10/19/2016 - CRAIN'S: Don't approve ComEd's demand pricing without pilot testing it first

By JOE CAHILL 

Commonwealth Edison is pushing Illinois lawmakers to approve a dramatic change in electricity pricing based on little more than the utility's assurance that most customers would save money under the novel approach.

ComEd says it has examined customer usage patterns and determined that “demand pricing” would reduce bills for two-thirds of its customers. Under a demand-based pricing system, bills reflect the amount of power each customer uses during periods of peak electricity demand.

ComEd would track how much power each customer uses during the half-hour period of highest electricity use every day—perhaps a time when a hair dryer, refrigerator, washing machine and air conditioner are running simultaneously. The utility would set rates and compute bills based on the average of those daily peaks over the course of a month (excluding weekends and holidays).

Vice President Scott Vogt says the new system would allow customers to control their electric bills by avoiding big spikes in usage. But he emphasizes that two-thirds would save money even if they don't change current consumption patterns. Those who see their bills rise could mitigate or reverse the increase by adjusting their electricity usage. “We think this is the fairest way to do it,” Vogt says.

Really? It will take more than ComEd's say-so to convince me, and legislators should be equally skeptical. ComEd is asking them to lead Illinois into unknown territory. No state has yet authorized mandatory demand pricing for residential electricity customers. So far, proposals to impose demand pricing on all residential consumers have been withdrawn or rejected in 13 states, according to the Alliance for Solar Choice.

There are reasons to doubt that ComEd's plan is good for customers. Start with the one-third whose bills would rise. That's a lot of people, and lawmakers shouldn't act without a clear understanding of the likely impact on those unlucky consumers.

As for the assertion that customers can prevent increases by adjusting electricity use, in many cases that's easier said than done. Some people with health problems have no choice but to keep certain electricity-hungry appliances running, such as home dialysis machines and air conditioners. Then there's the challenge of tracking and controlling use while estimating the impact of each appliance on your overall consumption average.

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Critics argue that customers would be subject to unpredictable spikes in their bills, and they question the fairness of charging varying rates for similar electricity consumption. “ComEd's so-called demand rates proposal could unfairly result in consumers being charged more for using less electricity, needlessly taking away control and predictability in their bills,” Illinois Attorney General Lisa Madigan says in an emailed statement.

As my colleague Steve Daniels reported last week, a group of Chicago-area elected officials and consumer groups have urged state legislators to reject demand pricing, which is part of a broad proposal covering nuclear power plant subsidies and other priorities of ComEd parent Exelon. Abe Scarr, director of advocacy group Illinois PIRG, warns that demand pricing could cause “really wide variations (in bills) for a lot of consumers who are using the same amount of electricity.”

One frequent ComEd adversary expresses cautious support for demand charges, in part because ComEd has sweetened the deal with a promise to cut fixed monthly customer charges in half, saving most customers $4 or $5 a month. “The most important thing of all is lowering fixed charges,” says David Kolata, executive director of utility watchdog group Citizens Utility Board. Kolata adds that “there are ways to address the concerns that have been expressed” about unpredictable spikes in electric bills under demand pricing.

Adding another wrinkle to the debate, some contend that ComEd's real purpose is to slow the advance of solar power. Consumers who put solar panels on their homes are allowed to sell power back to ComEd, offsetting their cost of drawing electricity from the grid at peak times when they use more power than their panels produce. Demand pricing based on peak usage would undermine these programs, Scarr says.

Vogt rejects that claim, noting that ComEd's proposal includes a one-time payment of $1,000 per kilowatt of installed power to customers with solar panels.

Confusing as the competing contentions may be, one thing is clear: By attaching demand pricing to a legislative package, ComEd aims to avoid an important consumer safeguard. Ordinarily, such a dramatic change in electricity billing would undergo scrutiny by utility regulators at the Illinois Commerce Commission.

ICC proceedings are open and transparent, allowing proponents and opponents full access to relevant data and an opportunity to make their arguments to the commission. Before passing judgment, the agency might conduct a pilot program to determine how demand pricing affects customers.

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“We don't need a pilot to analyze the impact on customers,” Vogt says, pointing to ComEd's determination that current usage patterns support a conclusion that two-thirds of customers would save with demand pricing.

Take our word for it, in other words. Trouble is, ComEd's analysis amounts to a prediction by a party with a huge stake in the outcome. A proposed change with such far-reaching impact on customers and utilities shouldn't be adopted without approval by an objective third party with the necessary expertise to evaluate data and competing claims. That's what the ICC is for.

A pilot would be particularly helpful in this case, given the paucity of real-world evidence on the impact of demand charges. What little is available raises serious concerns. A recent experiment by a city-owned utility in Glasgow, Ky., illustrates the difficulty consumers face in controlling their electricity usage to avoid big spikes. The state attorney general recently stepped in after receiving too many complaints about surging electric bills.