FirstEnergy's History of Predatory Energy Manipulation
By Dennis Kucinich / US House of Representatives
September 12, 2003
On the Road to Davenport, Iowa -- With an estimated 50 million Americans and Canadians left without power and in some cases water, common sense requires us to reflect on the absurdity of deregulation of public utilities. In the first case, the right of utility franchise is vested in the people. We give utilities permission to operate, and enable them to set up a profit making business in exchange for the promise of affordable and reliable service. In 1992, investor owned utilities pushed the Democratic House to pass HR776, which granted electric utilities broad powers. The bill was supposed to restructure the electric utility industry to spur competition.
|At the center of the Great Blackout is an energy company with ties to the White House and a legacy of dirty tricks directed at Cleveland's municipally owned power company. US Representative Dennis J. Kucinich, a former Cleveland mayor, was one of the company's victims.©NBC|
Utilities used deregulation to effect a series of mergers limiting competition. In order to accelerate profits, cost cutting ensued, involving the layoff of thousands of utility company employees, including some who were responsible for maintenance of generation, transmission, and distribution systems. A number of investor-owned utilities stopped investing in the maintenance and repair of their own equipment, and, instead, cut costs to enhance the value of their stock rather than spending money to enhance the value of their service.
A prime case in point is FirstEnergy Corp, late of Ohio. FirstEnergy formed through a merger of utility companies which owned nuclear power plants which often were neither used nor useful, and as a result incurred huge debt. FirstEnergyfs predecessor, The Cleveland Electric Illuminating Company (CEI) in the 1950s and 60s was a high performing blue chip stock until they invested in nuclear power. FirstEnergy has tried without success to keep online a very troublesome nuclear power facility at Port Clinton, Ohio, the Davis-Besse plant. Davis-Besse is currently shut down and has been for some time.
FirstEnergy and federal regulators failed to properly monitor the operations of the plant, resulting in conditions where the plants reactor vessel was threatened with a breach when boric acid ate into the head of the
Millions of people in the Midwest and the water supply of our entire Great Lakes region were at risk because of First Energy's negligence, improper maintenance, and actual cover-up of the degradation of the reactor. Furthermore, federal regulators determined that notwithstanding the peril which was presented to one of the largest populated areas of the United States, FirstEnergy's financial condition necessitated the continued operation of the flawed reactor. The regulators put profit ahead of public
If there was ever an example of an unholy alliance between government and industry, this is it. If there was ever an example of the failure of necessary regulation by the government of an investor-owned utility, it is found in the government's failure to regulate FirstEnergy, because now, according to published reports by the Associated Press, CNN, and ABC News, the blackout which affected an estimated 50 million people began in the FirstEnergy system.
How FirstEnergy Tried to Destroy a Publicly Owned Power Company
I've been familiar with First Energy and the challenge of utility monopolies for over 30 years. Early in my career, in the 1970s, I watched FirstEnergy's predecessor, CEI, as they were hard at work trying to undermine the ability of the City of Cleveland to operate its own municipal electric system.
CEI conducted a tireless crusade to attempt to put the city's publicly owned system, Muny Light, out of business. Muny Light competed against CEI in a third of the city and provided municipal power customers with savings on their electric bill of 20-30 percent. It also provided cheaper electricity for 76 city facilities and thousands of Cleveland street lights, saving taxpayers millions of dollars each year.
In the 1970s, CEI applied for a license to operate a nuclear powerplant. The license application triggered an antitrust review. The antitrust review revealed that CEI had committed numerous violations of federal antitrust law in its attempt to put Muny Light out of business.
The Atomic Safety and Licensing Board of the Nuclear Regulatory Commission, in an extensive investigation, determined that CEI blocked Muny Light from making repairs to its generator by lobbying the Cleveland City Council to place special conditions on Muny Light Bonds which made the bonds more difficult to sell, thereby depriving the city of revenue it needed to repair its generators in order to provide its own power.
The delay in repairs to the generators caused Muny Light to have to purchase power. CEI then worked behind the scenes to block Muny Light from purchasing power from other power companies. CEI became the only power company Muny Light could buy from. At that point, CEI sharply increased and sometimes tripled the cost of purchase power to Muny Light. And, as a result, Muny Light began to lose money.
CEI used Muny Light's weakened operational and financial condition (which they created) as evidence of the public system's lack of viability and as proof that the only way the people of Cleveland could have reliable power was for the city to sell its electric system to CEI.
The antitrust review cited one incident when during a period of inclement weather, Muny Light asked CEI for a special transfer of emergency power. The transfer of power was conducted in such a way so as to cause an outage on the Muny Light system. CEI used the incident as further proof of the city's inability to operate a municipal electric system. Throughout this period, the Cleveland media, which received substantial advertising revenues from CEI, crusaded against the city's ownership of a municipal electric system.
When the federal government came to review CEI's practices, CEI executives appeared at a city council committee meeting to declare that they had no interest in the acquisition of Muny Light even as they worked behind the scenes to put Muny Light out of business.
In 1976, after years of work to undermine Muny Light, CEI finally succeeded in getting the mayor and the council of Cleveland to agree to sell Muny Light, giving CEI a monopoly on electric power in the Cleveland area and enabling CEI to greatly expand its rate base to get more revenue to pay for its rapidly mounting expenses associated with building nuclear power plants.
The Campaign to Save Muny Light
At that time, I was clerk of the Cleveland Municipal Court, a citywide elected office. I organized a civic campaign to save Muny Light. People gathered signatures in freezing rain to block the sale. I ran for mayor of Cleveland on a promise that if elected, my first act would be to cancel the sale of Muny Light. I won the election. I cancelled the sale. CEI immediately went to court to demand that the city pay $15 million for power which it had purchased while CEI was running up charges to the city.
The previous mayor had intended to pay that light bill by selling the light system and simultaneously disposing of a $325-million antitrust damage suit. My election not only stopped the sale, but kept the lawsuit alive. CEI went to federal court to get an order attaching city equipment as a means of trying to destabilize city services as still another desperate effort to try to create a political climate to force the sale. I moved quickly to pay the bill by cutting city spending.
The Muny Light issue came to a head on December 15, 1978, when Ohio's largest bank, Cleveland Trust, the 33rd largest bank in America at that time, told me that they would not renew the city's credit on $15 million worth of loans taken out by the previous administration unless I would agree to sell Cleveland's municipally owned utility to CEI.
By that time, the sale of Muny Light was being promoted by both Cleveland newspapers, virtually all of the radio and TV stations in town, the entire business community, all the banks, both political parties, and several unions, as well as a majority of the Cleveland City Council. All I had to do was to sign my name to legislation and the system would have sold and the city credit "protected." The chairman of Cleveland Trust even offered $50 million of new credit if I would agree to sell Muny Light.
Some Things Are More Important than the Next Election
Where I come from it matters how much people pay for electricity. I grew up in the inner city of Cleveland. The oldest of 7 children. My parents never owned a home: they lived in 21 different places by the time I was 17, including a couple of cars.
I remember when there were five children and my parents living in a three-room upstairs apartment on Cleveland's east side. My parents would sometimes sit in the kitchen at one of those old white enamel top tables, which, when the surface was chipped, was black underneath. When they counted their pennies, I could hear them clicking on the enamel top table. Click, Click, Click.
When I was in the board room with the Chairman of Cleveland Trust Bank, I was thinking about my parents counting their pennies and I could hear those pennies hitting the enamel top table. So, I said no to the sale of Muny Light to CEI.
At Midnight, Cleveland Trust put the City of Cleveland into default. Later, it was revealed, that Cleveland Trust and CEI had four interlocking directors. Cleveland Trust was CEI's bank. Together with another bank, Cleveland Trust owned a substantial share of CEI stock and had numerous other mutual interests. Public power was saved in Cleveland. I lost the election in 1979 with default as the major issue. Cleveland Trust changed its name to AmeriTrust. The new mayor changed the name of Muny Light to Cleveland Public Power.
Today, Muny Light Is Thriving and Expanding
In 1993, the City of Cleveland announced that it was expanding Muny Light. It was the largest expansion of any municipal electric system in America. I had been long gone from major elected office. In fact, after the default, most political analysts considered my career over. I had been asked many times by other politicians why I just didn't make the deal and sell the light system, especially when my career was on the line. I believe that there are, in fact, some things more important than the next election.
When a reporter from the Cleveland Plain Dealer reached me to tell me about the expansion, I was on a beach in Malibu watching the dolphins play. Cleveland was the farthest thing from my mind.
After I left City Hall, I couldn't get a job in Cleveland, I almost lost my home, and my marriage fell apart. But I had no real complaints, because, according to a US Senate Subcommittee studying organized crime in the Mid-Atlantic states, I had survived, through sheer luck, an assassination plot. There was something comforting looking out on the Pacific and watching the waves glisten in the sun.
So when a reporter told me that people were saying that the expansion could not have happened without my making a decision to save the system, I thought, "That's nice." People in Cleveland began to say that I was right not to sell Muny Light and they asked me to come back. So I did.
I ran for State Senate in 1994 on a slogan "Because he was right" with little rays of yellow light shining behind my name on my campaign signs. I was one of the few Democrats to unseat a Republican incumbent that year in a state election.
Two years later, I was one of the few Democrats to unseat a Republican incumbent to gain election to Congress. My campaign signs had a light bulb behind my name with the words "Light up Congress."
Today, I'm running for President of the United States and I want to light up America, and a good place to start will be to shed light on a deregulation process that has abandoned the public interest.
Dennis J. Kucinich, a Democratic Congressman from Ohio, is running for the office of president.
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