The problem of paying for new power plants that aren't needed

Having lost its bid to use ``nontraditional'' means to recover $7.1 billion it invested in three currently unneeded nuclear plants, Commonwealth Edison Company has begun to examine other options. Last February, the utility calculated that conventional ratemaking would mean a 28 percent increase for customers, or additional annual payments of $1.4 billion. It thus proposed an innovative and controversial plan under which it would seek a one-time rate increase of $660 million, freeze rates for five years, and write off $550 million of its investment in the Byron-2, Braidwood-1, and Braidwood-2 nuclear plants. The plan also contemplated transfer of the nuclear units into a wholly owned subsidiary that would be regulated at the federal level instead of the state level.

The reclassification plan would have permitted Edison, after five years, to sell substantial portions of this nuclear-generated electricity on the wholesale market to interstate and intrastate purchasers. Such a move away from total retail sales within its service territory could have allowed the utility to dump much of its excess capacity to distant buyers while relieving ratepayers in its territory from financing unneeded plants.

Over the next few years, large regional disparities in electricity supply and demand are projected, and provisions in Edison's plan would have permitted it to purchase energy from the subsidiary for its customers.

But the Illinois Commerce Commission (ICC), citing Edison's intransigence in bargaining and the state statute requiring that plant audits be conducted to determine whether construction expenditures were prudent, threw out the proposal in a 4-to-2 vote last month.

The utility entered the commission's proceedings declaring that it would not budge on its proposed $660 million rate increase and that as a condition for following the settlement agreement, prudency audits had to be waived.

After an informal ICC poll July 2 showed that the agency was about to reject the plan, Edison agreed to have the audits, and also offered to refund to customers any recovery of its investment that was later judged to have been imprudent. State law, however, mandates that audits be conducted before plant-related increases are granted, and the statute finally undercut ICC backing for the nontraditional rate plan.

The commission's support for the plan was also eroded by the fact that, according to the ICC, Edison could not justify the $660 million increase. The commission thus concluded it was ``basically faced with an increase [in rates] determined solely by Edison on an essentially arbitrary basis and without the benefits of audits, a position which Edison refused to negotiate....''

While the ICC said it believes ratepayers could potentially benefit from the innovative proposal, the advantages were seen as ``intangible and mostly unquantified,'' and thus did not give the commission a basis for finding that the costs of those benefits - namely, $660 million - were just and reasonable.

Statistical analyses by both the ICC staff and the Illinois Department of Energy and Natural Resources challenged Edison's claim that the nontraditional proposal was a better deal for consumers. These analyses took the $1 billion-plus rate increase Edison said it would seek through traditional channels and subtracted such items as credits to customers from the Tax Reform Act, disallowances for excess capacity and for imprudent construction costs stemming from the audits, and the possible ICC-mandated cancellation of the Braidwood-2 unit.

Edison has now begun mulling its options. A spokesman said the utility could file a traditional rate case, appeal the commission's decision, or work with supporters and opponents of its original plan to craft a revision more acceptable to the ICC.

There appears to be sentiment at both the utility and the ICC to try to fashion some sort of new plan.

Meanwhile, Edison says it is paying about $60 million a month in interest charges on its large investment. And in light of the ICC's rejection of the original plan, Standard & Poor's lowered Edison's securities ratings.