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POWER
TO THE PEOPLE

THE ELECTRIC CO-OPS HAVE SERVED RURAL AREAS
FOR HALF A CENTURY, BUT ADVOCATES WORRY
THEY'LL BE SHUT OUT OF THE EQUATION AS
THE STATE MOVES TO DEREGULATE UTILITIES

by Bill Knight

Rural Illinois became a communityof sorts when electricity arrived some 55 years ago, recalls Phil Clark, a 73-year-old Hancock County farmer with 200 acres in corn and beans.

"I was 18 when we got power in1941, and I remember my father first commenting that we could look out and see pole lights across the country,"he says. "We could see where our neighbors lived. It was like we weren't alone out there in the dark."

Although the arrival of energy changed rural lifestyles and agriculture, it was a gradual process, says dark, who still lives on his family's home place a few miles east of Elvaston. "We went from kerosene lamps to electric lights pretty quick, and we got lights for the barn right away. But, really, things moved pretty slowly overall."

Clark is one of more than 500,000 Illinois farmers and other rural consumers who belong to 26 consumer-owned electric cooperatives statewide, most of which were established with the government's help during the NewDeal era.

Indeed, before 1935, when President Franklin D. Roosevelt signed an executive order creating the Rural Electrification Administration, only 10 percent of rural Americans had access to electric power. For-profit investor-owned utilities simply considered the prospect of hooking up and servicing far-flung rural homes and communities too expensive. In short, it wasn't profitable.

So, Illinois' power co-ops, and those in other farmbelt states, were launched with loans from the federal government and through the labor provided by relief workers and farmers themselves. In this state, the expansion of electric power lasted through the 1940sand into the mid-1950s, when even remote areas got service.

Today, electric power is enjoyed by more than 30 million Americans in more than 10 million U.S. homes and businesses served by 1,000 rural power co-ops from the REA — the part of the U.S. Department ofAgriculture now known as RUS, for Rural Utilities Service. The government program has been praised as a model by liberals such as Paul Simon and conservatives such as George Will.

"Eventually, it was a new wayof life, of work," dark says."Of course, right away, we gota few new things: a wringer-type washing machine, a vacuum sweeper, awaffle iron, I remember. But we kept ouricebox for a while.

"I guess we didn't know what to expect,exactly."

These days, as policy-makers in Springfield begin the move to deregulate the power industry,dark and other rural Illinoisans voice new concerns about the unknown.

While proposals for opening competition aren'taimed specifically at the member-owned utilities that serve rural customers like Phildark (or, for that matter, atany of the dozens of municipally owned utilities such as Springfield's City, Water, Eightand Power), a free-market rate structure for investor-owned companies could have a ripple effect on those utilities.

Officials at the rural co-ops are already raising a number of concerns. For instance, under a restructured utility industry, will the coops retain the local control and democratic structure that advocates believe are central to the sense ofcommunity Phil dark remembers?(Investor-owned companies are currently regulated by the state through

16 / January 1997 Illinois Issues

the Illinois CommerceCommission; the coops are not.) Willmember-owned utilities be able to keep customers who might be attracted by lower rates in a competitive marketplace? Co-op officials note that if their customer base goes down, fewer members will be left to share the burden of past debt. More important, coop advocates say, in a profit-driven market, rural residents — who consume less electricity than other classes of users — could well be shutout of the power equation again.

"There are a couple of proposals in Springfield, and neither adequately addresses ourfears," says Gordon Olsen, director of special projects and technology for the Association of Illinois Electric Cooperatives, this state's trade group for the co-ops.

Unlike such investor-owned utilities as Chicago-based Commonwealth Edison, Illinois Power ofDecatur (IP), Central Illinois Light Co. of Peoria and Central Illinois Public Service, headquartered inSpringfield, rural cooperatives are nonprofit businesses owned by their customers, who elect boards of directors. Co-op boards not only hire managers and linemen, engineers and accountants, they also set rates. If coops make money, they don't pay shareholders, they invest in their own operation or credit their own members. If they lose money,co-ops raise rates or borrow capital. Such economic democracy is part of their heritage.

"Our roots are in a social contract that says every American should have electrical service," says Sue Kelly, general counsel for theNational Rural Electric Cooperative Association, a Washington, D.C.-based trade group of the nation's coops. "Investor-owned utilities weren't bringing power to rural areas, so the government put up the money and the people themselves had to acquire power. Part of that social contract was that if people were putting up a few bucks to pledge their membership, there'd be democracy. They'd get avote, control."

Kelly is one who believes opening electric rates to competition could shut the rural customer out of the equation once again. For-profit utilities, she says, "won't treat the little guy way out in the country the same as they do the big-load industrial or commercial customer."

She points to the potential threat to co-ops of "cherry picking," where an investor-owned utility could woo a commercial or industrial customer that uses a lot of power, then ignore surrounding consumers who useless. In fact, about 94 percent of rural co-op customers are residential and farm, and about 5 percent are commercial and small industrial users. Another 1 percent are large industrial users, but that 1 percent can have a huge load that translates to much of a co-op's revenue.

"Investor-owned utilities see the volume and see the year-around usage and can't resist plucking valuable customers," Kelly says. "The remaining customers in such an area are left holding the bag for outstanding loans, maybe incurred to put up lines to that industrial site, or to maintain the wires when the co-op's not selling the power anymore."

As a result, Kelly says, rural customers could end up with poorer service and higher prices. "Their rates will end up underwriting industrial customers and city customers."

However, Greg Woith, a spokesman at Central Illinois Light Co. (CIL-CO), which has proposed one deregulation plan, believes there's little cause for concern. "There's nothing to fear but fear itself," he says,laughing at his own allusion. "Still, we know the concern's out there. Everywhere we go to talk about deregulation— Rockford, Quincy, wherever —there are more rural people asking questions than city dwellers. "There's a shakedown period possible," Woith concedes, "but it's possible that Illinois residents could save $300 a year on their power bills, and in rural areas, maybe cut their energy costs inhalf. Even if the distribution co-opshave to increase their share of the bill to deliver power, customers come out ahead."

'Our roots are in a social contract that says every American should have electrical service.'

Illinois Issues January 1997 / 17

Some of the rate disparity arises from the competitive disadvantagerural co-ops face: a scattered population means fewer customers per mileof line. Whereas municipally owned utilities average 82 customer meters per mile of line, and investor-owned utilities average 41 electric meters per mile of line, co-ops average a mere four meters per mile of line.

Spoon River Electric Co-operativeand Western Illinois Electrical Coop., which serves Phil dark and his neighbors, run below the average. Spoon River has 3.8 meters per mile of line in Fulton County and parts of Knox, Peoria and Schuyler counties. Western Illinois Electric, one of Illinois' smallest systems, has 2.7 meters per mile of line in Hancock County and parts of Henderson and Adams counties.

"To put it in context, rural co-ops serve only 5 percent of Illinois' population and receive just 4 percent of total electricity revenues, but we cover 80 percent of the state's land mass,"Olsen says. "And people should realizethat co-ops don't generate or transmit power; we just bring it home."

Indeed, while some utility companies generate power and others generate and transmit power, co-ops merely buy the power that's transmitted to their area, then deliver it along their own lines. Kelly, of the National Rural Electric Cooperative Association, worries that under a restructured system co-ops will be forced to split their purchase and distribution functions.

"We don't want to be just the 'wire company' and give up power," she says."It would be hard to recover our distribution costs. Plus, a lot of our wires and lines were built 50 years ago. It's going to take a lot of investment to replace that infrastructure. Who's going to do that? Investor-owned utilities? They never did before."

CILCO's Woith says that under current deregulation proposals, no utility would be compelled to face competition. "There's nothing to force a rural co-op, or even a municipal utility, into participating," he says. "Management there could elect not to take part."

In fact, Olsen notes that most coops' bylaws may impede, if not prohibit, participation due to mandates to purchase all power for use on the premises. Most co-ops. Olsen says,"are locked in to power-supply contracts for 'all requirements' for up to 40 years from a generation or generation-and-transmission utility."

Such long-term obligations are not among the daily concerns of the co-op members, who may worry more about their monthly bills.

The temptation to save money isattractive to consumers, many ofwhom take power for granted, according to one co-op manager. "People just don't think about electricity much because they never were without power," says Ed Cox, president and CEO of the Spoon River co-op in Canton."Years ago, people in rural areas would come out and help, or if we were out somewhere on a trouble call or just working nearby, they'd feed us. Folks were offended if you didn't come

18 / January 1997 Illinois Issues

in, sit down and share a meal with them."

Cox, who has worked in rural co-ops for 33 years, says the customer has changed. "Whether it's urban people moving out to the country or someone who grew up with power and doesn't know any different, most members don't appreciate it," he says. 'They expect it."

Clark, the Hancock County farmer, agrees. "Most people assume they're entitled to power, and it's really everywhere all around us," he says. "There's always something going — a pump or refrigerator, the furnace, a deep freeze. An indication of how much electricity we use is taking notice when a house is silent. Homes have become a whole world of little things using power."

If there's power from the energy that's being generated and transmitted and distributed, there's political power, too. And rural areas don't have much of it, some say.

Next spring, rural co-ops are expected to join forces with municipally owned utility companies and the Citizens Utility Board, which represents consumers, to demand more consideration for residential customers in general and rural customersin particular.

CILCO's Woith agrees to some extent. "Our goal is customer service.We're in a position where we could potentially lose half our revenue [if customers go elsewhere]. We won't, but we could. So no investor-owned utility will be able to get by just on price," he says.

"In fact, one of CILCO's key principals is that all consumers should have guaranteed availability of electric service."

Nevertheless, Kelly does see a different purpose for the co-ops.

"Investor-owned utilities concede that they're in business to make money, not run social programs," she says."Fine. But rural co-ops say that there's a social responsibility to provide electricity at a fair price to everyone, everywhere. If customers are confused into going elsewhere for their power,we'll have to deliver it, and our co-op expenses will be shifted to our distribution costs. As those rise, more people will be tempted to leave. It's a death spiral, a stampede."

But rather than a stampede, one rural expert sees the potential for different consumption patterns.

In the scheme of things, homeowners are the weak link, says Dan Walkerof the Illinois Institute for Rural Affairs at Western Illinois University, because industries can negotiate for better rates than individuals can. .

"That could mean higher rates [for them]. But it's unlikely that people will move back to cities because of electricrates. However, you could see fewer all-electric homes. Propane and natural gas could come back — maybe even fuel oil."

Kelly says there are so many unknowns that people need to stop and step back and ask whether deregulation is always preferable.

"I concede that utility deregulationis a trend from state to state," she says."I know it's not good for rural areas,where living standards and service could suffer. It's also open to question whether it's even good for the country. It could be worse than airline or banking deregulation, by far."

Out in the countryside of western Illinois, dark seems thoughtful yet detached from deregulation and power.

"I'm a free-marketer; yes, sir," hesays. "But I have mixed feelings about this. Our co-op's been very reliable, but people get upset when they're hit in the pocketbook."

Speaking with some determination,if not defiance, dark adds that there's power, then there's power.

"I appreciate our electricity. It's agreat convenience; a lot of folks wouldbe lost without it," he says. "But I've had to get along without it — I was raised without it — and if it gets to be too much, I could live without it.

"I've done it before."

Bill Knight is a journalist who teaches at Western Illinois University.

Illinois Issues January 1997 / 19