Study Cautions Chicago City Hall Not To Cut Ties With ComEd

ComEd sign
ComEd executives faced questioning from state regulators on Wednesday, as the power company deals with the fallout from a political corruption scandal connected to Illinois House Speaker Michael Madigan. Carrie Shepherd / WBEZ
ComEd sign
ComEd executives faced questioning from state regulators on Wednesday, as the power company deals with the fallout from a political corruption scandal connected to Illinois House Speaker Michael Madigan. Carrie Shepherd / WBEZ

Study Cautions Chicago City Hall Not To Cut Ties With ComEd

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If Chicago wanted to cut ties with Commonwealth Edison to run its own electric utility, it would cost around $8.8 billion but still wouldn’t cut costs for customers, according to an outside consultant hired by the city.

The $120,000 feasibility study conducted by NewGen Strategies and Solutions, LLC and commissioned by the city last October found that the process known as municipalization would be an expensive, but not impossible endeavor.

But a copy of the study obtained by WBEZ also said the process likely would not lead to lower electricity rates for customers.

“NewGen recommends that the City not pursue municipalization of the ComEd system at this time,” the study says.

A group of aldermen and activists have been pushing Mayor Lori Lightfoot and the City Council to cut ties with ComEd since last summer. Since then, ComEd has been wrapped up in a sweeping federal corruption probe involving company lobbyists, state lawmakers and Illinois House Speaker Michael Madigan. Last month, ComEd admitted steering jobs, contracts and payments to people connected to Madigan and agreed to pay a record-breaking $200 million fine as part of a deferred prosecution agreement with the feds.

“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,” Mayor Lori Lightfoot said Friday in a statement. “As negotiations move forward, the City will continue to seek sustainable and equitable solutions to the environmental and energy challenges we face.”

Municipalization seemed like a tough sell at City Hall even before the release of Friday’s study cautioning against it.

Earlier this year, before the coronavirus pandemic hit, Lightfoot said she did not think the city could afford to cut ties with ComEd, despite their involvement in the corruption scandal.

“When I get an extra $10 billion, then we’ll have some serious conversations,” Lightfoot said in an interview with WBEZ in February. “I don’t mean to be flip about it … but realistically, when you are talking about setting up an electrical grid and running it, that’s a substantial undertaking.”

Lightfoot is on vacation with her family, but on Monday, she’s expected to share next year’s budget shortfall with the public. Past estimates have suggested it could be between $900 million and $1.6 billion, depending on the economy.

Advocates for a public utility say the cost of taking over electric distribution from ComEd could be paid for by borrowing money and using future revenue to pay for the cost of acquisition. The feasibility study says it would cost about $4.9 billion to buy all of the poles and wires and other equipment ComEd currently uses for energy distribution. It also says the cost to isolate or sever the system from the rest of Chicago would be $3.9 billion.

The study also gives higher-cost and lower-cost scenarios for setting up a municipal electric utility. The total for the high scenario would be $10.7 billion and the total for the low scenario pegs the price at $6.7 billion. But even under the lower assumption, the study found the rates for consumers would still be higher because the city would need to pay off the debt associated with municipalization.

The study pegs the cost of operating a city-run electric utility around $338 million each year, but the debt service for the next 30 years would be around $708 million annually.

There are hundreds of public utilities all across the country. Most have existed for decades and were set up that way from the start. In fact, Chicago already runs a public utility: the water department. It’s budget is around $800 million.

But as the study points out, it can be a lengthy process to go from an investor-owned utility like ComEd, to a municipal-run one. The city of Boulder, Colo. just ended a decade-long fight with Xcel Energy to cut ties and run its own electric utility. Instead, the city agreed to terms of a new franchise agreement with the company, which goes to voters for approval on Nov. 3.

Chicago’s current franchise agreement expires at the end of 2020, though the terms will continue until a new one is in place or until either party gives notice that it wants out. The city and ComEd have been meeting weekly since last fall, but ComEd executives have only appeared before the City Council once.

Lightfoot’s administration has indicated they do plan to renew the city’s franchise agreement with ComEd – provided the utility makes commitments regarding clean energy and prevents another corruption scandal.

“ComEd’s breach of public trust is far from over as far as the City of Chicago is concerned,” Lightfoot wrote to ComEd’s CEO in July, shortly after the company was charged with bribery. “We expect a significant commitment from the company to right historic wrongs through its own internal ethics reforms[.]”

The feasibility study recommends city officials push for things like renewable energy, community solar and an electric vehicle fleet in a new franchise agreement. It also says the city should make the next franchise agreement shorter than 30 years. The mayor and other top officials have been saying they want a shorter agreement since last year.

In a statement Friday after the release of the municipalization study, a ComEd representative released a statement to WBEZ saying the utility is “privileged” to serve its Chicago customers.

“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,” the statement reads.