All told, McDonald's and its 2,700 U.S. franchisees spend a collective $500 million a year on electricity. A typical restaurant has a peak demand of around 100 kilowatts and uses between 500,000 and 700,000 kilowatt hours of electricity each year, depending upon location. The typical annual electricity bill averages around $40,000.
While those numbers are fairly large in the aggregate, they just weren't large enough individually to excite many utilities into giving McDonald's any special attention at all. That's because, up until recently, each McDonald's restaurant bought its own electricity from the local power company. In fact, McDonald's wasn't considered a customer at all, but rather "a metered address at the corner of Main and State Streets," Langert says.
In 1992, McDonald's began looking for ways to reduce the costs of running a restaurant. It was around that time that the debate over electricity deregulation began to heat up in Congress in earnest. By 1994, when the changes set in motion by the landmark Energy Policy Act of 1992 began to be felt outside the Washington Beltway, McDonald's had formed a corporate energy team to look at its options.
And then, an interesting thing happened in the United Kingdom, where customers using more than 100 kilowatts of demand were suddenly free to shop around for new electricity suppliers. Those restaurants pooled their electricity requirements together to qualify for lower rates. And while McDonald's U.S. operators sat on their hands, McDonald's U.K. restaurants achieved an energy costs savings of around 15 percent, Megacz says. That translates into about $2.48 million.
Back in the United States, though, small commercial customers such as McDonald's were left standing at the altar of electricity deregulation. Power suppliers were more than eager to cut sweet deals with huge industrial clients--auto makers, defense manufacturers, even steel mini-mills--to make up once-guaranteed revenues now lost to competition. But smaller, multi-site commercial concerns such as McDonald's were in real danger of being lost in the shuffle.
Finally, in late 1996, Detroit Edison came along with the same bright idea that produced savings overseas: combining, or "aggregating," the electricity requirements of several McDonald's locations and selling power to the collective entity at rates formerly reserved only for big industrial companies. The deal, says Detroit Edison's Dennis Manning, allows McDonald's 235 restaurants in southeastern Michigan to purchase electricity at fixed prices that provide a 10 percent energy savings to each franchisee.
So far, though, McDonald's and its energy partners have kept most of the details of their special agreement under wraps. However, because Detroit Edison is a regulated utility, the contract is on file with the Michigan Public Service Commission. The writer obtained a copy under the Freedom of Information Act.
According to the contract, McDonald's and its 63 franchisees agreed to purchase all their electricity from Detroit Edison for a period of at least eight years, for an average price of 8 cents per kilowatt hour. That translates into $6.08 million per month, excluding taxes. McDonald's and its franchisees agreed to buy at least 75,000 megawatt hours per year from Detroit Edison, and pledged that the group will have a combined monthly demand of at least 10 megawatts. McDonald's is barred from self-generation during the length of the contract unless the generation is used for emergency backup, for test purposes, or to replace power interrupted by Detroit Edison.
Beginning in year four, McDonald's can terminate the deal by paying Detroit Edison an early termination penalty of "13.5 times the monthly average revenue (including any payments pursuant to the minimum purchase guarantee) excluding taxes that [Detroit Edison] received during the 12-month period prior to the termination of purchases." Detroit Edison is guaranteed a chance to match any electric rate offered by another power supplier.
Each franchisee pays the following fees under the contract: a customer charge of $13.67 per month; a power supply capacity charge of $12.58 for each kilowatt of monthly billing demand; and an energy charge of $0.0638 per kilowatt hour for the first 200 kilowatt hours of billing demand and $0.0583/kwh for the excess. Also included is a nuclear decommissioning surcharge of $0.0008178/kwh.
These charges per month per restaurant add up to $3,025.60 before the discount, and $2,831,54 after the discount, according to a "sample bill calculation" included in the contract.