Commonwealth Edison Company has put forward a bold and controversial proposal to reclassify three nuclear power plants from retail to wholesale sources of electricity. The reason: Edison is faced with a large surplus of electricity in northern Illinois, a need to impose substantial rate increases, and intense public opposition to the completion and operation of the nuclear plants.
If the reclassification is successful, the Byron-2 and the Braidwood-1 and -2 nuclear plants would, after five years, no longer be generating electricity principally for sale on the retail market for the utility's customers.
Instead, substantial portions of energy could be offered for sale on the wholesale market to intrastate and interstate purchasers. Edison would be able to dump its excess capacity while still receiving revenues for the energy. Utility ratepayers in Edison's service territory would be relieved of financing plants that are not needed.
This appears to be the first time nuclear plants conceived and constructed for a utility's jurisdictional customers are to be transferred from economic regulation by a state commission to federal rate oversight.
``We think it is brand new,'' says Jerry Benson, a Chicago consultant who was one of the drafters of the Edison proposal.
The three nuclear plants would be transferred to a wholly owned Edison subsidiary. With some exceptions, electricity rates of the subsidiary would no longer be regulated by the Illinois Commerce Commission but by the Federal Energy Regulatory Commission.
For five years, Edison would have exclusive right to buy all the output of the plants, paying the subsidiary $55 million monthly plus fuel costs. Mr. Benson says that during this period, Edison would sell energy to its customers at prices below what they would otherwise be.
Edison would also write off $550 million of its investment in the plants and freeze rates for five years. After this period, the utility has a number of options. Under direction of the Illinois agency, it could enter into combinations of wholesale or retail power sales, or both, depending on the state of regulatory affairs and the need for electricity in the area.
These concessions come at a price to customers, however. The company expects a 9.6 percent rate increase when the plan is put in effect July 1. This would give Edison $660 million more in annual revenue. Opponents say this rate hike is unacceptable. In addition, Edison wants existing challenges to nuclear construction and operation activities cleared away. The main ones:
A ``show cause'' order issued by the Illinois commission on why Braidwood-2 should not be canceled.
Prudency audits of all three units, which threaten to disallow certain construction costs because of possible utility mismanagement.
A court's reversal of a $495 million rate increase approved by the state for Byron-1.
Revenue disallowances for excess capacity.
Threatened rate reductions due to lower costs of equity and changes in federal corporate income tax.
Edison has said that, as part of the nuclear rate settlement plan, it would return to customers an estimated $1.6 billion in savings from new tax laws.
In late February, the state commission voted to investigate the Edison proposal. And in a split decision, it decided to suspend certain ongoing Edison proceedings, including the show-cause hearing for Braidwood-2.
Edison had negotiated with two groups that initially opposed the settlement plan - the Illinois Citizens Utility Board and Business and Professional People for the Public Interest - but was unable to reach an agreement before submitting its proposal to the commission. Subsequently, the City of Chicago joined the opposition.
Often, settlement plans in the energy area reflect agreement of all the parties and are submitted to state regulatory bodies for their imprimatur. Here, however, holdouts by key organizations, combined with the relatively short time permitted to secure a wide range of other regulatory approvals, measurably weaken the possibility that the Edison plan will be approved.
The utility is counting on support from Gov. James Thompson, Illinois Attorney General Neil Hartigan, and Cook County State's Attorney Richard Daley. A host of business groups, organized labor, and community associations have endorsed the plan.
If the settlement agreement is not approved, Edison will have to resume trying to obtain recovery of and a return on the $7.1 billion it will finally spend to construct these three nuclear plants.
Turning again to traditional ratemaking procedures, the company says it will need a rate increase of 28 percent, or $1.4 billion. This would almost certainly be reduced by specific disallowances by the state commission, and investors are likely under such regulatory rulings to experience reduced returns.