills by about 7-8 percent. Advocates have argued the creation of more renewables over time will result in lower residential bills eventually, producing savings for ratepayers in the long run if cheaper renewables become more widely available.
Why Climate Activists Support it; Other Strengths
Jennifer Walling, executive director of the Illinois Environmental Council, was elated that the bill mandates the closure of all coal and natural gas plants by 2045. Others have expressed hopes that the Act will motivate other Midwestern states to take up similar efforts in a region where clean energy initiatives have been ignored despite the region’s industrial reputation.
Along with the Act’s environmental aspirations, the Act’s strides in promoting equity to less privileged communities have been praised. The bill is set to create thousands of jobs in underserved and environmentally harmed communities while also creating pilot programs to lower barriers to entry to the energy market and allow minority entrepreneurship of renewable energy businesses. The creation of the worker transition program for workers who will lose their when fossil fuel-powered plants close has also received acclaim.
Potential Downsides
As previously discussed, the adoption of the new rate-making system that regulators will control has been criticized as creating an unnecessary windfall to ComEd at the expense of consumers. Criticism was especially heavy due to lingering outrage over the ComEd bribery scandal. In this scandal, the utility paid $1.3 million to Mike Madigan in exchange for advancing legislation relaxing state regulation of ComEd’s rates, which represented $150 million in value to the company. Also, the public has criticized legislators for succumbing to Exelon’s demands, considering that taxpayers will be covering the $694 million subsidies.
How long will it take to implement?
Practically the Act will not be fully implemented for three decades, the deadline for the energy sector to become carbon neutral. Specific details of certain programs in the Act still must be developed out, including the job training program for people in underserved communities. Another example is the $200 million set aside for workforce development needs to be allocated. However, the financial incentives for those producing solar energy sources are yet to receive funds from the government after the fund dried up before the Act’s passage. State regulators must agree upon the multi-year rate for compensating investments in updating the state’s electrical. Finally, the ICC must conduct a study recommending whether discounts for low-rate residents are appropriate and feasible. Conversely, rebates for up to $4,000 per household for those purchasing electric vehicles are expected to be available in July.
What should people in the energy sector know?
Those in the energy sector should be aware of the Act’s compliance deadlines and other requirements. The Act mandates that future economic interest statements must disclose whether a public utility in Illinois employs any spouse or immediate family member of an executive. All utility companies must establish the position of a Chief Ethics and Compliance Officer who must submit annual reports to the ICC.
Utilities must also file Multi-Year Rate Plans where they will be rewarded and penalized based on achievement of ICC-approved performance metrics. Utility companies must also prepare for annual performance evaluations to assess performance on their stated metric targets from the previous year. Taking all this together, energy sector management should prepare intensive meetings to discuss the Act and its associated requirements to ensure compliance and start preparing short-term and long-term plans to adopt renewable energy sources by the mandated deadlines.
Questions?
This new Act affects many parts of the energy sector. If you have any questions about the Act, how it affects your business, or how you can ensure compliance, contact our knowledgeable attorneys here at Newburn Law. We have years of experience in energy law, helping ensure our clients have all of the proper policies in place to ensure compliance.
