News & Politics » Feature

A Dumb Deal

How many Daley administration officials did it take to screw up the Commonwealth Edison contract? Can City Council undo the damage?



You don't have to read anything. You don't even have to listen to anything to know that Commonwealth Edison clobbered the city in negotiating its proposed new 29-year franchise agreement. Just push the mute button, roll the tape of the October 22 press conference at which the tentative agreement was announced, and watch the mayor of the nation's third-largest city stare down at the podium and hang his head like a whipped dog.

But the deal is not done yet. The Com Ed franchise is a city ordinance as well as an agreement; like a U.S. treaty with a foreign power, it requires ratification by our elected representatives--in other words, City Council. Under normal circumstances Mayor Daley (who says it's a good deal) controls the council, but these may not be normal circumstances.

Let's assume, for the sake of argument if nothing else, that in Chicago's City Council we have a municipal legislature and not a collection of 50 life-size rubber stamps. If the aldermen vote the proposed franchise up or down on its merits, they will have to answer three questions: (1) Just how bad is it? (2) Could it have been better? (3) Can the council do anything now to make it better? The short answers are: (1) Pretty bad, but not quite as bad as its critics say. (2) Yes. (3) Probably. But this is no time for short answers. Since this is the city's biggest contract (though you'd never know it from the Tribune's lack of coverage), let's take them a little slower, and one at a time.

1. How bad is it?

A franchise doesn't have to be all that complicated: the city gives Edison the right to tear up the streets and put up light poles, and in return Edison gives the city money and promises to do a good job. Nevertheless, Edison's franchise is a big deal because many of Edison's customers think that it's (let's be polite, now) not doing a good job. They see the negotiations as a once-in-a-generation opportunity to make this monopoly shape up. And they think Mayor Daley botched the opportunity. (The current franchise, set to expire December 31, was negotiated in 1947-48; if this one passes, it will come up for renegotiation in 2020.) In the long view--adopted by, among others, Scott Bernstein, president of the Center for Neighborhood Technology and a member of the Mayor's Electricity Working Group--the franchise could also express the city's energy policy, show how serious Chicago is about environmental cleanup and resource conservation.

Unfortunately, "the new agreement is basically just a rehash of the old agreement," 49th Ward Alderman Joe Moore told a radio audience November 4. Susan Stewart, executive director of the Citizens Utility Board, agrees. "It's no big deal. The consumers don't get much more than was already in place." The city's special counsel, Conrad Reddick, counters, "It's not what we wanted, it's not what everybody else wanted--but it's not nothing. We shot for the stars and hit the moon." Chief city negotiator Robert Helman goes further: "It is clearly the best franchise in the United States." But that may be only because other cities have paid little attention to theirs.

Point by point:

High bills are what make Edison Chicagoans' number-one hate object. Back in June Helman told the City Council's Committee on Energy, Environmental Protection and Public Utilities that bill relief for residential customers was one of the city's seven "points of emphasis."

But the proposed franchise says nothing about bills. It couldn't say anything directly, since state law requires that the Illinois Commerce Commission set utility rates for privately owned utilities. (By the way, this is one reason groups such as IVI-IPO and the Labor Coalition on Public Utilities favor having the city buy out Edison instead of negotiating a new franchise: publicly owned utilities may not be subject to what these groups consider the anticonsumer bias of the ICC.) But the franchise could have dealt with bills indirectly; after all, the city took credit for Edison's agreeing to slightly lower service fees in an ICC proceeding in August 1990. Similarly, the franchise could have included an agreement under which the city and Edison could jointly petition the ICC for lower rates for low users of electricity (Edison now gives volume discounts, so a Lake Forest family heating its swimming pool pays less per kilowatt hour than a west-side family huddling around a lone space heater).

However, the franchise does require Edison to conduct a "cost of service" study and to provide the city with a copy. It also requires Edison to ask the ICC for rate changes (an end to volume discounts?) if Edison decides the study warrants it. Reddick believes that the study--unlike its many predecessors that Edison has conducted for the ICC--will show a need for lower rates for low users, and that if Edison balks the city will force the issue. (Exactly how is not clear: see "29-year term" below.) The mayor's proposed city budget includes, for the first time, money for staff to track utilities and their compliance with their franchises.

Advantage: Edison.

Conservation. One way to lower electric bills is to lower rates; the other way is to use less power or use the same amount more efficiently. Other electric utilities across the country have found it cheaper to spend money to help consumers conserve than to build new power plants. Com Ed has fought this trend tooth and nail; in his June testimony, the city's Robert Helman displayed a striking bar graph showing that Edison budgets 25 cents per customer for energy-efficiency programs, whereas Southern California Edison spends $17.49 and Wisconsin Power $68.06.

In the proposed franchise Edison agreed to spend $25 million on conservation over five years, and another $25 million or more if the utility concluded that any of these conservation programs was cost-effective. This is a fivefold increase over its current spending of about $5 million over five years, but it is still infinitesimal compared to what its colleagues spend (still under $2 on Helman's graph!). According to Scott Bernstein, "Electric utilities across the country typically spend 2 to 6 percent of their revenues on conservation"--the state of Iowa now legally requires 2 percent. He says the Mayor's Electricity Working Group recommended that the city try for $200 million to $600 million over five years and ask Edison to target those expenditures on the city and on low-income areas. The city got neither that amount nor a promise to target these areas--so the $25 million could well be spread across the entire northern one-fifth of Illinois.

Even the $25 million is cold comfort to CUB's Susan Stewart. "All those programs were previously mandated by the Illinois Commerce Commission," she says, adding that the recently announced plan to distribute light-bulb kits at cost may well have come out of the behind-closed-doors negotiating process now being conducted by the ICC in lieu of public proceedings on least-cost energy planning.

Advantage: Edison.

Affirmative-action and equal-opportunity provisions in the new franchise are much stronger than those in the 1948 agreement (they cover more groups and apply to "customers and contractors" as well as hiring)--but that's due to social changes since 1948, not city negotiating prowess. At the November 8 Energy Committee hearings, city negotiator Robert Helman said that Edison's is the only U.S. franchise with such provisions. But Bernstein points out that these provisions are redundant, since all power plants have to conform to federal, state, and local civil rights laws.

Advantage: This one's even.

Reliability. Edison agreed to spend $1 billion over ten years on upgrading its transmission and distribution lines in the places recommended by the city's consultant last summer. But according to Com Ed spokesman John Hogan, a large portion of this work was already slated to be done under the utility's five-year system-wide capital improvement plan (according to CUB's Susan Stewart, all of it was). But even if these were all new dollars, they wouldn't represent a victory for the city--for the 1948 franchise requires Edison to "operate and maintain [its] Facilities . . . in accordance with the highest standards and best systems, methods and skills then reasonably available." Worse yet, says Doug Cassel of Business & Professional People for the Public Interest, to the extent that the line upgrade is new money, it could increase the utility's rate base--and raise customers' bills: "So not only will Daley have not negotiated any rate relief, he will have pulled off the great feat of negotiating a rate increase!"

Advantage: Edison.

The acquisition option. Under the 1948 franchise the city had the power to acquire Edison's facilities (not clearly defined) at their investment cost. The city hung on to this right in the proposed new franchise, even though Edison wanted it out.

Advantage: This one's even.

A 29-year term. Edison said it wanted the franchise to last 50 years for stability; the city said it wanted 10 years to allow it flexibility in a fast-changing field. So why not split the difference?

The Chicago Electric Options Campaign argues, "It would be insane to sign a 29-year contract with a company that has shown a limited ability to adapt to changing circumstances." Beyond this lies a deeper issue. The reason to have a short-term franchise is in large part to make sure Edison keeps its promises. If the city could hold Edison accountable some other way, it might not matter whether the franchise lasted 29 years or 29 minutes.

So what kind of accountability did the city get? According to Reddick, the proposed franchise requires not just an annual report from Edison (as the 1948 agreement did)--it also requires that report to include updates on conservation, reliability, affirmative action, construction plans, outages, forecasts, and copies of some of Edison's reports to other regulatory bodies. And it mandates an annual meeting between the city and Edison to discuss them. Serious disagreements could go to a panel of three "disinterested" engineers, exactly as under the 1948 agreement. And if that didn't help, in theory the city could exercise its option to acquire the utility.

Missing, according to Scott Bernstein, are performance standards and sanctions ensuring that the meetings will accomplish something. "We [the Mayor's Electricity Working Group] asked for frequent reviews of performance and sanctions if performance wasn't as agreed"--for instance, fines or performance bonds. "We did get annual review, implying some kind of monitoring yet to be specified, and some kind of responses yet to be specified. That's pretty damn vague. If you came in on McCormick Place or White Sox park as a contractor with provisions that vague, you'd be laughed out of the room."

Advantage: Edison.

Franchise fee. Edison wanted to pay only one-half of 1 percent instead of its current 4 percent of gross receipts, and to pay it at year's end; the city wanted the 4 percent paid monthly, yielding it an extra $2-3 million a year in interest. The city got what it wanted.

Advantage: City.

Blackouts. If a consumer suffers 12 or more straight hours without power because of "operating error or equipment malfunction," Edison will now give him or her credit against the service charge. This sounds like a better deal than it is, because (according to CUB's Susan Stewart) the vast majority of Edison outages are due to "unknown" causes. State legislation supported by CUB would have provided consumers credit if they had a total of four hours without power in a given month, excepting only those outages caused by "acts of God."

Advantage: Edison.

One group of elected officials has already nicely summarized the trouble with the proposed franchise: "We submit that the present ordinance fails to guarantee to Chicagoans electrical energy at the lowest possible rates commensurate with effective operation, that the . . . length is out of the question and completely indefensible in these changing and uncertain times, that small users of electricity have absolutely no assurance of fair and equitable treatment and that their rates may continue extremely high, and that Chicagoans are not being offered a contract in which equitable provisions are made for policing the franchise. . . . The proposed ordinance is hopelessly weak and ineffective, and must be rejected." In these words aldermen Allen Freeman, John Hoellen, Robert Merriam, and Alban Weber criticized the 1948 franchise 43 years ago.

2. Could the city have cut a better deal?

"I expected Daley to do something that would not be worth much but would at least look good," says BPI attorney Doug Cassel. "The fact that this doesn't even look good tells me that he got the, uh, something kicked out of him in negotiations." How could this happen?

New York City utility economist Gregory Palast, representing the Labor Coalition on Public Utilities, gave the Energy Committee one answer November 12. "You sent the varsity team off the field and asked the cheerleaders to defend the goal line." In his view, the members of the varsity team were the consultants hired in 1986: "The nationally recognized law firm of Verner Liipfert McPherson of Washington and the internationally recognized engineering firm of R.W. Beck." They were later replaced with "a politically connected local lawyer close to the utility industry"--i.e., Helman. Palast contends that this gave Com Ed "the signal that the city was not serious in its demands."

Later the same day Helman, who has practiced utility and corporate law in Chicago for 35 years, objected strongly to such "innuendos," telling the committee, "I didn't seek this assignment. If the mayor wants someone else, I've told him he's welcome to them. I have a lot of clients who pay a lot of money to me and my firm thinking that we're the first team. I might not have done as good a job as you think I should have, but it was not because I pulled any punches or failed to do my best."

Regardless of what team it fielded, the city had two strong cards to play: its right under the 1948 franchise to acquire Edison's facilities, and a public that understood the issues well enough to support that option if it became necessary. There is reason to believe that the Daley administration did not want to play either card. "It's like going into a labor negotiation," says Illinois Public Action Council associate director John Cameron. "It's as if you said, "We're not going to strike. Now let's negotiate."'

From the beginning the Daley administration's attitude toward public education was passive at best. Administration insiders, including chief negotiator Robert Helman, never seemed to grasp the distinction between public hearings and public education and mobilization. Informational brochures were delayed, speakers were few and usually limited to large meetings. The mayor--willing to use his name and popularity to promote recycling, tree planting, and anticrime campaigns--spoke out only after the media labeled him a "wimp" on the issue last summer. In the fall of 1990 administration staffers said publicly that most Chicagoans weren't interested in the franchise (a self-fulfilling prophecy, even if true) and that if the administration had anything to communicate, the media would take care of it. (Now that there's a proposed franchise to argue about, the electronic media have at least tried to cover the issue. The Tribune has not. Its silence on the subject confirms the view that its management would rather run a second-rate New York Times than a first-rate Chicago paper.) What public education has occurred on the franchise issue has been done by Edison and by poorly funded community groups such as the Chicago Electric Options Campaign and the Labor Coalition on Public Utilities.

As to the other trump card--the threat of acquisition--the city always appeared to be taking it seriously. But this may have been no more than PR. (Some groups, including LCPU, favored acquisition in any case, on the grounds that it would make electricity cheaper and that it would enable the city to contract for management and electric power on the free market rather than depend on a sole supplier--which is why Alderman Joe Moore refers to acquisition as "the competitive option.") Robert Wilcox is a retired attorney who chaired the Mayor's Energy Task Force, which reported to Daley in November 1989. That December Wilcox sent the mayor a letter spelling out in detail the practical steps the city should take in order to make acquisition a credible threat. "It would have taken a good six months of detail work," Wilcox says. Without wanting to criticize Helman or the negotiating team, he says he doubts that the work was ever done. "I don't believe the mayor or his staff ever put on a full-court press to organize the bargain-purchase option so that it was a credible alternative at the bargaining table."

The second piece of circumstantial evidence that the city wasn't serious comes from last May, when a subcommittee of the Mayor's Electricity Working Group urged Robert Helman to seriously investigate acquisition. According to EWG member and Labor Coalition on Public Utilities president Martin Heckmann, "At first [Helman] said he would send out a formal RFP [request for proposal]. Then we learned later it would only be a letter. Eventually we were read what purported to be a copy of the letter, which complied pretty well with what we had in mind. It appeared to me that there wasn't much interest among city staff in this option." Heckmann gave Helman the names of two people who were interested in investigating acquisition, but no one ever contacted them.

Yet Helman told the Energy Committee that Edison told him privately that it took the acquisition threat seriously. However, he says he recommended against acquisition in September partly because of the cost and partly because "the time really is not congenial for more public ownership."

Daley's reluctance to mix it up with Edison or to educate the public fuels the perception that the mayor of the most political city in North America really doesn't like politics that much. "It's terrible for the people of Chicago to feel they have a mayor named Daley who has no power," says longtime activist Lew Kreinberg. "I'm struck by how this guy backs off from opportunities other politicians would relish. The Chicago spirit is: everybody says you can't beat City Hall--and then they go out and try anyway. Now it appears that you can't beat Commonwealth Edison. That's not the history of Chicago. That's not the Chicago I want to live in."

3. Can City Council make it better?

As with any ordinance, the City Council can amend or reject the mayor's proposed franchise. But as with any treaty, amendments can go into effect only if Edison's board of directors--which has yet to act on the franchise--agrees to them. If the council rejects the agreement, or if Edison refuses to agree to any amendments, then the situation gets a bit murky. Possibly the negotiators for both sides will hastily hammer out a better deal and bring it in for approval before December 31. Possibly they will agree to an extension of the franchise to gain negotiating time. If so, the city has as good a chance as ever of improving the deal. But if both sides remain intransigent, 1991 will expire and with it the 1948 franchise. Then what?

One thing's for sure: the power won't go off. Edison is legally obligated to continue providing power, franchise or no. The utility might claim it didn't have to pay the $70 million franchise fee, but city lawyer Conrad Reddick doubts that the courts would agree. (And if there were no fee, the city might be able to charge Edison rent for a whole lot of light poles on prime real estate.) The utility might conceivably claim that the franchise expiration commits the city to acquiring Edison, but Reddick thinks that is unlikely (can you imagine Edison going to court asking to be bought out?) and unlikely to succeed in court. However, the city's acquisition right would probably expire along with the franchise containing it. The city would of course insist on having it in any new franchise, but in the meantime it would be lost as a negotiating tool.

In this worst-case scenario, the city would have to wait at least until year's end to get its $70 million franchise fee and it would be negotiating without one of its two best bargaining chips. Would it have others in reserve--such as condemnation powers, public opinion, the financial community's concerns over a utility with no franchise? Would a city administration that has already failed to use its best weapons accomplish more without one of them?

That's the judgment aldermen will have to make. The Chicago Electric Options Campaign and the Labor Coalition on Public Utilities argue that no agreement could be worse than Daley's and that the aldermen risk little in sending it back for improvement. BPI's Doug Cassel is more skeptical: "It would be very difficult even for a good City Council to undo the damage Daley has spent several years creating. He's given them very little maneuvering room. But they could still play hardball."

If the council dared to play hardball, Edison vice president Donald Petkus told the Energy Committee on November 8, it would get nowhere. "Our board felt this agreement was very generous. It takes the best franchise in the U.S. and makes improvements in it."

In the real world, of course, hardly anything ever gets voted up or down on merit alone. The franchise is up at the same time as the ward remapping, and it's hard to believe the mayor would not use his influence on the remap to affect other votes. For this reason, County Clerk David Orr has urged that the franchise vote come after the remap vote. Energy Committee chairman Edwin Eisendrath, showing either extraordinary naivete or extraordinary loyalty to Daley, wants the franchise vote first.

The cynical view is that a few aldermen will complain, but most will do Daley's bidding. Still, public pressure could complicate matters. Edison is certainly aware of this fact: as documented by Andrew Sharp in the bilingual neighborhood newspaper Extra, a utility executive induced a Pilsen YMCA director to testify in favor of the proposed franchise at the first Energy Committee public hearing. (The committee's two remaining hearings are scheduled for 7 PM on Tuesday, November 19, at the Levy Center, Lawrence and Damen, and 10 AM on Wednesday, November 20, in room 201A of City Hall.)

Scott Bernstein--who has been pushing energy issues since before Harold Washington's first election--takes the noncynical view that Chicago aldermen are less predictable on energy issues than one might think. During the 1980s the Center for Neighborhood Technology and other groups had to lobby repeatedly to convince aldermen to appropriate money for franchise-renewal studies, sometimes using ward-by-ward energy analyses. As a result, he says, "The Chicago City Council may be one of the most energy-issue-sensitive state or local government bodies in the U.S. They know where the money comes from and goes, they know how it affects their own wards--so this is something different from the standard political issue of who gets what. There are very few nontraditional, substantive, citywide issues that aldermen get to vote on."

Even in political terms, says Bernstein, energy conservation may not be a loser: "George Latimer was elected mayor of Saint Paul five times, in contested elections, on an energy-conservation platform." Bernstein argues that a good franchise could be part of a now largely nonexistent Chicago energy policy. "Com Ed sells about $2 billion a year worth of electricity in Chicago. People's Gas, about $1 billion of gas. Gasoline sales are about a billion gallons a year. So something like $4 or $5 billion a year of the Chicago economy goes to energy. It affects the environment, the economy, poor people, small business, schools [some of which must spend more on heat than on textbooks], local governments--it's typically their biggest single nonpersonnel expense.

"But the city has no energy policy. There's no energy-efficiency building code. No across-the-board reduction policy. No energy education or design assistance, no revolving loan funds, no energy performance reviews on new designs or rehabilitation.

"There's a whole panoply of things the city could do," Bernstein says, and a franchise that strongly promoted electricity conservation and made large users pay more would be a key element. "But if you take the view that energy is only the province of utility companies and utility companies are only the province of the state [ICC], that leaves you out." This does seem to be the Daley administration's viewpoint--one of Robert Helman's refrains at the November 8 Energy Committee hearings was "Talk to the ICC."

"The city could take a leadership role," says Bernstein, "try to get ahead of the curve. We are going to be subject to tougher environmental regulation"--something energy conservation would help greatly with. "There's the 1993 [federal air pollution] study on ozone nonattainment coming up. Now that [mayoral aide] Bob Repel has gone to Washington to weaken wetlands standards and decrease municipal liability for hazardous waste [both to further plans for a Lake Calumet airport], Chicago is on the radar screens of every environmental group in the country.

"So we can try to lead, or else we can see what we can get away with for the next few years. If that's his strategy, I wish the mayor a lot of luck. You can't do that. It will come back to haunt him, and we will pay."

Art accompanying story in printed newspaper (not available in this archive): illustration/Kurt Mitchell.

Add a comment