Prepare for electric shock, Illinois
A new era of price hikes is coming.
JOE CAHILL ON BUSINESS
JOE CAHILL
On Business
A new era of price hikes is coming.
Add higher electricity rates to the list of worries for Illinois residents and businesses.
Electric bills are headed up as market conditions that have kept them from causing much heartburn begin to break down. For years, customers of Chicago utility CommonwealthEdison saw relatively little change in their overall electricity costs, even as the company raised its charges for delivering power by 35% since 2011. That’s because the wholesale price of the electricity itself—which ComEd purchases from power plants and passes along to customers at cost—declined by more than 40% between 2015 and 2020, according to theU.S. Energy Information Administration.
Lower power costs blunted the impact of ComEd’s rising delivery rates on customers’ total bills. That’s about to change.
Wholesale power prices started rising sharply in the second half of 2021, following a surge in the cost of natural gas, the fuel for many power plants. The EIA reports that prices in the wholesale markets, where utilities like ComEd buy power, soared 97% last October.
Those higher charges are starting to show up in ComEd bills. According to the Citizens UtilityBoard, a local watchdog group, customers paid 10% more for electricity in October. The EIA predicts retail electricity prices across the U.S. will rise another 4% this year.
What hasn’t changed is ComEd’s appetite for higher delivery rates. As my colleague Steve Daniels reports, the utility is asking state regulators to approve a record capital-spending plan, which would drive rates even higher.
A one-two punch of higher electricity costs is the last thing Illinois consumers and business owners need now. With overall inflation at a 40-year high, they’re paying more for everything from hamburger meat to computer chips.
A company spokesman doesn’t deny ComEd’s proposed capital spending would spark additional rate hikes. He says it’s necessary “to strengthen our grid so it’s ready for more intense and frequent severe weather events, to protect customers’ health and safety and address the climate crisis, help customers meet their sustainability goals, create local clean energy jobs and attract local investment, and make sure that historically disadvantaged communities benefit from our investments.”
The spending won’t jeopardize “our region’s unique competitive advantage of affordable service, clean electricity supply and world class reliability,” the spokesman says, adding thatComEd’s “average residential rates are 17% lower than the 10 top U.S. metro areas, and our average commercial rates are 18% lower than the top 20 U.S. metro areas.”
But rising rates already are eroding one of Illinois’ key economic advantages over neighboring states. As recently as 2019, electricity rates for industrial users in Illinois were lower than rates in Indiana and Wisconsin by double-digit percentages. Now Illinois rates are on par with Indiana’s, and only 7% less than Wisconsin’s.
In another blow to business, commercial customers will bear 70% of $100 million in ComEd rate hikes that take effect this year. Usually, increases are split more evenly between residential and business customers. ComEd says commercial customers are paying a bigger share this time because the latest hikes are tied to energy-efficiency initiatives that largely benefit businesses.
That’s little comfort to businesses battling cost pressures in many areas. Electricity is a major expense for companies, especially manufacturers and other energy-intensive businesses.
Swelling electric bills will give them one more reason to consider leaving a state with relatively high taxes and labor costs.
Longer-term efforts to curb global warming are likely to push electricity costs even higher.Electricity will command a larger share of household and corporate budgets as electric vehicles supplant gasoline-powered cars, and other fossil fuel-burning machines shift to electric power. Imagine how much voltage car owners will consume recharging their auto severy night, and how much companies will need to juice up fleets of service vehicles.
The International Energy Agency predicts electricity demand will double in three decades as the world works to eliminate carbon emissions by 2050. Rising demand tends to drive up prices.
As electricity rates become an economic lodestar like gasoline prices are today, local variations in the price of a kilowatt will take on more importance. States where electricity costs less will have an edge over those where watts are pricier.
As Illinois drifts toward the latter category, there’s one more reason to ask the question so many in our state ponder during these frigid winter days: Why are we here?