Reddy Kilowatt's Dark Hour

...It pictured " t e n little free workers" who told how the "socialists got the investor-owned utilities," then in quick succession socialized the doctor, railroader, miner, steelworker, farmer, lawyer, grocer, salesclerk, and finally the newspaper reporter...

...And because the risks associated with it are so great, it is under serious assault...

...IRS regulations allow utilities to finance up to 30 per cent of all new plants with PCBs...

...That ravenous need for dollars and the demands of other energy corporations such as the big oil firms (which have accelerated their demands for money to secure massive lease purchases and to finance offshore and Alaskan drilling) have created fierce competition for investments, thus driving up interest rates and affecting the entire economy by severely distorting the capital markets...

...But nuclear power is proving to be an exceedingly expensive option...

...For most systems, the ten largest stockholders are dominated by banks...

...A lag began to build between the time when Con Ed wanted the money and when the PSC granted it...

...Thus, Con Ed, which takes in more revenue than any other electric utility, was caught in a capital squeeze...

...Through such a bill an attempt will be made to confront the weaknesses of both investor-owned and public power systems...

...When New York's Consolidated Edison, America's largest private electric utility, announced this year it could not pay its second quarter dividends on June 15, shock waves rippled through the investment industry...

...In addition to rapid growth, the utilities are experiencing rapid changes in their social and technological environments...

...If the books had been audited, the public would probably have discovered that Con Ed is actually in worse financial shape than it claims...

...Power companies may be able to use their advertising and bought legislators to get what they want, but they are now running into problems with citizens...

...Because the investment tax credit can be a major assist to utilities, the Administration is supporting a raise in the investment tax credit for utilities from 4 to 7 per cent...

...For example, Con Ed paid 24 per cent of its electricity operating revenues in state and local taxes...

...Control of utilities is also still concentrated in the hands of large banks and financial institutions...

...But their capital intensity is creating a greater need for money now, in the early years of the atomic age, and this pressure is a factor contributing to higher rates...

...But Richard Morgan, a utility expert at Environmental Action Foundation, has calculated that for each dollar a company saves with PCBs, the U.S...

...Thus, as the total investment increases, the amount that is earned increases, so it pays utilities to splurge on capital-intensive equipment, such as nuclear power...

...After Con Ed's announcement that it could not pay its dividends, the utility stock index plummeted...

...In addition, utilities are inventing entirely new types of increases to justify pressing their ratepayers for more money...

...The Federal Energy Office has made higher rates for utilities one of its major priorities...

...The political power of the private utilities is most readily apparent at the state level...

...An alternative to gas is coal, but it is not as clean as other fuels, and mine safety and strip mining regulations are raising its price and limiting its availability...

...By this method, a company can reduce its tax liability on equipment during the early years and increase it later...

...The city of Berkeley has already held one vote on the question of purchasing the PG&E holdings within its city limits, and although the first attempt lost, the issue will come up again...

...Immediately other utilities tried to protect their own positions by pointing out that Con Ed was unique...

...But strong public sentiment was emerging for public ownership of the monopolistic private power companies...

...With investor-owned utilities in big trouble the talk of public ownership grows Reddy Kilowatt's Dark Hour SAM LOVE Who would have thought that Reddy Kilowatt—that red-baiting rascal—could get in such serious trouble...

...Too much is at stake to allow a utility system enslaved by greed to continue to grow, exploit, and abuse the earth and its people...

...Servicing New York creates other problems...

...Energy growth rates could be brought under control, and by allocating energy to essential uses, a high standard of living could be realized by larger numbers of people without the construction of massive new power plants...

...Con Ed's labor costs are also higher...

...Other large holding companies include the Southern Company, Mid-South Utilities, and the New England Electric System...

...The net effect is that utilities are given an interest-free loan by the people...

...Electric utilities already account for 75 per cent of the strip mining of coal and for large percentages of major pollutants...

...Their appetite for money is so great that even Wall Street is getting squeamish: In 1971, the industry raised $8.4 billion from capital markets...

...Another sure signal to t h e big institutional investors that Con Ed was in serious trouble...

...Its first real threat came in the early years of electrical generation...

...Others believe the Federal Government will have to take over the generating business entirely and leave the distribution part to the utilities...

...With one-half billion dollars or more invested in each large plant, and ninety-eight units presently operating or under construction, the capital cost of a nuclear moratorium would even now be staggering...

...The time, then, is fast approaching when we can de-energize Reddy Kilowatt's industry...

...By tapping the atom, they said, electricity would one day be so cheap we could throw away electric meters...

...The price for such a resource-draining increase would be a significant reduction in the quality of life...

...The nature of rate regulation is such that utilities are allowed a guaranteed return on investment...

...Nothing seemed to worry the investor-owned systems except public power...

...After all that propaganda—paid for by electric users—who would have thought Reddy Kilowatt would be asking for government handouts...

...Rates could be structured to eliminate incentives for energy waste...

...Today holding companies are still very much with us...

...The study determined that at least half of the ninety-nine major investor-owned systems are owned by their ten largest stockholders...

...John Chase, a leading financial portfolio manager, has said that utilities' needs are so great that when coupled with other pressing needs for capital "they challenge the traditional financing concepts...

...Such involvement by the Federal Government could threaten a change in the structure of the industry, so that the investor-owned systems become publicly owned...

...They blame the New York utility's problems on its huge service area—the five boroughs of New York and Westchester County...

...To expand, the utilities stimulated demand...

...Only a few years ago everything looked brighter than a new light bulb...

...As financial pressure built up, the company increasingly tried to obtain steep rate increases, and at first these were granted by the Public Service Commission...

...Insull also helped pioneer the holding company concept, which allowed large financial interests such as those behind General Electric, the leading supplier of equipment to the fledgling electrical systems, to consolidate control of the emerging industry...

...was its difficulty in raising new capital...

...Combined with investment tax credits that provide tax deductions for new investment, utilities are able to pay decreasing amounts of taxes at a time when their revenues are increasing...

...Herbert S. Denenberg, in his article, "Nuclear Power: Uninsurable," in the November issue of The Progressive, describes in detail the lack of protection of the public in t he event of such a catastrophe and the limited financial responsibility required of the utilities...

...In 1932, Insull resigned all of his directorships, presidencies, and chairmanships and departed for Europe just before he was indicted for embezzlement, using the mails to defraud, and violation of the bankruptcy laws...

...In 1955, 14.7 per cent of the power industry's revenue went to Federal taxes, but by 1971 this figure had declined to 6.2 per cent...

...A major point of contention was an audit by the state of Con Ed's books...

...is made up of eight power companies...

...In California, an active campaign against Pacific Gas and Electric (PG&E) is being organized by Electricity and Gas for the People (E&GP) to build a solid community base to organize for public ownership of the power company...

...This contribution of capital-intensive energy corporations to our present inflation and high interest rates is a fact the White House economists ignore...

...Utilities can keep attorneys on retainer as a legitimate expense...

...Thus Reddy Kilowatt's companies can finance new construction by issuing bonds in the name of the county in which the facility will be built...

...Their advertising take-off on the ten little Indians was a classic...

...Thus, when oil prices went up, Con Ed was hit hard...

...As a result, Con Ed has been compelled to rely increasingly on old units that should have been retired...

...Nuclear power is also one of the reasons utilities have drastically increased their demand for capital...

...Taken as a whole, utilities across the country have postponed or cancelled 18 per cent of expansion planned for the next four years...

...Financial experts and politicians are beginning to talk about a "Federal energy bank" to provide low interest loans to utilities...

...Private ownership and control are being questioned because so much of what threatens the future is tied to energy systems...

...Their money-grubbing before state commissions is being assisted by the Ford Administration, which is actively lobbying these regulatory commissions to provide "immediate and adequate rate relief" to utilities...

...Under the direction of Lee Webb, a member of the Governor's Energy Advisory Committee in Vermont, a bold model bill is being drafted for introduction into state legislatures...

...To a utility executive, this means that his shiny new nuclear plant, which was built to supply 1,000 megawatts of electric power, will produce only an irregular 800 megawatts for sale...

...A major nuclear reactor accident would have staggering social and ecological consequences...

...But if its ardent supporters in the White House can toast Mao, the utility industry can retreat from the campaign that its Electric Companies Advertising Program launched in 1949 under the slogan,GOVERNMENT IN ANY BUSINESS IS SOCIALISM...

...In 1973 utilities issued $579 million worth of PCBs...

...Nuclear power could be such a big gamble for the investor-owned systems that many utilities are risking their very existence as capitalist institutions...

...But public power, with all of its faults, still has advantages over a privately owned electric utility system, subsidized by the people and run by an energy trust...

...Consolidated Edison shocked many all-electric customers by using the fuel adjustment clause to justify doubling electric bills in less than one month's time...

...New York's dense population also creates problems by making plant sitings a nightmare for both the utility and New Yorkers...

...But while demand shot up, its new power plants have not come on line to generate electricity...

...But what is increasingly coming under challenge is the rate-making structure itself...

...The difficulties utilities face in raising funds to meet scheduled capacity increases are doubly significant because the utility industry alone now raises about 20 per cent of all new capital...

...Although the odds are remote, the possibility exists that a nuclear plant could experience a catastrophic accident of a magnitude never before witnessed by any civilization...

...The American Electric Power Co...

...Utilities, which are sanctioned monopolies, are supposed to be among the safest of investments...

...A more innovative approach is being developed by staff members of the Institute for Policy Studies, the Exploratory Project on Economic Alternatives, and Environmental Action...

...Other urban systems encompass larger areas with industrial plants and residential suburbs which balance the load by creating a consistent demand...

...Con Ed, for example, had never missed a dividend since it was founded before the turn of the century...

...The operating level of the plants is now hotly debated, and nuclear plants, for safety reasons, have been derated to 30 per cent of their generating capacity...

...They will soon surpass the weapons program as the principal source of radioactive wastes...

...The maintenance of the high-energy affluent life style will dictate more and more domestic and foreign exploitation of people and resources...

...After all the loopholes have been used, the utilities are legally allowed one more accounting trick: Power companies may defer tax payments, so that anything that has to be paid to the Federal Government can be delayed for years...

...A publicly owned system responsive to social needs could shift research priorities from capitalintensive nuclear reactors, which can be financed and owned only by big capital, to solar and other technologies, which do not require capital-intensive centralized power generators...

...One utility alone, Chicago's Commonwealth Edison, must raise $2 million a day for the next several years simply to meet its construction schedule...

...Fuel adjustment clauses allow utility companies to pass fuel prjce increases along automatically to consumers without having to secure prior approval from public service commissions...

...Con Ed, for example, encouraged all-electric heat—the most inefficient heat source—for homes and offices...

...Four New York banks are among the ten largest stockholders in at least thirty different power companies...

...The "fuel adjustment clause" is just one of the latest to appear...

...Ratepayers' money could be used to finance increases in capacity, and only limited amounts of money from Wall Street were needed...

...Power company executives appear regularly before public service commissions, pleading for rate boosts of up to 20 per cent to offset the capital squeeze they contend their companies are facing...

...It offered preferential rates to encourage the construction of large energy wasters, such as the gargantuan World Trade Center...

...Even with such rate-raising gimmicks as the fuel adjustment clause, utilities are resorting to other accounting tricks to secure the capital they need...

...The very growth that has made utilities an attractive investment is now taking its toll...

...By the turn of the century there were 2,805 privately owned and 815 municipally owned systems...

...With this device a privately owned utility can raise money for at least two percentage points less than it could secure through normal financial channels...

...The scandals forced Congress to look at the utility industry...

...State legislatures are packed with attorneys, so in many states power companies have the legal firms of many members of the state legislature on retainers...

...Reddy Kilowatt is in serious trouble, and the future promises only bigger problems for him...

...Natural gas, the preferred fuel, is in short supply, and its future use for generating electricity is limited...

...Industry managers take the money that should be paid in taxes and deposit it in an account for payment at a later time...

...Utilities are finding larger and larger loopholes in their Federal income tax returns...

...In 1882, Thomas Edison switched on the first successful electric system in New York...

...One source of capital is taxes collected from ratepayers...

...Though such systems as TV A are publicly owned, they have in many cases performed as irresponsibly as private corporations...

...Continuation of this trend would mean that within the next ten years the industry would have to construct as much generating and transmission capacity as it built in its first 100 years...

...in 1974, it wants at least $11.2 billion...

...Thus, the utilities are part of a much larger energy conglomerate of banks, holding companies, equipment suppliers, and financial institutions that can only be described as an energy trust...

...It calls for the creation of locally controlled Public Energy Districts that would own and operate all energy forms in a community...

...While Con Ed is, in some ways, unique, it shares an underlying logic with other investor-owned systems: To attract capital they must grow...

...But the company passed on most of its higher fuel costs to customers, so increased fuel prices cannot explain the utility's financial plight...

...Advertising would no longer focus on promotion...

...But the industry has been in bad situations before and has managed to wiggle out of them without change in the corporate structure...

...They emphasize that it costs more to do business there than anywhere else...

...Consumers Power of Michigan, for one, recently cancelled a projected $1.4 billion nuclear power plant...

...Requests for larger and larger rate increases are being made so frequently that consumer concern is forcing public utility commissions to look carefully at new requests...

...The investment tax credit also encourages investment in capitalintensive equipment such as nuclear power...

...With capital needs high, utilities are still frantically trying to raise rates...

...That ad first appeared in 1950, and the private utilities repeated it for fifteen years...

...Normally, such an analysis would be dismissed as the babbling of a deranged political activist...

...Con Ed's dividend cancellation upset Wall Street so much that utilities across the country became suspect, and the financial community started talking about a "Con Ed syndrome" sweeping the industry...

...Fossil fuels might be funning short, but industry executives held forth the promise of nuclear energy as the future source of virtually unlimited electric power...

...Grand visions are being drawn of gigantic Federally owned nuclear power parks around the country, complete with uranium enrichment facilities, nuclear power reactors, and facilities that can reprocess the used atomic fuel...

...Acceptance of the regulated monopoly concept conferred legitimacy on investor-owned systems...

...One system that is used to manipulate tax payments is 4' accelerated depreciation.'' Through accounting hocus pocus, utility executives are able to depreciate property for tax purposes more rapidly than it actually wears out...

...Because of this, he sees the necessity for governments " t o extend direct and indirect subsidies...

...As one of the fastest growing segments of corporate America, investor-owned utilities are now approaching certain limits...

...The wheelings and dealings surrounding utility holding companies finally led to Federal Trade Commission investigation in 1928 that shook the whole utility house of financial cards...

...Shortly thereafter, cities started developing their own systems, which they owned...

...but the companies' needs have abruptly changed and now they require extensive amounts of money from the capital markets...

...By 1907, he got the National Electric Light Association, the investor-owned systems trade association, to agree with him...

...For many small weekly and daily newspapers, advertising by the utilities is the single largest account, and utilities use this leverage to maintain a favorable climate of opinion...

...For example, TVA is one of the largest purchasers of strip mined coal and is a major advocate of nuclear power...

...That same year the first regulatory commissions were established in three states—Wisconsin, New York, and Georgia...

...They then proceed to use the deferred taxes account to invest in new equipment...

...By 1932, 72 per cent of the power output of privately owned systems was generated by subsidiaries of eight large holding companies...

...In contrast, the nationwide average of utility revenues that go to state and local governments is 10 per cent...

...Normally, utilities can rely on ratepayers' money to finance expansion, but their capital needs have increased so much that power companies must now go outside their structure to raise larger and larger sums of capital...

...Significant victories are being won...

...One relatively new device is the pollution control bond (PCB...

...Treasury loses about two dollars in tax revenue because income from the bonds is not taxable...

...And each day it gets larger...

...therefore, it pays utilities to build reactors...

...The audit was defeated...

...Each work day commuters pack the area, creating a large demand, but after 5 p.m...

...The Georgia Power Project, a coalition of labor, consumer, and minority groups, won a change in rate structures which puts a heavier burden on large residential users, defeated a promotional plan, appealed to the Securities and Exchange Commission to limit the company's dividend, and obtained a whopping $24 million rate reduction...

...Atomic plants have been sold to the utilities by such corporations as General Electric and Westinghouse on the premise that even though the initial costs of atomic plants are higher than those of fossil fuel plants, over the long run nuclear fuel costs are theoretically lower...

...As a result, some New York apartment residents received bills of more than $300 for one month's service in early 1974...

...To restore confidence, Con Ed announced in July that it was restoring its quarterly dividend, paying twenty cents rather than the normal forty-five cents common dividend...

...Construction of new units, such as nuclear or pumped storage plants, has been fought by citizens and delayed for years...

...Given the investor-owned utilities' history of fighting socialism, many observers were also surprised when the company asked the state of New York to bail it out of its financial troubles by purchasing two partially constructed power plants for $500 million...

...Consolidated Edison and American Electric Power, which operates in Appalachia, were able to avoid all Federal taxes in 1972...

...Many legislators fought hard to stop the successful move by New York's Governor Malcolm Wilson to ram through the deal between Con Ed and the state in the final hours of the 1974 legislative session...

...Not only Con Ed, but most of the nation's utilities, are caught in the money squeeze...

...Investor-owned electric utilities, which little Reddy symbolizes, had enough expansion plans to make corporate assets grow fast enough to boggle bankers' minds...

...The requirements imposed by the securing of nuclear and other high-consequence technologies necessitate social control systems that go far beyond 1984 fantasies...

...In response, Samuel Insull, who, as secretary to Edison, was one of the first to spot the profit potential of electricity, started advocating the creation of public service commissions as a way to quell the growing public power sentiment...

...It was then that Con Ed requested a change in the company's accounting methods so that the corporate books would not show a $10.5 million loss for December alone...

...it could be used to educate people about the most efficient ways of using energy...

...to grow the utilities must sell ever more electricity...

...Congress refused to outlaw holding companies, but it did pass the Holding Company Act of 1935, which provided for the elimination of some holding units, changes in the structures then in existence, and new rules for the remaining companies...

...And as that happens, the future may become a little brighter...

...many of the utility's generators sit idle...

...But we are not living in normal times...

...Air pollution regulations in New York City have also forced the utility to use oil instead of coal...

...Historically, electrical demand has doubled every ten years...

...By tapping public sentiment for a clean environment, utilities helped industry push through a loophole to the tax reform act that allows all pollution control expenditures to be financed by tax-free municipal bonds...

...Wars over fossil fuel resources seem increasingly likely...

...But as they mounted, the Commission started scrutinizing them more carefully...

...With all their present subsidies, the power companies' creative accountants are inventing still more...

...Even though the utility cited higher earnings as the reason for the dividend restoration, Business Week termed the company's accounting so " z a n y " that there was no way to determine how much profit the company really made...

...A report published by the Senate Government Operations Committee in 1973 offers insight into the extent of concentration...

...Although the utility's executives blamed the Arab oil boycott and escalating oil prices for its inability to pay common stock dividends, anyone closely following the utility could have spotted trouble last December, before the boycott could have had any effect...

...Pollution control bonds could be just a harbinger of gifts to come from the Federal Government...

...In many states, power companies are being challenged— often for the first time—on discrimination, rate increases, rate structures, promotional advertising, power plant siting, nuclear power, and air pollution...

...The new bonds have been such a windfall to the money-hungry power industry that use of the technique in 1973 increased by almost 500 per cent over 1972...

...But while private utilities might escape bankruptcy as a result of legal damage suits, it is quite likely that public reaction to a disastrous accident would shut down all nuclear plants...

...For instance, Con Ed told shareholders that it earned $207.7 million in 1973, while it told the Internal Revenue Service that it lost $41.5 million...

...For utilities, the expansion process had worked smoothly in the past...

...With hydropower already close to its limit, the only available alternative for generation of power is nuclear fuel...

...Electric utilities are also among the largest advertisers in local media...