SCOPE OF SERVICE
MUNICIPALIZATION FEASIBILITY STUDY
NewGen Strategies and Solutions, LLC (NewGen) is engaged in an effort to assist the Corporation Counsel
of the City of Chicago (Corporation Counsel or City) with its efforts to evaluate the feasibility of developing
a municipal electric utility by acquiring the distribution assets of its incumbent utility provider,
Commonwealth Edison Company (ComEd). The terms and conditions for this assignment are defined in
the engagement letter (contract) executed October 17, 2019. As defined in the contract, NewGen has
prepared the enclosed scope of services to define its approach for conducting the Municipalization
Feasibility Study (Study).
Our proposal is to provide elements of the Study in a phased approach. Phase I will result in a Preliminary
Feasibility Study that will provide a high-level summary of the costs, benefits and other issues related to
establishing a municipal utility for the City. Phase I will be conducted to support a meeting with the City
to specifically determine how (or if) the City should move forward with its municipalization effort, and if
additional research, investigation, and analysis is warranted. The current contract is limited to the Phase I
efforts. If the City elects to move forward with its municipalization effort, a Phase II scope of services will
be more fully developed at that time, along with an estimated budget for services to be provided. Phase
II services may include the development of additional analytical support to detail expected results
associated with various option(s) chosen by the City for the formation of a municipally-owned utility.

Phase I Study
Phase I will include a review of relevant documents provided by the City, a kick-off meeting with the City
team, and the development of a preliminary financial analysis of estimated annual cash requirements for
an operational electric utility (preliminary pro forma financial model, as described below). As indicated,
Phase I is designed to provide a preliminary assessment of the economic and strategic aspects of the City’s
acquisition and operation of the existing ComEd electric distribution assets. This will be accomplished by
estimating the annual cash flow requirements for a City-owned electric utility compared to the cash flow
requirements of continued ownership by ComEd (status quo case).
Specific tasks identified for the Phase I study are described below.

Task 1 – Data Request
NewGen officially kicked off Phase I activities with a conference call with the City team on October 22,
2019. At that time, the City and NewGen discussed various sources of information and data that may be
relevant to the Study. A summary of data sources discussed during this call is provided below, and the
City has indicated that it will provide the information as soon as it becomes available through its due
diligence efforts:
1. Copy of Franchise Agreement (existing).
2. Summary of the annual bills for municipally owned electric load (i.e. City buildings, water
treatment facilities, parks, etc.).
3. Summary reports from a previous municipalization effort conducted in the 1990s.
4. Summary and analysis of previous Municipal Aggregation efforts conducted by the City.

Economics   Strategy   Stakeholders   Sustainability

 5. Summary of historic franchise fees collected by the City, including as a percentage of gross
revenue, as well as the revised approach for an infrastructure maintenance fee based on usage.
6. Summary of stated and approved environmental goals for the City as it relates to energy usage
and/or City-owned transportation.
7. Copy of Minneapolis study and/or summary with regard to City insights on recent Minneapolis
municipalization efforts.
The City indicated that for this Study, time is of the essence. The City will need to utilize the findings from
this Study to make decisions with regard to negotiations regarding its Franchise Agreement with ComEd,
which expires at the end of 2020. Additional data may be requested as the Study evolves. Any information
that the City can provide regarding electricity usage for its own use, its business and its citizens will be a
benefit to this Study.

Task 2 – Project Kick-Off / Initiate Strategic Assessment
NewGen will establish a time that is convenient for the City to conduct a kick-off meeting. The purpose
of this meeting will be to review the scope of services, the data provided to date (as well as additional
data necessary) and establish communication protocols for the Study. As part of this kick-off meeting,
NewGen will conduct a strategic assessment of the City’s goals and objectives as it relates to this Study
and its municipalization effort. After initial drafting and review of the strategic assessment, NewGen may
at a later date convene a facilitated process that may incorporate various departments and stakeholders
within the City to obtain a clear and concise strategic plan for the Study. The on-going strategic
assessment will inform Tasks 3 and 4 as well as offering necessary context for its findings and offering
various alternatives to City municipalization that are consistent with the City’s Study goals and supportive
of its overall objectives as they relate to electric utility services.
The strategic assessment process will result in the development of a summary memo to the City, which
will provide a summary of the discussions, outcomes, and objectives related to the Study.

Deliverables


Strategic Assessment Summary Report

Task 3 – Develop Preliminary Financial Model
NewGen will develop a Preliminary Financial Model (Model) to create a projection of electric utility
revenue requirements (on a cash basis) to compare the existing status quo case (continued service from
ComEd) to the City-owned municipal utility option. The Model will be developed on an annual basis over
a 20-year study period. The Model will be preliminary in nature for the Phase I effort; NewGen will utilize
estimates regarding inputs and will rely on assumptions, expertise and analysis of publicly available data
for various elements of the model. To the extent confidential information provided by the City is
incorporated into the model, NewGen will identify it as such for the purposes of this Study.
The model will utilize an estimated asset purchase price for the distribution assets to be potentially
acquired by the City to serve future customers. The purchase will be assumed to be financed by the
issuance of debt by the City to be repaid by rate-payers over an appropriate period of time. The model
will include estimates associated with applicable start-up costs, as well as annual cash requirements for
purchased power (including provision for transmission of power to City-owned substations). We will
include estimates of annual expenses for operations and maintenance costs (O&M) associated with
distribution, customer, and administrative functions of an operating municipal utility. Cost estimates of
future capital requirements for normal renewal and replacement will be developed and included in the
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 model on an annualized basis as appropriate. The Model will include additional debt issues for funding
investments as necessary, such as those that may be required for working capital, inventory or other
items. Cash requirements for the City-owned utility will include operating reserves, general transfers (as
applicable), and potential improvements to the distribution infrastructure or various customer programs
as defined in the Strategic Assessment Summary Report developed in Task 2. Annual cash requirements
for the status quo will be included in the current estimated average rate revenue (assuming that ComEd
rates currently recover its costs), which will be escalated based on estimates of future investment by
ComEd utilizing publicly available information.
As part of the development of the Model, NewGen will review ComEd invoices, contracts and electric
billing patterns provided by the City to provide insight on total City load, number and types of customers
and their average monthly electricity usage. This will also include a review of various Illinois Commerce
Commission (ICC) proceedings, Federal Energy Regulatory Commission (FERC) reports, other public
sources of data, as well as potential information developed during previous City efforts.

Purchase Price
NewGen will develop a preliminary estimate of a range of potential purchase prices for the distribution
assets to potentially be acquired by the City utilizing available data provided by the City or obtained from
publicly available sources. As with the usage data above, sources of plant (asset) data to be reviewed for
developing estimates of the book value of these assets may include ComEd filings before the ICC, FERC,
other sources of data, as well as confidential data provided to the City under the terms of the contract.
The results of the preliminary analysis will be a range of potential purchase prices that will be utilized to
establish the revenue requirement and resulting average retail rate for service under the municipal
ownership modeling scenario.

Severance / Re-integration Costs
NewGen will provide a proxy for a preliminary estimate for severance costs and /or re-integration costs
for the potential City acquisition of ComEd distribution equipment and systems. NewGen is not an
engineering firm and we do not propose to utilize an engineering firm for this task. Our estimate will be
accomplished by developing a high level estimate utilizing a “unit-cost” approach for new plant facilities
that may be required to allow the newly formed municipal utility and existing ComEd systems to
interconnect along the boundary of the City municipal service territory. This will be accomplished by
characterizing the nature of the boundary for the City municipal service territory with regard to its building
density and assigning a per mile cost as appropriate. NewGen will rely on preliminary estimates based on
previous experience and will generate a range of potential investment costs associated with severance as
appropriate for the preliminary nature of the Phase I Study.

Stranded Costs
The City may be required to compensate ComEd for the reduced value of selected remaining assets
resulting from the acquisition of the electric distribution facilities. For example, ComEd may claim
stranded generation costs due to a reduction in load; however, given the nature of the wholesale power
market, these claims may not be valid. Stranded generation costs, if any, are determined by FERC.
NewGen will work with the City and its counsel to estimate the potential exposure the City may face due
to stranded cost claims by ComEd. If such claims exist, NewGen will work with City and its counsel to
determine an appropriate value to include in the preliminary feasibility model.

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 Load Forecast
NewGen will prepare a preliminary load forecast analysis using information obtained from ComEd and/or
other public data sources, by numbers of customers to be served within each customer class (residential,
commercial, and industrial) over a 20-year period, including annual energy and capacity requirements.
Our load forecasting approach utilizes historical and projected economic data for the general geographic
area under review (i.e. the City). Economic data may be purchased from third party firms including, but
not limited to, Woods & Poole, NPA Data Services, Moody’s, or IHS Global Insight, which may provide
additional insight into the load forecast applied to both the status quo (ComEd) and municipal utility
scenarios in the Model.

Power Supply Costs
NewGen will review historic PJM wholesale power prices and develop preliminary projections for power
supply costs as they would apply to a City-owned utility. Because the City has the option of Municipal
Aggregation under existing state law, the preliminary analysis will focus on costs associated with
wholesale power provided by various existing entities in the state. To the extent that wholesale power
purchases drive potential strategic objectives, such as requirements for renewable power, such costs will
be applied to both the status quo (ComEd) and municipal utility scenarios in the Model.

Start-Up / On-Going Costs
As part of the development of the Model, NewGen will develop estimates associated with start-up costs
(including cost estimates for expenses prior to operation, as well as those for the initial phases of
operation), financing related costs, O&M costs by functional element, requirements for capital
investments, and estimates of administrative and general (A&G) costs. These cost estimates will be
developed based on average $/customer expenses for similarly sized / situated public utilities with which
we are familiar, and/or our expertise in providing analysis of publicly owned electric utility systems.
Similar to the cost estimates for acquisition and severance-related issues, NewGen will develop an
appropriate range of costs for these elements to be incorporated into the modeling scenarios.
NewGen will leverage its extensive experience with municipal utilities across the U.S. to gather cost
information for purposes of developing the projected on-going O&M expenses. Other sources of
potentially useful information that will be considered include:



Public Power Annual Directory and Statistical Repots published annually by the American Public
Power Association (APPA).



Edison Electric Institute (EEI) reports / summaries.



Financial and Operating Ratios of Public Power Utilities published annually by APPA.

These reports contain financial and statistical information about the operations of electric municipal
utilities individually and in various groups including O&M expenses, sales information, balance sheet data,
sales statistics including number of customers and MWh sales by customer class, revenues, key
performance indicators, etc.

Financing Costs
NewGen will work with the City to identify the preferred type of financing for the costs associated with
the acquisition of the system. Municipal electric utilities are generally financed through the issuance of
revenue bonds because of their comparatively low interest cost. The revenue bondholders have a lien on
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 the revenues of the municipal utility as security, or collateral for the outstanding revenue bonds not yet
redeemed. However, other options will be considered as appropriate.
Based on information from the previous tasks, the Project Team will estimate the amount of capital to be
obtained through financing and the corresponding bond issuance amount considering the estimates for
acquisition costs, severance costs, funding of utility reserves and operating funds, bond issuance fees, etc.
This information will then be used to project annual debt service over the 20-year study period. Publicly
available indices will be used to estimate the associated interest rate.

Model Results
The intent of the Model is to compare preliminary costs and revenues associated with operations of the
City’s distribution system under existing ownership (ComEd) and the municipalization scenario (Cityowned). Utilizing the projections for annual cash needs, the model will determine an average system
retail rate under both scenarios over the 20-year planning horizon. The difference between the average
system retail rates will determine the potential savings associated with a municipal utility on an annual
basis.
Additionally, NewGen may provide a comparative analysis of the net present value of the projected total
revenue requirement (total costs) under the two scenarios. The summary of results for the model will be
included in a dashboard embedded in the model for ease of understanding, as well as to facilitate
additional analyses. Additional metrics for comparing the modeling scenarios may include development
of return on investment analysis or other industry appropriate calculations developed in coordination
with the City.

Additional Analyses
As part of our analysis, NewGen will identify other risks and benefits associated with the City ownership
of the electric utility. These will include qualitative and quantitative description of financial, operational
and technical risks to consider over the 20-year planning horizon. Risks that can be quantified will be
incorporated into the Model as part of the range of potential costs associated with either scenario. To
the extent that risks are qualitative, they will be included in various reports developed for the City’s
consideration.

Deliverables


Model and summary of results

Task 4 – Prepare Report / Presentation
NewGen will prepare draft and final reports that present the results of the Phase I Study, including
potential advantages and disadvantages of City ownership of the ComEd electric distribution facilities, and
issues associated with severance/re-integration of electric systems. Additionally, we propose to present
the initial Study findings in a series of facilitated meetings to the City management team and other
stakeholder groups as requested.

Deliverables

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

Draft and final report



Presentation of study findings

 Phase II Study
Efforts associated with a Phase II Study would be completed on a time and materials basis and are not
included in our budget estimate within the October 17, 2019 engagement letter (contract). The intent of
Phase II efforts would be to refine the specific elements of the Phase I Preliminary Feasibility Financial
Model to reduce the uncertainty in the original estimates, only if such additional investigation is
warranted. This would include updating and/or revising cost estimates for the assets to be acquired
(including severance), operation and maintenance and administrative costs, startup costs, purchased
power costs, debt service costs, capital requirements, and other costs. Similar to the analysis conducted
for Phase I, NewGen will project the annual average retail rate and/or net present value of projected
revenue requirement assuming a City-owned electric utility, compared to those developed for continued
ComEd ownership.
Revised Model will be updated based on the following inputs:



Revisit the preliminary load forecast analyses to account for any new data received in Phase II, as
well as any changes to service territory.



Refine estimates utilized in the preferred projected cash flow model as appropriate, including
potential purchases of allocated federal hydropower. Refine estimates to potentially expand
energy efficiency, distributed alternative resources, and load demand response, as appropriate.



Refine future rate projections under continued ComEd ownership to account for any new data
received in Phase II.



Identify and evaluate other costs to acquire ComEd electric distribution facilities and establish a
municipal electric utility, including development of an independent assessment of value utilizing
industry accepted methods to estimate fair market value.



Conduct a field assessment to determine a revised estimated cost associated with potential
severance-related issues (utilizing a technical sub-consultant).



Evaluate various sources and types of financing mechanisms on the estimated average system
retail rate and provide a qualitative discussion of the advantages and disadvantages of each type.



Provide a comparison of average system retail rates for nearby municipal utilities, including
Naperville, St. Charles, and other entities agreed upon by the City and NewGen, with the average
system retail rates derived for the proposed City utility.

Additional analysis to be included in the Phase II Study is a review of potential forms of municipal
ownership, including developing the utility as a department within the existing organizational structure
of the City, or as a stand-alone entity. This will include a review of various advantages and disadvantages
of each structure, as well as a discussion of the respective governance structures under each model, their
potential funding mechanisms, and steps required for their formation.
We will prepare draft and final reports that present the results of the Phase II Study, including a discussion
of the forms of municipal ownership and their application in the industry. In addition, we will prepare
for and attend an on-site Phase II meeting to present the Phase II Study results to the City management,
as requested. Additional details for the Phase II Study, including scope items, will be developed as
requested and as warranted.

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