Study recommends against Chicago’s municipalization of ComEd
A preliminary investigation into establishing a municipal electric utility (MEU) to serve the residents and businesses of the City of Chicago would cost roughly $8.8 billion and would not produce lower electricity rates for customers, a newly released study from NewGen Strategies and Solutions LLC concludes.
NewGen’s recommendation likely means that Chicago officials now will have to extend the city’s utility contract with Commonwealth Edison Company (ComEd), a unit of the publicly traded, Chicago-based Exelon Corp., which serves a total of 10 million customers. ComEd serves four million customers, or 70 percent of the state’s population, across northern Illinois.
“Based on the financial feasibility which suggests a higher average retail delivery rate for MEU service and because the City can likely achieve its public policy objectives without acquiring the assets of ComEd, NewGen recommends that the City not pursue municipalization of the ComEd system at this time,” according to the $125,000 NewGen study commissioned by the city in October 2019.
A ComEd spokeswoman released a statement to Daily Energy Insider saying the utility is “privileged” to serve its more than one million Chicago customers and sees opportunities ahead in continuing to do so.
“We look forward to forging ahead with the City in support of the mayor’s priorities regarding energy and sustainability, equitable economic development, affordability and transparency as we build on our progress to ensure continued safe, reliable and affordable energy delivery while investing in smart, clean technology that powers the local economy and Chicagoans’ everyday lives,” according to ComEd Communications Director Shannon Breymaier.
ComEd also said in its statement that the electric bills for Chicago residents “are lower than they were nearly a decade ago, and the reliability of their electric service has improved more than 80 percent since 2012 to an all-time best.”
In fact, because the State of Illinois has established retail choice for electric customers to choose their energy supplier, the study focused on an analysis of the estimated costs of electric delivery service for a proposed city utility compared to ComEd.
“The financial pro forma cash flow model developed for this study to determine the financial feasibility of creating a municipally owned electric utility for the City indicates that the average annual electricity delivery rate for the City‐owned system would be greater than the average ComEd delivery rate for each year over the study period (2020‐2039),” according to the report, Chicago: Preliminary Municipal Utility Feasibility Study, released on Aug. 28.
The primary driver of the average delivery rate differential is the estimated costs to sever the distribution system from ComEd, according to the study, which takes a critical review of ComEd data rather than being a detailed engineering assessment.
“Conducting a detailed engineering assessment of severance costs was outside the scope of this preliminary feasibility study,” according to NewGen. “It is recommended that if the City decides to move forward with its municipalization of ComEd’s Chicago assets, that it conduct a detailed engineering assessment of applicable severance costs.”
Among NewGen’s other recommendations are that the city review its public policy objectives as they relate to electricity usage to ensure they are consistent with its current and future policies, and to consider the inclusion of specific public policy, energy‐related goals and objectives in its negotiations with ComEd regarding possible renewal of its franchise agreement.
The study’s recommendations jive with opinions expressed by Chicago Mayor Lori Lightfoot, who has said that the cash-strapped city is unable to afford the operation of its own electric utility, particularly since being severely impacted by the pandemic.
Just buying up ComEd’s poles, wires and transmission equipment would cost Chicago nearly $5 billion, according to the study, while costs could reach upwards of $3.8 billion to isolate Chicago’s electric system from the rest of ComEd’s service area.
“Now that municipalization by the city appears to not be feasible, we can focus on getting the best deal for our residents and ratepayers through a transparent process as we negotiate the future of our franchise agreement,” Lightfoot said in a statement.
The Chicago City Council also is scheduled to consider a measure introduced by eight pro-municipalization aldermen who want the City to negotiate a one-year extension to the franchise agreement with ComEd. The agreement is slated to expire on Dec. 31.
