There was a chance, briefly, that the new Harold Washington Library would do more than hold books and serve as a monument to the late mayor. It could have been part of the wave of the future in energy technology. By using the waste energy of its gas heating and cooling systems to power generators for its electrical needs, it could have demonstrated how cogeneration is efficient, economical, and relatively kind to the environment.
Instead, the new library will be entirely electric, like nearly all the new big downtown office buildings. Why? Because the policies of Commonwealth Edison and its regulator, the Illinois Commerce Commission, are out of step with the national trend toward energy efficiency and conservation. The decision to make the library all-electric makes clear how high the stakes are for the city this year as it negotiates the renewal–or cancellation–of Com Ed’s franchise to provide Chicago with electricity.
Despite requirements that the new library’s architect consider utility costs, other considerations–aesthetics, serviceability, space–were predictably more important in picking the winning design. But the city’s Department of Public Works nevertheless asked the SEBUS Group, the library-construction consortium, to evaluate the potential cost savings if the library used natural-gas-powered cogenerators instead of electricity alone. Cogeneration won hands down: $5 per million BTUs compared to $17.58 per million BTUs.
But Commonwealth Edison offered to install and maintain at its own expense all of the 12.5-kilovolt “risers,” the main wiring and transformers, that the building would need if it was all-electric. This is now standard practice for new office buildings and most other major construction projects–and it’s quite different from what Com Ed offers residential and small-business customers, who must install and maintain their own wiring.
So the SEBUS Group assigned the cost of the internal wiring for the library’s heating system to Com Ed. But in comparing the cost of the two systems, it charged the full cost of the hot-water pipes–the counterpart to the wiring–to the cogeneration system. Thus Com Ed’s subsidies skewed the results to favor electric heat.
Com Ed’s policies stacked the deck in other ways. For example, it charges any institution using cogeneration “substantial monthly charges,” as the SEBUS report stated, on the grounds that the utility must be prepared to provide backup electricity. That undermines the appeal of cogeneration, whose advocates argue that Com Ed greatly inflates the potential expense.
When penalties don’t discourage cogeneration, Com Ed offers bribes–special reduced rates. According to reports filed with the ICC last fall, it cost Com Ed $4.54 million in rate subsidies in 1989 to discourage businesses from using their existing cogeneration capacity and $5.153 million to get businesses to put off constructing new cogeneration capacity. That’s nearly $10 million a year in discounts that must be made up through higher charges–paid mainly by residential customers. Com Ed also has reduced rates for new buildings that go all-electric. These rates further promote the use of electricity, which of course increases the likelihood that Com Ed will have to build new power plants sooner rather than later.
Given such incentives, the library went all-electric. Com Ed’s policies had done what they were intended to do: promote the use of electricity. But what’s good for Com Ed is not always good for Chicago.
Even before the war in the Persian Gulf reminded us how dearly the United States pays for its chaotic energy policies, energy experts had argued persuasively that the cheapest, most secure, and most environmentally safe source of energy was not imported oil or nuclear power but increased efficiency.
Amory Lovins, the Rocky Mountain Institute guru of energy efficiency, estimates that the U.S. could reduce electricity use by three-fourths with existing commercially available technology. Charles Komanoff, who’s a consultant for the city on the franchise renewal, calculated that “by the year 2009, pursuing efficiency opportunities aggressively and comprehensively, rather than letting the market determine the rate of conservation investments, could lead to 15 to 20 percent smaller electric bills for Chicago homes and businesses.”
Over the past decade many state regulators and even utility executives realized that it was cheaper to give away energy-efficient technologies than build new generating plants. In a recent national poll 86 percent of the respondents wanted regulators to provide utilities incentives to invest in efficiency improvements for their customers. Like many states, Illinois now mandates that utilities provide the least costly alternative to customers.
But Com Ed has done next to nothing to promote efficiency. Worse, as the Harold Washington Library shows, it continues to encourage the use of more electricity. Nonetheless, the Illinois Commerce Commission, which is expected to ratify a new Com Ed rate hike this spring, is far behind regulators in most parts of the country when it comes to pushing efficiency.
The city, which has extended Com Ed’s old franchise by a year, has pledged to pursue conservation, and the negotiations with Com Ed are Chicago’s best chance to put itself on the road to energy efficiency (unless, of course, it buys a portion of the utility and puts it under new management). But negotiations with Com Ed, which have been shrouded in secrecy, have been temporarily suspended.
Other utilities around the country are spending heavily to promote energy efficiency–even New York’s stodgy Consolidated Edison has been running full-page newspaper ads about “Enlightened energy: a powerful new idea.” But most of Com Ed’s advertising has promoted its corporate image as well as warm feelings about electricity. The utility’s reliability has also been touted (ironic given the blackouts last year), along with a subtext that reads “Don’t even think about a municipal takeover.”
Other utilities advertise, subsidize, or even give away new superefficient, compact fluorescent light bulbs that use one-fourth the energy of traditional incandescents. Com Ed is apparently the only utility in the country that promotes and distributes inefficient light bulbs.
According to a study by the City Council Committee on Energy, Environmental Protection, and Public Utilities, several major utilities (Massachusetts Electric, Southern California Edison, Seattle Light Company, and Wisconsin Electric) spent from $15.20 to $51 per customer on conservation in 1989 or 1990. In 1989 Com Ed spent 39 cents per customer.
There is a simple explanation for Com Ed’s abysmal record. Despite warnings from critics and a different trend elsewhere in the power industry, Com Ed forged ahead in the 1970s with an ambitious, costly program to build nuclear power plants. Now it has 30 to 40 percent excess capacity, more than double the margin generally accepted as prudent. Most of the utilities that have promoted efficiency do not have massive unused generating capacity (and most also have more vigilant state regulatory commissions).
Having invested in unneeded plants–whose above-budget costs have helped make utility bills for residential users in Chicago among the highest in the nation–Com Ed now wants to sell more electricity, not save it. Of course customers could lower their own bills by investing in efficiencies–and even eventually recover the cost of that investment; but both businesses and households are reluctant–or unable–to make the investment up front. Utilities have a longer time perspective. For them it is cheaper to make many small investments in efficiencies for their customers than it is to build new power plants in the future–unless they have mistakenly overbuilt their capacity.
“When you’ve got 30 to 40 percent overcapacity, it’s pretty hard to practice demand-side management [an industry term for improving efficiency and regulating use patterns] and satisfy the stockholders,” says James Hartnett, director the the Energy Resources Center at the University of Illinois at Chicago. “You’re posing a difficult problem–you’re going to ask shareholders to decrease their return on investment to satisfy customers.”
Part of Com Ed’s lack of enthusiasm for energy efficiency is due to its conservative, arrogant, noninnovative corporate culture. And to the passive, retrograde, unimaginative Illinois Commerce Commission that has failed to push it toward efficiency. Yet even with its excess capacity, much of which can be sold to other utilities, Com Ed could still thrive while promoting efficiency and demand-side management. Instead, it continues to balk.
How can Com Ed discourage efficiency and even promote electricity use when government policy, public sentiment, and industry trends point in the opposite direction?
First, the rate structure does not encourage efficiency. In most states regulatory commissions encourage utilities to set flat rates–the same price per kilowatt-hour regardless of how much the customer uses–and discourage declining block rates, which give lower prices for higher use. Reflecting a slowly strengthening trend, one-third of the states also set “lifeline” rates–low rates for essential, minimal use.
But Com Ed, with the approval of the Illinois Commerce Commission, reduces rates as use increases. It does not have lifeline rates. And it has the highest customer charge, which residential users pay regardless of how much electricity they use, of any utility in the country. As a result, residential customers who economize get little reward because they are stuck paying the high customer charge. And big users are rewarded because after a certain point their cost per kilowatt-hour goes down.
There are other inequities. Since a utility’s peak demand determines how much capacity it must own (or be prepared to buy from other utilities), it makes sense to charge a premium in the summer. But Com Ed’s summer rates have typically penalized everyone, not just those whose air-conditioning creates the peak.
Commonwealth Edison justifies its rate structure this way: Much of the cost of service comes not from the electricity itself but from the lines, meters, and transformers of the delivery system as well as the servicing of debt incurred in building plants. So those costs are assigned to all customers, who pay for the privilege of buying electricity. It’s as if Jewel charged you an admission fee each time you went shopping to cover the cost of its stores, warehouses, employees, and inventory, and then adjusted the price of products slightly downward.
If the ICC really wanted to encourage efficiency, it would get rid of the customer charge. It would also make rates flat, with two execeptions: a lower rate for a minimum lifeline of electricity and a summer premium for high use. Yet the ICC is virtually certain to raise Com Ed rates this spring. This follows a series of rate battles over the past three years in which the Citizens Utility Board (CUB)–supported at first by the ICC staff–argued for a rate decrease and then the Illinois Supreme Court overturned a $480 million increase. Now the ICC hearing examiners have recommended increases of between $579 million and $626 million, which translates into a 10.8 to 12.2 percent hike for residential users. The proposed rate structure, while not as bad as what Com Ed advocated, still encourages use instead of efficiency and conservation. And the incentives and penalties for businesses and developers that discourage efficiency will remain.
In recent decades Com Ed has spent huge sums installing 12.5-kilovolt riser systems in office buildings and other major projects. The utility’s cost for a downtown office building’s wiring often runs between $1 million and $1.5 million. At the end of 1989 the value of the installed 12.5-kilovolt equipment was about $385 million, according to Commonwealth Edison reports.
According to Robert Burns, senior research specialist at the National Regulatory Research Institute, the ICC, unlike virtually all other regulators, permits Com Ed to include the cost of these 12.5-kilovolt risers in its rate base, the investment on which the utility is guaranteed a profit. Yet Com Ed insists that a building be all-electric if the utility is to invest in the equipment.
Of course getting Com Ed to install the risers greatly lowers the initial construction cost of a building. According to Center for Neighborhood Technology experts, Com Ed has estimated that a developer of a high-rise office building can knock $1 per square foot off the total cost–a small percentage perhaps, but an important margin of profit. However, developers don’t usually wind up paying the utility bills–their incentive is to cut construction costs, not the long-term costs of using the building.
The results can be peculiar. At the new White Sox ballpark, Com Ed spent $1.8 million to install the 12.5-kilovolt system. Unlike Comiskey Park, which was heated with gas, the new stadium has electric heating. Though all games are played from spring through fall, Com Ed projects that the park will use one-third more electricity in winter, largely to heat offices. As another example, many public schools that went all-electric because Com Ed subsidies reduced construction costs have electric bills that dwarf their budgets for books and other supplies. Under legislation introduced by 43rd Ward Alderman Edwin Eisendrath and passed by the City Council last year, new public buildings will have to meet a standard code for efficiency, calculating total costs over the life of the building, not just initial construction costs.
Maurice Gamze, an electrical-systems expert, argues that in some tightly sealed high rises, all-electric systems might be competitive in the proverbial level market. Yet all-electric buildings could also be made more efficient than they are. If Com Ed executives were interested in reducing demand, says Gamze, “they would be larger proponents of thermal storage [storing excess heat for later use]. They would be selling gas cooling supplements and high efficiency lighting systems. . . . But they don’t. They’re out there to sell electricity.” Only a few downtown buildings, including the State of Illinois Building, have thermal storage. Com Ed director of strategic analysis Jerry Hill says that thermal storage is “one technology we’d like to see.”
In response to 1986 utility-reform legislation and prodding by the ICC, Com Ed presented a least-cost utility plan in December 1989. That plan shows that the utility either still does not understand (as some contend) or still is deliberately fighting (as others believe) efficiency and demand-side management.
The ICC first directed Com Ed to investigate efficiency alternatives in 1983. Eight years later the utility has completed evaluating only 4 of 14 small-scale pilot projects–hardly a testament to its seriousness. A 1988 outside audit for the ICC harshly criticized Com Ed’s projects as ill conceived and badly executed. Now Com Ed proposes to do more research and to start three new small-scale pilot projects: radio control of residential air-conditioners to switch them off during parts of days when use is at its peak, establishing energy-demand-management cooperatives for commercial customers, and providing rebates for high-efficiency motors used by industrial customers.
These are fine ideas, but they could only be implemented on such a small scale that Com Ed won’t learn much from them. Yet the utility rejected many options that its own analysis showed would provide much greater benefits, arguing that implementing them might affect the rates of users who didn’t participate. (Of course, if that were the test it would never have been able to build any of its nuclear plants.)
Com Ed simply set standards and made calculations about the costs and benefits of efficiency that were extremely biased. For example, it greatly undervalued the environmental benefits of efficiency–to the point of virtually ignoring them. By contrast, the Wisconsin Public Service Commission recognizes the unquantified environmental costs of new power plants by giving preference to efficiency measures–even if they’re 15 percent more expensive than a new plant.
Com Ed was also obsessed with the idea that it would be subsidizing “free riders” who might have made efficiency investments on their own. Experts argue that the utility overestimated the problem and that carrying some free riders isn’t necessarily a bad idea. “The more people who purchase energy-saving equipment, the more they tell other people,” says Dale Landgren, manager of market research for Wisconsin Electric. And the more people who want the technologies, the more widely they’ll be available and the more likely the cost will drop.
Com Ed also made all sorts of assumptions about the costs of alternative energy production or the effects of conservation, such as assuming that all savings would result in reduced use of their plants rather than increased sales to other utilities. Paul Chernick, an engineer and expert witness for the city of Chicago, testified before the ICC that those assumptions skewed the results of the utility’s research against efficiency.
Chernick also argued that Com Ed designed its efficiency programs poorly. For example, it rejected offering rebates for compact fluorescent bulbs, saying such a program would not be cost-effective, arguing in part that the bulbs weren’t widely available in stores. Chernick suggested that the utility simply make sure that efficient technologies were available. Com Ed’s director of strategic analysis, Jerry Hill, said the utility rejected providing efficient light bulbs because the bulbs would reduce the base-load demand, not the peak demand. “That’s what Edison needs now,” he said. “That isn’t to say at some point in the future when Edison needs base-load resource options, then a lighting program may prove cost-effective.”
Com Ed also complained that it would cost $100 in administration costs to give a customer a $7.50 rebate on water-heater insulation. Chernick pointed out that “several New England utilities have proposed and/or instituted programs which provide for direct installation of the tank and pipe insulation, plus high-efficiency shower heads, faucet aerators, shut-off valves, and compact fluorescent lamps, and tuning or maintenance of refrigerators and/or air-conditioners.” That kind of program, he argued, was cost-effective–even with high administration costs.
Apparently Com Ed’s real concern is whether a program helps the utility–not whether it helps customers and society. Yet if the utility doesn’t start programs now, it will miss opportunities to save on current construction as well as on renovations and routine replacements. Many efficiency programs at other utilities are already cheaper than current production. And in any case, developing efficiency programs requires time and planning. David Birr, another expert witness for the city who is critical of Com Ed’s plans, also blames the ICC for the rotten record on efficiency. “The ICC is if not hostile, disinterested at best, in least-cost planning. That makes a huge difference in utility incentives.”
Yet the ICC did order Com Ed to work cooperatively with its critics–such as the city of Chicago–to review many of the rejected efficiency proposals. Together they will report back to the ICC in March.
By law the ICC can simply require Com Ed to implement least-cost energy plans and to promote efficiency. Having been granted a monopoly in exchange for pledging to provide the best possible service, and having profited handsomely for decades while burdening its customers with above-average rates and unneeded nuclear plants, Com Ed has a contractual and moral obligation to invest in efficiency–whether or not it makes money on those investments, argues Lew Kreinberg, an energy expert at the Center for Neighborhood Technology.
But Com Ed isn’t going to promote efficiency unless it can make money on it. Many states have set rates in ways that reward the utilities with a share in any energy savings. The ICC has not taken this step yet, and Com Ed critics argue it should move cautiously. “Given our experience with Com Ed and how little we trust them,” Jimmy Seidita, CUB’s research director, argues, “we need to go slow and make sure that in our zeal to get these good programs that we don’t hand Edison a blank check.”
Chicago can use the franchise negotiations and the threat of municipal ownership to force Com Ed to comply with many efficiency improvements. Of course if the city owned the utility, it would be even easier to make progress.
Consider the case of the Sacramento Municipal Utility District (SMUD), a public utility. A year and a half ago 53 percent of Sacramento voters decided to shut down the Rancho Seco nuclear power plant that provided 45 percent of SMUD’s generating capacity–which shows that municipal utilities are more directly accountable to the public than privately owned ones.
SMUD, which had contracts to provide the rapidly growing metropolitan area with electricity for ten years, also began implementing plans to supply all of the increased needs over the next 20 years through energy efficiency. That means Sacramento consumers will improve their energy efficiency by 50 percent over two decades.
SMUD is now taking bids to replace the power lost by shutting down Rancho Seco. The proposed sources–which far exceed the need–include solar, wind, water, geothermal steam, biomass fuels, natural gas, and coal technologies. Maximizing the use of renewable resources, SMUD concluded, would cost only slightly more than pursuing a strategy of using whatever sources would minimize rates. Even if the strategy was to maximize the diversity of the sources, a compromise between the other two approaches, renewable resources would account for 71 percent of SMUD energy within a decade. Public sentiment is running strongly in favor of renewables, and SMUD’s president says he intends to ensure “that the public is involved in this most momentous decision.” Far from turning into a financial disaster, SMUD has kept rates stable and made a healthy profit since closing Rancho Seco.
The next time someone says that a municipal authority can’t run a utility well, remember SMUD. It’s a lesson that should remain firmly in everyone’s mind as the city negotiates the franchise with Com Ed. If Com Ed isn’t willing to invest in efficiency, there is another way.
Art accompanying story in printed newspaper (not available in this archive): illustration/Kurt Mitchell.