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To scrub or not to scrub:
the deal to save Illinois coal

This is the story of two major interests, who collide, then come to agreement on legislation favorable to Illinois 'high-sulfurcoal. The story takes you inside the politicking in Springfield and gives you a glimpse of the heavy roles lobbyists play to get things done in the General Assembly.

In November 1990, the U.S. Congress passed the first amendments in 13 years to the Clean Air Act, promising purer air by the millennium — and threatening southern Illinois coal country with economic apocalypse. Among the pollutants targeted was sulfur dioxide, a major by-product of burning high-energy, high-sulfur, Illinois coal. Utilities that burn that coal have two ways to comply with the act's edict that they halve their sulfur dioxide output by 1995: Switch to cleaner, costlier coal from the West or install smokestack scrubbers to trap the targeted pollutants. Widespread fuel-switching would render Illinois' massive coal reserves virtually worthless; scrubbing would purge more sulfur dioxide than fuel-switching and would keep lllinois workers working. Both choices cost money. The first is easy, the second is hard. To Illinois miners, whose ranks fell from 13,600 in 1986 to 11,500 in 1988, the new federal law looked like a horseless carriage, and the coal they were digging looked like buggywhips. To save their industry they sought a law of their own.

The week the Clean Air Act passed, the Illinois General Assembly was meeting in its fall veto session. Lobbyists for coal companies and miners floated a proposal meant to entice the most affected state utilities —Commonwealth Edison Co. (ComEd) of Chicago and Illinois Power Co. (IP) of Decatur — to scrub. Their two most polluting plants employ 2,500 miners. The proposed legislation would waive a mandated state cost review if the utilities built scrubbers. Customer rates would automatically rise to cover the utilities' outlays and to pay stockholder dividends.

The utilities professed uninvolvement ("We're out of it," an IP spokesman said), but the Citizens Utility Board (CUB) scoffed, saying the coal industry was being dangled as a pitiable lure to get lawmakers to gut the state's well-regarded Public Utility Act of 1985. CUB Executive Director Susan Stewart blasted the review-waiver as a utility "blank check" that would be drawn on consumers' accounts. "You take their word for it that every dollar was spent and spent well," she said. "Pay up and shut up."

In the short veto session, the proposal was easy CUB prey: It died. Coal lobbyists had not. They said saving their industry would top their spring legislative agenda. They began their push on April 5, when a formal union-management "coal coalition" introduced a bill meant to force, not just entice, the utilities to scrub. They were no longer accused of fronting for utilities. The utilities opposed the bill. CUB backed it.

The state requires utilities to follow "least-cost" strategies in their operations. When it comes to federal Clean Air Act compliance, if scrubbing is cheaper than fuel-switching, scrub they must — and vice versa. The coal coalition feels strongly that it is cheaper to spend money now to scrub and burn inexpensive Illinois coal than to be forced forever to buy more expensive, low-sulfur coal from the West. CUB agrees, as does

Utilities that burn coal have two ways to comply with the act's edict that they halve their sulfur-dioxide output by 1995

the Illinois Department of Energy and Natural Resources — in its most pessimistic analysis. The best-case scenario includes the credits utilities will earn via the federal Clean Air Act for cutting pollution below federal limits. One utility can sell its credits to another that has compliance problems, in effect selling the right to pollute. Scrubbing generates more credits than fuel-switching. So why the need for state legislation? Because utility rate-setting by the Illinois Commerce Commission is complex, because what's cheapest can be disputed, and because the utilities have considerations other than cost.

ComEd can scrub or not. If it builds the devices, it earns are turn on its investment —but only if the projects go well. If scrubbing does not pan out, the company can lose much of what it spent. ComEd, however, is big, and losing part of a $200 million scrubber outlay would be serious, but by no means overwhelming. For IP the stakes are much greater. It has far fewer customers over whom to spread costs, and its fiscal complexion is not exactly ruddy. In 1989 the Illinois Commerce Commission ruled that the company wasted about one dollar of every six it spent on its $4.3 billion Clinton nuclear plant and gave the utility a fourth of the 27 percent rate hike it had sought for Clinton costs. IP

August & September 1991/Illinois Issues/23

suspended common stock dividends and expanded previously planned layoffs. It's just now getting ready to restore its dividend. Declining the risk inherent in building scrubbers and avoiding another run-in with the mercurial commerce commission would be a reasonable business decision for IP, especially since fuel-switching is risk-free: Western coal's costs are recouped from ratepayers fairly simply, with little commission discretion.

While the coal coalition felt confident that scrubbing is cheaper, it felt no confidence at all that the utilities would scrub. Thus it felt justified in seeking to force them to, by stacking the deck. Its bill would require the commerce commission to weigh the secondary costs of a utility's move to fuel-switch—the economic devastation caused by miner layoffs. In essence, the bill would mandate scrubbers. The utilities opposed such an order, saying they were willing to scrub if they got a guarantee they'd get back what they spent: The coal folks' fall proposal would do the trick. The coal coalition said it was happy to try to reach a settlement that was politically realistic, but failing that, it would push its bill hard.

The utilities prepared for the battle by lining up some warriors. James Fletcher, a Republican, was Gov. James R. Thompson's first deputy governor; he's now a partner at his law firm and runs one of the top lobbying teams in the state. William Harte, a Democrat, helped House Speaker Michael J. Madigan (D-30, Chicago) craft the 1981 map that gave Democrats the legislature for the decade and this year was helping Madigan map-make again. IP hired both Fletcher and Harte. Com-Ed hired its two usual lobbyists, Fletcher and Democrat Michael McClain, who'd served in the House for 10 years, spending some time in leadership.

On the coal coalition's side were the people who've represented coal in Illinois for a decade, Gerald Hawkins and Taylor Pensoneau. Hawkins of the United Mine Workers of America is a stout, often disheveled former coal miner who works with an impulsive spunk, punctuating his answers to reporters' questions with the aphoristic and the profane. Pensoneau of the Illinois Coal Association is a former reporter for the St. Louis Post Dispatch. Neat, trim and cautious, he punctuates his answers with punctuation. ("This legislation comma so crucial to the Illinois coal industry comma....") They're an unusual, effective team.

For a month the lobbyists tried to compromise but got nowhere. The coal team soon was saying that it and the utilities were working in two different states — one cash-strapped, one cash-flush. The first utility proposal: The state would spend $500 million to build scrubbers and then run them, splitting any income from pollution credits with utility stockholders. Hawkins and Pensoneau said lawmakers would not agree to build scrubbers for the utilities when they're busy cutting public aid; and even if they did, why would they agree to split income from credits? The utilities tried again: They'll split the scrubber costs with the state but keep the credits alone. A line goes around: "For people with little integrity the utilities are awfully expensive to buy."

The first legislative deadlines came in mid-May. The coal team brought a few miners to town for two days to work the Senate, telling members that its bill would force scrubbers, that scrubbing is cheaper and saves jobs. On May 20, the bill's Senate sponsor, Jim Rea (D-59, Christopher), called for a vote; it passed 57-0.

With the House set to vote on an identical version in two days, House Majority Leader Jim McPike (D-112, Alton) gathered the parties for a final round of talks, making it clear he wanted an agreement. One rumor was that the coal people would have to cave because Madigan, serving Harte, wouldn't call their bill if the utilities went unaccommodated. Madigan denied this, first mocking ComEd's managers as short-sighted and obstinate and then saying that if no deal were reached, he would do whatever the House bill's sponsor, David D. Phelps (D-118 Eldorado), wanted to do.

Whatever the reason, a deal was struck the next day. The utilities would install two scrubbers each, IP at a plant in Randolph County and ComEd at one in Christian County. IP would get $35 million from the state; Com Ed would get a waiver of the relatively casual commerce commission proceeding required before it may charge customers for the transportation costs of western coal it now has contracts to buy. There'd be no post-construction scrubber audit; an adversarial, pre-construction hearing would instead be held to cap costs. Anything spent up to the cap would be automatically charged to ratepayers; costs above it would be considered in a full-fledged commission review.

The coal team soon was saying that it and the utilities were working in two different states — one crash-strapped, one cash-flush

CUB, which had been locked out of the McPike talks, exploded, calling the cap a facade and the review-waiver a blank check. Referring to IP and Clinton, CUB lobbyist Tracy Litsey said, "Talk about the last utility you want to give carte blanche!" She promised "war" in the Senate, rightly assuming that no, McPike deal backed by utilities, coal, Harte and Fletcher would die in the deal-driven, tightly run House.

"I've been here long enough to know when I see something greased, but this should not be greased this quickly!" Rep. John Matijevich (D-61, Waukegan) sputtered on May 23 when Phelps tried to amend the McPike deal onto his initial coalition bill. Though Madigan had delayed the departure of some Democrats who wanted to leave town, the gentlemanly Phelps agreed to wait a day for a vote. The next day Matijevich and CUB were calmer, soothed by a promise of talks before any vote in the Senate. The bill passed with the deal in the House 110-1, but Hawkins was reserved: "Church ain't out til the last hymn's been sung."

Two weeks of talks went nowhere. CUB called a day long, June 7 meeting "eight hours of stonewalling." The group won one substantive concession, allowing the utilities to seek to raise their construction caps just once, and only in response to a change in state or federal law. But CUB called that change minor and dug in — and began attracting supporters.

24/ August & September 1991/Illinois Issues

A group representing large Illinois industries said waiver of the post-construction audit could too easily mean inflated scrubber costs; the powerful Illinois Manufacturers' Association agreed. Al Grosboll, a top gubernatorial aide, questioned the $35 million IP grant, saying the money, from a fund meant for coal research, is OK for the demonstration, high-tech scrubber for which the utility is seeking federal aid, but improper for a cheaper "off-the-shelf" model. A second gubernatorial aide labeled the utilities' actions "just this side of extortion."

Also nibbling at the bill were inter-chamber and inter-branch rivalries. The Senate's majority Democrats do not like rubber-stamping Madigan's work, and they felt lingering anger over last year's ouster of party chairman Sen. Vince Demuzio (D-49, Carlinville) by Madigan's chief of staff, Gary LaPaille. GOP Gov. Jim Edgar had no desire to clamber aboard McPike's train since McPike, as usual, had kept Republicans from his talks, and Republicans were now needed: IP's $35 million would come from bonds so the bill required a three-fifths vote. In the House, Democrats can do three-fifths alone, but in the Senate they need Republican help.

Objections from CUB, business and Republicans meant trouble in the Senate. In committee on June 13 Republican senators would do no more than vote present. Chairman Patrick Welch (D-38, Peru) insisted on some sort of post-construction audit, a deal breaker for utilities. Sen. Penny Severns (D-51, Decatur), whose district includes IP's headquarters, agreed with Welch. Reading the writing on the wall, sponsor Rea asked the panel not to vote.

A week later Rea had become a liability to the coal bill, after he ran afoul of his fellow Senate Democrats on new legislative maps. On June 20, Senate President Philip J. Rock (D-8, Oak Park) stalked out of a party caucus one vote shy of being able to pass his proposed remapping of the state's legislative districts. Rock's 31-28 Democratic majority means he can only lose one vote on a partisan issue; he had lost two. Rea disliked his new district, and he and Sen. William O'Daniel (D-54, Mount Vernon) had pledged to stick together if either were displeased. Democrats were livid. Rea's new district was among the most incumbent-friendly and there were reports he was trying to help a GOP House member defeated last year make a comeback. "What's the difference between Rea and a Yugo? A Yugo can pass things," one joke went. The coal people didn't laugh. With 10 days left to the session's scheduled end, they had to move quickly.

House Democrats quickly put the coal-utility deal on a Senate bill Rea had not sponsored and returned it to the upper chamber. Madigan then lobbed a scud across the Rotunda, sending emissaries to Rea with an alternative district, which would pit him against popular incumbent Ralph Dunn (R-58, DuQuoin). Rea blanched and backed Rock's map.

With Rea politically impaired, coal lobbyists needed someone to work the Democrats. Hawkins sent Severns miners from Kincaid, a city her new district will likely contain, to ask her to temper her longtime IP venom and to support the coal bill ardently. Working on Republicans, coal lobbyists told Sen. John A. Davidson (R-50 Springfield), who'd been aloof, that scrubbers at Kincaid meant $200 million of construction in his district; they suggested he talk the bill up among the GOP.

Hawkins met with Gov. Edgar, who rebuked him for snubbing House Republicans and expressed only tepid support. In a less-than-ringing endorsement of the pending measure, Edgar told Senate Minority Leader James "Pate" Philip (R-23, Wood Dale) that before the session ended he wanted a coal bill on his desk. Philip said the bill at hand would do nothing for his suburbanites in DuPage County but raise their electric rates — though maybe he could support it for something in return.

That refrain became a chorus ringing 'round the Capitol as the session moved toward overtime on the income tax surcharge renewal, and the regional issues and interests became clear. "McPlace," the $1 billion expansion of Chicago's McCormick Place convention center, for Chicago Democrats. Property tax caps for suburban Republicans. A balanced budget and caps for Edgar. Coal for downstate.

During the 19-day overtime impasse, the coal-utility lobbyists huddled, trading rumors and concocting schemes. They scrambled a few times to try to call their bill for a vote, but the plots fizzled. Everything was on the table, and no one was going to help feed someone else unless first he knew he's going to eat too.

Finally on July 17, Edgar and the legislative leaders reached a deal to end the session. At 9 p.m. on the 18th, after votes on extending the income tax surcharge, the budget and budget cuts, there came the vote on McPlace in the Senate. It was tied to the coal bill. Rea, wanting credit for rescuing miners, had told the coal coalition to get him back sponsorship of its bill and in return he'd vote "yes" on McPlace. They refused, warning him that if McPlace failed by one vote, he'd be single handedly responsible for killing the coal bill and they'd let his constituents know it. During the McPlace debate, Sen. Jeremiah Joyce (D-14, Chicago) chatted at Rea's desk. When he left he looked back; Rea pointed at him and nodded. The McPlace vote started lighting up on the "scoreboard." The "yes" votes approached, then hit, the needed 30. A few seconds later Rea went "yes" — No. 31 superfluous but supportive.

The coal bill was called next. The debate was pro forma. Welch said it's not needed because scrubbing's cheaper: Miners could keep their jobs, and ratepayers could keep their protections. Supporters said the cost question was not so clear and jobs were in danger. It passed 41-12, with nearly every Chicagoan voting "yes." (Technically this was a vote to concur with House changes, so no further House vote was needed.)

Edgar signed the coal bill August 27 at a St. Clair County coal mine. The 2,500 mining jobs were saved, but three-quarters of Illinois coal is exported, Edgar has formed a delegation of Hawkins, Pensoneau, Grosboll and other government officials to talk to utilities in other states about scrubbing. The week after the coal vote the group wandered Indiana; the trip went well but was inconclusive. A prior visit to St. Louis to talk to the No. 1 consumer of Illinois coal. Union Electric Co., went badly.

To save the other 9,000 mining jobs the delegation must prevail without the clout and savvy that they enjoy in Illinois. On the other hand, they needn't worry about flash fires like those caused by Rea. All in all, they're cautiously optimistic.

Harvey Berhnan is a reporter in the Statehouse bureau of Lee Enterprises Inc.

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