Commonwealth Edison’s latest electricity rate hikes will hit business customers much harder than households, a sharp change from past practice that ratchets up the cost pressures squeezing local companies.
Nonresidential customers will pay $70 million of $100 million in rate hikes that take effect this year, the Chicago-based utility confirms. That’s not typical. In the past, ComEd has allocated higher charges more evenly between businesses and household customers, who account for 54% of the company’s total revenue.
The disproportionate increase comes at a time when businesses face higher costs for everything from raw materials to labor. It also threatens one of Illinois’ few cost advantages over rival states vying for business investment and jobs: relatively low electric rates.
“What we’ve seen is our prices are creeping up,” says Mark Denzler, president of the Illinois Manufacturers’ Association. “(Illinois’) advantage is narrowing.”
Businesses should get used to it. The cause of the unusually high burden for commercial customers in the most recent round of hikes isn’t going away and will have a bigger effect in the future.
ComEd’s charges for delivering power to customers are divided between households and businesses via a formula that is reset every three years but nonetheless has remained relatively stable. But 2017 brought a new wrinkle that appears to have altered the balance. That’s when lawmakers gave ComEd authority to raise rates each year to pay for energy-efficiency programs and make a profit on them.
Those energy-efficiency charges have risen about $50 million annually since then. Under the landmark Climate & Equitable Jobs Act, signed into law in September by Gov. J.B. Pritzker, the yearly increases will be at least $75 million.
ComEd allocates those charges to different sets of customers depending on which type benefits from the programs in a given year. With energy savings from households largely already accomplished through subsidized sales of power-saving lightbulbs, the programs now are aimed mainly at the commercial sector.
As a result, businesses pay the bulk of the costs even if they don’t participate in the utility-run programs. This will continue for the foreseeable future.
“We expect this proportional split—or something near to it—to continue,” ComEd spokeswoman Shannon Breymaier says in an email. “(Commercial and industrial) customers’ benefits as a result of energy efficiency investments have exceeded the costs of these investments to C&I customers, and we forecast that this will be the case through 2030. This forecast will be updated in the first quarter to reflect the impacts of the clean energy law.”
While the exact apportionment between business and residential customers in future years can’t be predicted, it’s certain that energy-efficiency programs will rise by $75 million every year. Delivery rate changes, on the other hand, fluctuate. So it seems likely that businesses will shoulder the majority of increases in most years.
That’s bad news for Illinois’ economy. One of the few cost advantages for businesses operating in this state over the past decade has been the relatively low price of electricity. Illinois is surrounded by states with fully regulated power industries; the deregulation of power generation here in 1997 led to substantial decreases in the cost of electricity itself, which ComEd acquires from generators and passes along to customers at cost. The lower power prices benefited customers, blunting the effect of substantial ComEd delivery rate hikes over the last 10 years.
That advantage already is shrinking, data from the U.S. Energy Information Administration shows. For the first 10 months of 2021, average electricity rates in Illinois for industrial users were essentially even with Indiana rates. Wisconsin’s were 7% higher.
Over the same period in 2019, average power costs for industrial customers were 12% more in Indiana than in Illinois and 18% higher in Wisconsin.
A manufacturer deciding whether to locate in Wisconsin, Missouri, Indiana or Illinois considers a range of costs, including wages, workers’ compensation, taxes and energy. The manufacturing sector accounts for one-third of power consumption in the U.S., so energy is among the top cost factors for companies.
“Costs and reliability are critically important for the manufacturing sector,” Denzler says.
The IMA opposed the clean-energy law, in part over concern that the statute’s substantial rate hikes would fall most heavily on businesses. The association also was dismayed that the largest companies in Illinois—huge manufacturers like Caterpillar—will lose an exemption from paying into the utilities’ energy-efficiency programs unless utilities allow them to opt out via an involved application process. With energy such a critical cost component for those mammoths, most if not all already have their own multifaceted and self-funded efficiency programs. Now, they’ll have to pay the higher rates unless utilities like ComEd determine the companies’ programs are sufficient.
In addition to the energy-efficiency increases, the law authorizes a new charge on all ratepayers to subsidize nuclear plants owned by ComEd parent Exelon. It also imposes new surcharges for a statewide “energy transition fund” meant to help communities whose economies suffer from the closure of coal- and natural gas-fired power plants. The average manufacturer in Illinois will pay an extra $1,900 a month or so just for that, Denzler says.
The Illinois Commerce Commission, which regulates utilities and will implement much of the new law, is likely this year to recalibrate what percentage of ComEd’s future delivery rate hikes are allocated to residential and nonresidential customers. It’s expected, too, to take up a multiyear plan of rate hikes, to be filed by ComEd and taking effect in 2024.
With concerns growing about how the rising energy costs are hitting low-income households and senior citizens, the commission also will consider whether for the first time to require businesses and residents above a certain income threshold to pay higher rates in order to reduce the electric bills of low-income households.
Somebody has to pay the hundreds of millions of dollars in additional annual charges the new law prescribes. It seems clear that ComEd’s business customers can expect to pay more than their traditional share.