..Case Studies

Commonwealth Edison

Public concerns about service reliability became acute in the Chicago area in the late 1990s. During 1998, Commonwealth Edison’s (ComEd) customers experienced more outages than they had seen in recent years. Then ComEd suffered significant equipment failures in Chicago and in other parts of its service territory during July and August 1999. These failures caused large numbers of its customers to lose electric service for periods from several hours to days, during sweltering summer weather. The Illinois Commerce Commission (ICC) decided to evaluate whether the widespread equipment failures and customer outages threatened the public safety or risked the economic well being of the citizens of Illinois. From late 1999 through 2004, Liberty performed a series of related engagements designed to help the ICC’s continuing investigation of ComEd’s T&D system reliability and delivery service revenue requirements.

Liberty’s initial work involved a comprehensive review of the company’s transmission and distribution system. Beginning in late 1999, Liberty performed a comprehensive investigation of ComEd’s T&D system. Liberty conducted a thorough evaluation of the principal determinants of ComEd’s T&D systems and service reliability: 

• Planning, procedures, and practices used to mitigate any deficient system performance;
• Planning for and execution of emergency response and system restoration efforts;
• Internal and external communications related to outages and service restoration;
• Inspection, maintenance, replacement, and upgrading of equipment and overall transmission and distribution system;
• System performance compared to other major metropolitan service territories, detailing significant differences and similarities in system operation, planning, and design, and;
• Organizational and management structure and the adequacy of performance measures used to evaluate personnel and system reliability.

Liberty provided the ICC with a series of three comprehensive reports that contained roughly 90 recommendations for improvement opportunities in: 

• T&D organization and budgeting
• Reliability reporting
• T&D planning and design
• T&D operations and maintenance
• Vegetation clearance and tree trimming
• T&D system construction standards and practices
• T&D staffing and work management
• Customer service and outage communications
• Control and dispatch
• System conditions.

In 2001, the Illinois Commission engaged Liberty to monitor ComEd’s performance in implementing the recommendations that resulted from Liberty’s investigation. Liberty conducted a regular program of quarterly inspections and reviews to assess those efforts.

During 2002, the ICC asked Liberty to audit portions of ComEd’s delivery-service tariff rate filing. ComEd’s filing relied upon a test year of 2000 and it included a claim for pro forma capital additions through June 30, 2001. Liberty’s audit sought to determine whether ComEd’s operating expenses or rate base reflected any abnormal costs arising from responses to the earlier outages. Liberty found that significant post-outage increases in capital and O&M spending were necessary to meet expectations by the ICC, the public, and the City of Chicago for service reliability. Liberty found that major “catch-up” programs instituted by ComEd caused large increases in test-year expenditures and increases in rate base.

Looking back on the firm’s experiences in this and other work, Liberty concludes that the potential for similar problems exists at other utilities throughout the country. The parent companies of regulated utilities have for years operated under financial pressures caused by unprofitable non-utility affiliates and, in some cases, the lingering effects of decisions not allowing certain costs to be recovered in rates. Utilities are not generally immune to these sources of financial stress. There can be a detrimental effect on the capital and expense spending levels for utility entities. Reduced spending on T&D investment, operations, and maintenance creates potential pitfalls. ComEd significantly reduced its spending on both T&D capital and maintenance during the mid-1990s. Following the outages in Chicago in 1999, the company responded with an accelerated capital and O&M spending program under which it spent well more than a billion incremental dollars. A similar situation occurred at PG&E in California in the mid-1990s. Regulators and customers may not notice the effect of reduced expenditures at gas or electric distribution utilities for a number of years, but eventually their service reliability may be reduced. Therefore, attention to the root causes of looming service-quality issues as become an important need for public service commissions.