In the run-up to a deeper dive into the future of Naperville’s 125-year-old electric utility, city officials recently reviewed what a potential sale of the municipal asset would entail and how it would be carried out.
City Manager Doug Krieger presented the fourth and final option report for the electric utility at a city council meeting Tuesday, Aug. 18.
This summer, the council also hosted reports that addressed joint action agencies, market participation with asset ownership, and market participation without asset ownership. The reports are a prelude to a workshop scheduled for Monday, Sept. 28.
The big-picture reviews got underway this spring and came on the heels of a majority vote on the city council to pause contract extension talks beyond 2035 with the current provider, the Illinois Municipal Electric Agency.
How a sale of the electric utility would be carried out
While a sale of the Naperville Electric Utility would provide the city with an immediate one-time influx of cash, Krieger in his presentation said there are a number of important factors to consider — most notably, a loss of local control.
“One of the things we like here is we like control. It’s one of the complaints with IMEA — we don’t have enough control,” Krieger said. “If the utility is handed over to ComEd, your input goes even further down, and absent becoming a major shareholder, you’re not really going to be able to control rates.”
ComEd was cited in Krieger’s report as the most likely suitor for the electric utility if the city were to sell it since all area municipalities rely on the provider for service.
“To close the loop on updating our assumptions made, costs would increase if Naperville gives up all control on future rates and service levels that our residents have come to expect,” Krieger said.
The loss of local control, Krieger added, would likely mean Naperville and its residents would not have a direct say on rate pricing and the energy mix used in the road ahead.
“Given what’s happened to the PJM market with capacity issues and fluctuations and clearing prices, we can expect rates to increase, and our reliability and service levels would significantly decrease if sold to ComEd,” he said.
PJM Interconnection is a power grid operator, serving customers from Illinois to New Jersey.
Krieger also indicated a potential sale of the electric utility has been considered in the past.
“In 2015 and 2016, we were asked by the city council to review all city assets,” he noted. “As a part of the exercise, one of those was the electric utility and, at that time, it just did not make financial sense for us.”
ComEd comparisons part of discussion
Since ComEd likely would be the company overseeing Naperville’s electric utility if the sale were to proceed, Krieger provided a look-back on factors such as pricing between the Naperville Electric Utility’s rates, under IMEA, and ComEd.
“Our reliability has certainly been more consistent,” Krieger said in comparing the two.
Several councilmembers, however, weighed in on the comparisons and raised concerns and questions.
When asked by Councilman Ian Holzhauer about rate comparisons between the two entities in the month of May of this year, Krieger said they would be in “a dead heat,” a factor he attributed to a current rate structure in need of refinement.
“How many years have we been hearing that … our costs are much lower than ComEd, and we’re actually finding out it was just a 21% subsidy going to our electric rates because we’re not paying for the electricity that we’re consuming?” Holzhauer said, in response.
At one point, Holzhauer referred to the utility’s recent rates as “an error,” which Krieger pushed back on in his response.
“I wouldn’t refer to it as an error,” Krieger said. “It would have been very simple for us to recover the full cost of service with a rate consultant. We’re making headway towards that.”
Speaking in a big-picture sense, Krieger also defended the rates the local utility assesses on residents.
“Over the history of the electric utility, because there are no additional dollars coming in or out, over the long-term, our cost of service absolutely has to equal what our rates are because that’s our only source of revenue,” Krieger said.
Big picture, Holzhauer said he desires Naperville’s future electricity provider to be regulated in the same way ComEd is.
“I think it probably should be an objective of the city that our next source should be an entity that’s regulated and reports its costs in a standard fashion that can be compared, apples to apples, to anyone else,” Holzhauer said.
The least desired option?
During preliminary discussions on the electric utility sale option, several councilmembers weighed in with words of skepticism.
“To me, this is probably the least attractive of everything we’ve heard so far,” Councilman Patrick Kelly said. “If the goal is to eliminate options at the workshop, this would probably be the first on the chopping block for me.”
Kelly also spoke favorably of the reliability of Naperville’s electric utility, pointing to instances this summer of service being restored quickly within the community after disruptive storms blew through.
Councilman Nate Wilson expressed similar sentiments about the sale being the least desirable option. He also shared a sense of urgency on the other three options presented earlier this summer.
“Just from my perspective, if we’re going to visit one of those, it just sounds like we should probably get moving sooner rather than later,” Wilson said.
Options could be narrowed at upcoming workshop
Krieger in his presentation briefly touched on the upcoming workshop, which he said will include an agenda consisting of a review of the utility’s mission statement, recap of the four proposed options presented, council evaluations, and further direction on the dais for city staff to consider.
“I don’t believe we’re in a position to make any final decisions, but there are some options that I think we could eliminate,” Krieger said.
Public continues weighing in on utility’s future
As has been the case for more than a year, residents have continued weighing in on the future of Naperville’s electric utility and procurement options at council meetings.
Prior to Krieger’s presentation, Tim Ferritto, director of Affordable Naperville, presented his independent analysis for member-directed resource, or MDR, simulations, based on power types. Ferritto asserted annual cost options under the simulation could range from $46.4 million to $74.29 million.
“When you correct for the capacity and load volume, these are the prices, compared to IMEA,” Ferritto said. “As you can see, they are all well above IMEA’s costs, right now, especially wind and solar, with solar being the highest.”
Theresa Hus with Naperville Environmental and Sustainability Task Force shared continued concerns about greenhouse gas emissions and asked city officials for a fuller picture of carbon-free resources in the analytic information being disseminated.
“When comparing options, we really need to look at emissions,” Hus said. “We can’t evaluate emissions without considering the two coal plants that make up most of IMEA’s generation.”
Presentation links:
PDFs with the slideshow for each presentation are available through the city at the following links:
Market participation without asset ownership
Market participation with asset ownership
Joint action agency participation
The electric strategy workshop will take place Sept. 28 at 6 p.m.
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