The politics of kilowatts

Utilities say they need more money to survive and keep investor confidence. Consumers complain that electricity already costs too much. The Illinois Commerce Commission must decide. As it approves rate hikes, a move has begun to change the commission and its regulatory powers. This last of a two-part article deals with legislative debate. See Part 1, July Illinois Issues, for the commissioners' views.

Source: Illinois Commerce Commission research bulletins, Illinois Electric Utilities: A Comparative Study of Electric Sales Statistics, Calendar Years of 1971 and 1970; 1973 and 1972; 1975 and 1974; 1977 and 1976; 1979 and 1978; 1980 and 1979.

SEVERAL state senators cast their eyes toward the gallery behind them as they voted (in the final days of the General Assembly session in June) to kill legislation that would change the methods of the Illinois Commerce Commission (IICC). It was another of about two dozen regulatory reform proposals which went down to defeat in the 1981 spring session, usually in decisive and ignominious fashion. "I see an executive from one of our major utilities up there," a senator remarked, shortly before the vote was tallied. "It's the 'Silver Fox'," added another senator. "Whatever they pay him, it's not enough."

He was referring affectionately to George Travers, assistant to the president of Commonwealth Edison Co., and a well-known figure in the state Capitol during General Assembly sessions. The white-haired, impeccably attired Travers had done his lobbying work again, contacting key legislators and distributing printed materials to back the company's position. On some issues, when the stakes are high and the outcome uncertain, Travers arranges for Com-Ed's chief executive officer, James O'Connor, to place timely phone calls to the right people.

Later, Travers discussed the success of utilities in defeating regulatory reform measures. "We've been very fortunate," he said. "I don't think that any bills that are harmful to us passed. It has probably been a better session for us than any in the past five years." He yanked from his briefcase a tattered legal pad on which the status of hundreds of bills was charted. There is nothing magical, he insisted, about the manner in which utilities consistently prevail in questions relating to utility reform and changing the Commerce Commission. "We just explain our position," Travers said. "I think that people here realize that Illinois has an adequate supply of electrical energy that is lower in cost than most states."

His allies in the General Assembly have a high regard for Travers and his influence. To others, he is a symbol of their frustration. "What happens down here with bills on the Commerce Commission and utility reform is outrageous," said Sen. James Gitz (D., Freeport). "We do just what the utilities want. And Mr. Travers there, the high-priced wonder, kills every bill that would do the people of Illinois any good," said Gitz, who batted O-for-10 in utility regulatory bills.

Again, ComEd wins

The assessment that utilities fared better in this past session than any of the previous five is vexing to legislators like Gitz, who seek reforms of the IICC. The punishing rise of utility costs has produced new rumblings and more bills than ever aimed at changing the commission and the method utilities in Illinois are regulated. But attempts to alter the shape and workings of the IICC have met with repeated failure, which sponsors attribute to efforts by the commission and the utilities it regulates to maintain the status quo. Anti-utility sentiments have not translated to pressure on legislators. Utility reform, like movements aimed at property tax reform and government spending ceilings, has not been viewed by legislators as posing a significant political threat.

A long-held objective of IICC reformers has been an elective commission to replace the current procedure of gubernatorial appointments. Recent bills, however, have also aimed at rate reform in an attempt to legislate changes in the complicated equation which the Commerce Commission follows to determine utility rates. But debates on these subjects are seldom heard outside of committee hearing rooms. Instead, members swiftly and routinely kill such bills or shunt them off to the graveyard of interim study calendars. Members are averse to plunging into certain territory. That hesitation has recently been reinforced by the national anti-regulation fervor that has grown stronger under the Reagan administration. A typical response toward a bill tinkering with regulatory procedures was expressed in a House Public Utilities Committee hearing last spring. "You say that the commission already looks at these things on a case-by-case basis," Rep. Richard Klemm (R., Crystal Lake) asked a sponsor. "Well, I have a problem with making laws and regulations when we don't even know if there will be a need for them.

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Those who favor General Assembly reform have the same complaint as consumer groups which testify in rate-hike cases before the IICC. They claim that there is a decided imbalance of information, tilted in favor of utilities. Groups like the Illinois Public Action Council and the Southern Counties Action Movement have in recent years stepped up lobbying in the General Assembly. But their efforts are no match for the power of Commonwealth Edison, whose close relations with the business community and job-hungry Democrats in Chicago generally assures defeat for such measures.

Rep. John Matijevich (D., North Chicago) expressed his sentiment after a bill calling for an elective commission was defeated last spring. "The Chicago Democrats were against it, just like they always have been, because they like the cozy relationship they have with ComEd," Matijevich charged.

Travers termed a "myth" the belief that ComEd's strength in the legislature arises in large measure from the utility's patronage favors for Chicago politicians. At the same time, he acknowledged that ward bosses do look to ComEd for jobs, as they look to other major Chicago employers. "If we put them on, they have to be qualified," Travers said of political referrals hired.

Opponents of many of the proposed changes believe that the IICC should retain the autonomy under which it now operates. "The commission needs the flexibility to decide, on a case-by-case basis, the needs of utilities from the different geographic locations in Illinois," said Thomas E. Madsen, an Illinois Power Co. lobbyist.

The fate of utility reform bills in the 1981 General Assembly differed little from past sessions. At least five measures sought to make the IICC an elected commission rather than an appointed one. If the legislation had passed, Illinois would have become the 15th state (the only major state besides Texas) to have an elected utility commission. Sponsors of the change echoed Sen. Vince Demuzio (D., Carlinville) who said that the switch "would bring accountability to a system now characterized by backroom deals." Opponents, however, maintained the upper hand with their argument that an elective system would "politicize" utility rates. "I find it rather ironic that some would seek to put politics back into rate-hike proceedings," said Charles A. Willsey, a lobbyist for General Electric Co.

So, elect the commission

$1.4 billion total sales to ultimate customers in 1971 72.7 billion kilowatt hours sold to ultimate customers in 1971

The tone for defeat was set when Gov. James R. Thompson promised to veto any such bill that reached his desk. He argued, among other things, that utilities would pour huge amounts of money into elections to assure a pro-utility commission.

A new tack to undercut the Commerce Commission's rate-making authority was tried early this year by some municipalities in suburban Chicago. Several city councils had voted to begin procedures under an obscure 1921 state law enabling municipalities to assume broad powers governing the cost and quality of utility service. With referendum approval, they could supplant what has been unchallenged IICC primacy in overseeing rates. Said one mayor, Nicholas Blase of Niles, "When you're dealing with utility services, you're dealing with the necessities of life. The Commerce Commission does not take into consideration that people can no longer afford those necessities."

A utility spokesman expressed his industry's concern at the specter of local officials assuming that role. It would put the utilities in the position of seeking rate increases before every city council that assumed the power by referendum. "It could mean added costs to utilities and much confusion if, for example, there were different rates for neighboring communities," he said. But the utilities' fears were shortlived. Legislation repealing the 1921 provision passed the General Assembly.

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The most complex legislation dealing with utility rates centered on balancing utility revenue with costs of doing business.

In order to insure the financial health of utilities, the IICC sets rates which cover operating expenses and allow a reasonable profit to share-holders on their investment. The profit to shareholders is called "the rate of return"; the total value of a utility's operation and equipment on which it is allowed to earn a rate of return is called "the rate base." Essentially, the revenue requirements of a utility are equal to its operating expenses and its rate bases (minus depreciation) multiplied by the rate of return: RR = OE + r (RB-D).

There is a certain amount of flexibility in this complex equation. The commission can disallow certain operating expenses if they are not in the ratepayers' interest — for instance, unwarranted construction costs. And the commission also has some range in determining a reasonable rate of return. The range is limited, however, by the fact that utilities are competing in the money markets for investment funds. If the rate of return is too low, investors will go elsewhere, and of course today's high interest rates push up utility requirements for a competitive rate of return.

Hidden costs in utility bills can remain so, as far as the General Assembly is concerned. One of the most explosive issues facing the IICC is the question of including construction-work-in-progress costs (CWIP) in the utility rate bases. That practice, banned in neighboring Missouri by referendum, permits utilities to bill ratepayers now for the financing costs of new power plants not yet in service. In 1981, five bills were introduced to ban or limit the procedure. Opponents of CWIP like Steve Baker of the Southern Counties Action Movement argued that consumers should not be forced to subsidize plants that are not yet providing power. "The IICC has become increasingly lenient in allowing these costs," Baker said. "Other states have outlawed the practice, and the lights have not gone out." Another witness compared CWIP to "citizens financing General Motors' new J-Car before it was on the market." But utility lobbyists, as well as IICC officials, testified that ratepayers benefit in the long run

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by allowing utilities construction costs now. And that argument was apparently the one accepted by legislators, who overwhelmingly defeated such bills.

The key to determining rates is a utility's allowed rate base. Legislation which sought to deny certain from a utility's rate base were defeated. Defeated this session were bills which would have disallowed the following costs from the rate base: advertising costs, transportation costs of western coal used to power some Illinois power plants, government fines (such as imposed on Commonwealth Edison by the Nuclear Regulatory Commission). And Senate Energy Committee members were unwilling to delve into the difficult area of excess capacity, which is projected for some Illinois electrical utilities when all current construction is completed.

Meanwhile, more hikes

The utilities are faced with the dilemma of being able to produce more kilowatt hours of electricity as new plants come on line while sales to ultimate consumers have actually declined by 2.49 percent from 1979 to 1980. This appears to be the ultimate irony for allowing CWIP. At present, electrical customers are paying now for construction of plants to produce power that may not have any buyers in Illinois. Where this excess capacity will be sold is unknown.

Action on one CWIP bill was indicative of a posture sometimes assumed by legislators in matters involving their own affairs. A bill banning CWIP was approved by the Senate Energy Committee, though not on its merits. Committee members became angered when a utility lobbyist, there to testify against the bill, announced that his company had checked the power usage of the committee members in the company's service area. It was an attempt to demonstrate that rates have not risen appreciably, though apparently not a very wise strategy. The CWIP ban had a sudden surge of converts among the members, who interpreted the utility study as spying. The bill passed the committee, but later died on the Senate floor after the indignation had subsided.

And, just as the General Assembly was winding up its final business of the spring session, the Commerce Commission announced new rate increases granted July 1 to both Illinois Power Co. and Commonwealth Edison. Illinois Power was granted an electric rate increase of 19.9 percent or $104 million in general revenues which is 82 percent of the utility's original request, and ComEd was granted a general rate increase of 14.5 percent or $503,630,000 in increased revenue. ComEd had already been granted an interim increase of 8.9 percent last November based on its original request; the July 1 increase represents a 5.9 percent increase over current rates allowed under the interim order. Like Illinois Power, ComEd did not receive its full request, which was a 19.7 percent increase or $628 million in general revenues.

Obviously, no one wants to pay higher electric bills; yet, the Commerce Commission's carefully worded news releases of July 1 explained its actions were in the interest of its "continuing concern that the costs associated with generating electricity be passed on to the ratepayer in accordance with the customer's cost to the system." No one has suggested that the state lower electric bills by subsidization of the utilities, but before the ComEd rate increase was announced, Attorney General Tyrone Fahner announced he questions whether the commissioners, "despite their own best efforts, are not receiving thorough explanation of the needs of utilities versus the rights of consumers."

William Lambrecht is the Springfield correspondent for the St. Louis Post-Dispatch. He focuses mainly on political and environmental subjects. Thomas Long was the intern for the St. Louis Post-Dispatch during the legislative session and received his master's degree in the Public Affairs Reporting Program from Sangamon State University.

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By THOMAS LONG

Daniel Rosenblum, newest and most controversial commissioner

DURING the past legislative session, a looseknit group of legislators called themselves "mushrooms" because they were kept in the dark by legislative leaders. Daniel Rosenblum could have easily blended into their membership. Through more than four months of the legislative session, the newest and most controversial member of the Illinois Commerce Commission was not told the details of the political infighting which stalled his confirmation as a member of the Illinois Commerce Commission.

But the occasion which marked the debut meeting of the "Royal Order of Mushrooms," organized in whimsical protest against the leadership's lack of consultation, came on the very day that Rosenblum finally saw some light. On the final Sunday of the session, the "mushrooms" convened around a serving table piled high with variations of the culinary delight with which they identified. Although he had shared much in common with them, Rosenblum was fortunate; his long ordeal ended with his automatic confirmation earlier in the day.

With the seating of Rosenblum on the powerful five-member commission, the philosophical balance has swung from traditional rate-making theories toward the concept of marginal cost pricing. With his arrival, the commission will become more involved in the planning of utility construction projects, a dramatic change from the rubberstamp approval of major investments at ratepayers' expense.

Major industrial consumers are fearful of the new pricing policies, which will increase the costs of high-energy consumption. Under traditional rate structures heavy users pay lower rates after levels of consumption exceed a certain point. The utilities are unhappy at the possibility of giving up the freedom they have enjoyed in building new power plants (of questionable need), while at the same time realizing increased profits gained by guaranteed rates of return. But while the debate over the commission's regulatory duties has become focused squarely on the issues, such was

'. . . it is a surpise to me that I would arouse. . . attacks'

not the case in Rosenblum's appointment.

The 31-year-old lawyer and consumer activist had unwittingly become anathema to business leaders and any Republican senator who had an ax to grind with Gov. James R. Thompson. The political infighting featured numerous plots, strategies and parliamentary maneuvers, most of which Rosenblum was ignorant of at the time. "I am not told very much about what is going on," he said more than once during the protracted dispute which left him wondering whether he would be out of a job. "All I hear is that the governor is behind me and to just sit tight. But it is a surprise to me that I would arouse all the attacks."

Among his "sins," in the eyes of Senate foes, were his past as a draft counselor, staff member for Democratic presidential candidate George McGovern, his legal work as a consumer advocate in utility rate cases and, of course, his Democratic affiliation. In his hearing before the Senate Appointments Committee, which Rosenblum later likened to a "witch hunt," his past affiliations were cited repeatedly. Notably absent were questions about his philosophy on utility economics. At one point, a Republican senator conjectured: "I note here that you are a former draft counselor. Just what does that entail, telling young people how to get around the law?"

The final committee vote failed to produce a favorable recommendation, and the confirmation remained in limbo. Following the hearing, a visibly miffed Rosenblum said: "I wouldn't have thought some of the questions to be relevant."

One of Rosenblum's largest and most obvious problems was that he was the appointee of a Republican governor supported only by Democrats. Although the Democrats controlled the Senate by a one-vote edge, that support was not total; the appointment became a political tool to be used as leverage in the struggles over more visible issues facing the legislature.

As the political jockeying continued, those involved were mindful of a constitutional provision which had largely been ignored with other appointments of the governor. The Illinois Constitution states that if the full Senate fails to take action on a nomination within 60 session days, the confirmation becomes automatic. While the Democrats were not prepared to give Rosenblum all of the 30 votes required to confirm him, they were just as reluctant to call the question because of the fear that he would lose. They engineered a parliamentary move to hold the nomination in limbo, thus blocking attempts by his opponents to defeat him. Business leaders and Republican senators, whose relationship with Thompson during the session was strained, blasted the governor and Senate Democrats for seeking a "pocket confirmation" by letting the constitutional time limit run out.

But their protests and strategies — which included holding hostage the commission's budget — failed. On June 29 Rosenblum became the first major appointment in modern Illinois history to be confirmed without a Senate vote. Senate President Phil Rock defended his refusal to allow a full vote despite a commitment he had made to Republicans earlier. "Emotions were running pretty high on the question of remap," Rock said at the close of the tumultuous session, which featured a fistfight between two senators and several near-brawls. "He [Rosenblum] should not be subjected to a fit of pique by members of the governor's own party for reasons that are unreasonable."

Thompson remained firm in his support of the appointment, despite the prevailing view that he alienated Republican allies by selecting Rosenblum and seeking a back-door confirmation. "I absolutely refuse to give in to the notion that just because you have been an advocate, you can't be a fair judge," he said. "All I ask the critics to do is judge him on his record as a commissioner."

During the months of suspense, Rosenblum seemed to embrace the philosophy of fellow commissioner Charles Stalon, who faced some opposition this year to his own reappointment. "It's a classic example of when the elephants dance in the chicken yard — the chickens stay out of the way," said Stalon, noting his preference to maintain distance from the brutal politics. Sage advice, but for Daniel Rosenblum it was one long dance to sit out.

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