It wasn't long ago that an annual rural electric cooperative meeting resembled a county fair or Fourth of July gathering. The old-timers would discuss farm prices and machinery while the women looked at displays of new electrical appliances. Visiting would cease long enough for members to hear a manager's brief report and to quickly elect an unopposed slate of candidates for board of directors.

Today, however, members at many central Illinois cooperatives are protesting skyrocketing electric rates, seeking replacement of long-time board members and questioning whether the New Deal institutions will need to file Chapter 11 bankruptcy. The primary cause of this discontent can be directly linked to the co-ops' involvement with Illinois Power Co.'s nearly $4 billion nuclear power plant in Clinton in DeWitt County. Some co-op members are so disenchanted with Illinois Power that they have filed a class-action lawsuit against the utility asking the state courts to release the co-ops from ownership with Illinois Power in the Clinton plant, which is scheduled to go on line this summer. The lawsuit charges that Illinois Power's construction mismanagement led to massive cost overruns.

The cooperatives' involvement with Illinois Power began 11 years ago when two central Illinois co-ops, which generate and transmit electricity, purchased 20 percent of the Clinton plant. Soyland Power Cooperative, based in Decatur, and Western Illinois Power Cooperative (WIPCO), located in Jacksonville, each were to borrow about $45 million from the Rural Electrification Administration (REA) through the Federal Financing Bank to invest in the Illinois Power project. When the REA approved the loan in 1977, however, it was increased to $200 million because Illinois Power had already increased the plant's price tag. Soyland and WIPCO in turn sell power to 22 other cooperatives which sell electricity to their members across central Illinois. The cooperatives involved with Illinois Power's Clinton project stretch from the Indiana stateline to the Mississippi River and include about 150,000 members.

Many factors led the cooperatives to join Illinois Power as part owners of the Clinton plant. Tom Moore, executive vice president of the Association of Illinois Electric Cooperatives, explained that in the early 1970s rural electric energy loads were growing about 7 percent annually, the cost of wholesale power from investor-owned utilities was increasing because of the oil embargo and fossil fuel shortage, and the investor-owned utilities informed the cooperatives that their long-term wholesale purchase contracts would not be renewed. Studies at the time indicated that rural electric demands would continue to rise, as the cooperatives were faced with either building a generation and transmission system or purchasing a share of a plant owned by a utility.

While Soyland and WIPCO were searching for alternative energy sources, Illinois Power in 1973 announced it would be building a nuclear power plant for $429 million. During the early 1970s, the federal government was promoting nuclear energy as the power of the future and projecting that nuclear power would be too cheap to meter. Studies conducted by the cooperatives showed that about the same amount of money would be needed to either invest in a nuclear reactor or build a cofired plant, but a strong environmentalist movement during that time made building a coal-fired facility unfavorable. The cooperatives, taking advantage of a U.S. Atomic Energy Comission rule requiring builders of nuclear power plants to offer shares of ownership to municipalities and cooperative-own utilities, bought into the Clinton station.

Cost overruns at the Clinton plant were evident from the start. A year after Illinois Power officials announced plans to build the Clinton plant, a second cost estimate was released hiking the reactor's price to $559 million, and by 1975 the estimate had jumped to $684 million, according to Illinois Power information. When the co-ops purchased their share of the plant 1976, cost estimates had jumped to $814 million, an 89.7 percent increase over the original estimate made only 36 months earlier.

As plant costs continued to balloon, so did the cooperatives' investment. By the early 1980s, the co-ops had returned to the REA for three additional loans to finance their share of the Clinton plant. Robert E. Gant, WIPCO president and Illinois Rural Electric manager, said the cooperatives by 1983 were telling Illinois Power they could no longer finance the plant's skyrocketing cost.

The co-ops and Illinois Power entered into an agreement in 1984 that placed a $450 million cap on WIPCO and Soyland's investment in the nuclear power plant, with the total for the two cooperatives' investment peaking at about $913 million, including interest. The agreement places a ceiling on the cooperatives' share of the plant, which means that the co-ops ownership has already decreased to 13 percent and will continue to decline as Clinton's cost increase.

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The Clinton nuclear power station, owned by Illinois Power Co. and two rural electrical cooperatives in central Illinois, is scheduled to go on line this year. Photo © 1986 The State Journal-Register

Co-op supporters contend that the decision to invest in the Clinton plant was a sound business decision at that time, and no one could predict then what would happen in the nuclear industry. Higher costs are partly blamed on stricter and costlier federal requirements for nuclear reactors after the accident at the Three Mile Island nuclear plant. Dissident groups, disenchanted with the cooperatives and Illinois Power, argue that cost overruns at the Clinton plant were evident before the near-meltdown at Three Mile Island. The disenchanted ratepayers of the Illinois co-ops claim Illinois Power badly mismanaged construction of the Clinton plant and caused many of the cost overruns, and some co-op members blame WIPCO, Soyland and the REA for not pulling out of the project.

An Illinois Power official attributed the massive cost overruns at the plant to runaway inflation and constant changes in Nuclear Regulatory Commission (NRC) rules. William C. Gerstner, Illinois Power executive vice president, said last July that the cost overruns at the plant were justified and resulted from runaway inflation that plagued all businesses during the late-1970s, poor cost estimating and constant changes in NRC regulations, resulting from the Three Mile Island accident in 1980. He attributed 55 percent of the cost overruns to NRC regulations that were not in effect when the plant was designed and 22 percent to inflation. "We have been subject to 10 years of design changes. Every time the NRC saw a different situation they required a different design change," Gerstner said. Petricia S. Reynolds, Soyland director of public relations, and Gant of WIPCO agree with Gerstner that NRC regulations can be blamed for a large portion of the plant's cost overruns. "None of us could foresee what was going to happen in the nuclear industry. Who could see those problems?" Gant said. Reynolds added, "At the time the decision was made, it was good. The cooperatives did many studies looking at the costs associated with a nuclear plant. The cost projections were made prior to Three Mile Island. The cost overruns evolved slowly, and could not be forecasted. I don't think at any point there was sufficient evidence to halt construction."

An audit prepared by Touche Ross & Co. and Nielsen-Wurster Group and released last year blamed Illinois Power for $294 million to $436 million of delays and cost overruns. The audit suggests that Illinois Power did not fully understand the complexity and requirements of building a nuclear power plant until late in the project. In addition, the audit criticizes the utility for selecting a contractor that had only built fossil fuel plants. The audit blamed poor management for excess spending and said Illinois Power was responsible for problems that delayed construction for 18 months. The 1,300-page audit was conducted to help the Illinois Commerce Commission determine what part of cost overruns at the plant should be paid by customers.

Lewis Powell, a member of the Federation of Rural Illinois Electric Ratepayers and leading plaintiff in the lawsuit against Illinois Power, said the audit supports the claim that cost overruns at the plant were evident before the near-meltdown at Three Mile Island. "It should have been clear by 1977 that Clinton was an expensive project. At that point, the REA had agreed to escalate WIPCO and Soyland's original loan from the original $90 million to over $200 million," he said. The REA should have stepped in and stopped loaning money to WIPCO and Soyland for their investment in the plant, Powell said. He believes that if the REA had quit loaning money to the cooperatives to invest in Clinton, its actions would have suggested that the federal government had withdrawn support for nuclear energy. "The REA lost sight of who they were taking care of. The REA blindly pushed the cooperatives ahead into the project. The cooperatives got in over their heads. Then they had to convince themselves they were being successful," he said. "People generally get into a project, and when it becomes sour they hide their head in the sand.'' "It was clear from the beginning that Illinois Power was the sole manager of the company," he added. "It wasn't until the REA approved the fourth loan that the cooperatives were forced to retain someone to oversee construction. If the coops had someone in there earlier, how long would they have stayed in the project?"

David Collins, a member of Coles-Moultrie Concerned Citizens and a plaintiff, agrees with Powell that there were early indications that the Clinton project was going to exceed its cost projections. Collins points to a report prepared by Prairie Alliance, a central Illinois environmentalist group, that projected massive cost overruns at the plant and suggested alternative energy sources for rural electric cooperatives.

"It first began as an environmental issue because at that time the plant projection cost was less than $1 billion. However, it soon became an economic issue," Collins said. "By 1979, the group was asking Coles-Moultrie [Electric Cooperative] to look at alternative energy sources, but I don't think they really ever considered any alternatives."

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When Collins' plea to the Coles-Moultrie Electric Cooperative board of directors to find alternative energy sources got no response and his questions about the increasing costs of Clinton received no answers, he began writing letters to the editor of the cooperative's monthly newsletter. The letters were not printed, and Collins sued the cooperative to obtain a membership list. An out-of-court settlement gave Collins the right to write an article for the newsletter, but he was not permitted to use the words "Illinois Power," "Clinton," "Soyland" and "Coles-Moultrie Electric Cooperative." He believes that his fellow cooperative members would not have learned about the impact the Clinton plant would have on rural electric rates if a local reporter had not picked up on his struggle to inform ratepayers.

Exorbitant electric rates and lack of action by the cooperatives prompted rural electric ratepayers to file a class-action lawsuit in September in Sangamon County Circuit Court against Illinois Power, WIPCO, Soyland and 22 other central Illinois co-ops. The lawsuit gives the 22 cooperatives an opportunity to align with ratepayers and become plaintiffs.

The suit asks that Illinois Power pick up the entire cost for the cost overruns at the plant or that Soyland and WIPCO be let out of their agreement with the utility. According to an Associated Press report in September 1986, a ruling against Illinois Power could have far-reaching implications for the company, already strapped by cost overruns at the plant. If the court rules in favor of the plaintiffs, Illinois Power's price tag for the plant would jump another $900 million.

The plaintiffs allege that the utility represented the Clinton plant to the cooperatives as an inexpensive source of power, that the co-ops' cost would be $45 million each and that the plant would be in operation by the summer of 1980. The suit claims that Illinois Power had a fiduciary responsibility to Soyland and WIPCO to safeguard the interests of the co-ops.

Instead, the suit contends, the utility breached its fiduciary relationship because it misrepresented the cost of plant construction and the completion date, failed to determine whether continuing with the project was prudent and did not properly manage the plant contractors and construction. In addition, the lawsuit says rural electric ratepayers face exorbitant electric rates because of cost overruns and construction delays resulting from Illinois Power's mismanagement. Illinois Power officials declined in November to be interviewed on the pending litigation and on plant construction.

Powell believes the utility will contend the construction decisions "were made on fairly correct assumptions. The decisions were made in an era [when] if you did not have a nuclear power plant you were not a progressive company." He adds, "Building the plant for Illinois Power was an emotional decision rather than based on sound judgment. The cooperatives entered on blind faith. The co-ops felt Illinois Power was the big brother and would look out for the best interest of the cooperatives. They put their trust loyally in Illinois Power."

Currently several motions to dismiss the suit have been filed by the co-ops' and Illinois Power. Powell contends the ratepayers had no alternative to filing the lawsuit after the co-ops declined to file their own. In an affidavit, plaintiff's attorney Thomas F. Londrigan of Springfield says the ratepayers made several demands on the co-ops to file a lawsuit against Illinois Power but were informed last August that the co-ops would not be seeking any litigation. In a motion filed by Soyland, WIPCO and 16 co-ops, the defendants contend the ratepayers did not make a demand to the cooperatives to seek litigation against Illinois Power. Reynolds said ratepayers never made a demand on Soyland to seek litigation against Illinois Power. "If Soyland believes Illinois Power had breached its fiduciary role, it will pursue some form of litigation," Reynolds said.

Some ratepayers believe the class-action suit is the last chance to save central Illinois rural electric cooperatives. Powell believes the cooperatives cannot afford to pay back loans to the REA without defaulting or filing for Chapter 11 bankrupty "The co-ops are paralyzed. They have acquiesced far too long. If anything is going to be done, it has to be done by the members," Powell said. Collins agreed with Powell that rural ratepayers must "pull together because people living in town aren't faced with this problem and won't support the movement."

Powell agrees that the cooperative plight is a rural problem that is compounded by the farm crisis. He said many farm operations are dependent on electricity and the farmers cannot absorb the high electric rates.

Reynolds believes that scare stories of massive rate increases, loan defaults and bankruptcy prompted the lawsuit. "People were hearing a lot of scare stories about doubling and tripling of rates. That isn't true," she said. Soyland wholesale electric rates to member co-ops have increased 21 percent since 1984 and will rise another 3 percent this year, Reynolds said. Rates will increase 6 percent in 1988, and by 1989, she said, wholesale costs will increase with the current, extremely low rate of inflation.

Anticipating the impact on the co-ops, Reynolds said Soyland in 1983 began taking measures to mitigate their costs tied to the nuclear reactor. These included implementing an equity funding program to offset the interest costs and the refinancing of the co-op's debt. Refinancing the debt is expected to save Soyland about $11 million annually. "If Soyland had not refinanced its debt, capped its investment and started the equity funding program, there is no doubt the entire project would have had a greater impact," she said. "The cooperatives will always have more expensive power because of the density factor, but we are trying to be competitive. You can't erase something just because you don't like how it turned out. You live with it and find a liveable solution," Reynolds added.

Currently WIPCO is in the process of restructuring its debt with the REA. If the REA approves the restructuring plan, WIPCO's wholesale rates should match Soyland's future projections. Gant is optimistic that the REA will approve the derestructuring because "the REA realize member unrest in this area is great." Gant said, however, that if the restructuring pt is not approved, WIPCO wholesale rates will "go up significantly."

Although the co-ops are trying to ensure the future of the institutions that have survived for over 50 years, many members aren't optimistic. Member ratepayers leave annual meetings frustrated and scared that their monthly farm income will not be enough to pay the electric bill.

Crystal Schrof, a former reporter for the Jacksonville Journal Courier, is a graduate student in legal studies at Sangamon State University.

24 January 1987/Illinois Issues