Dark past of utilities warrants oversight

Taking Stock

July 23, 2006|By ANDREW LECKEY | ANDREW LECKEY,TRIBUNE MEDIA SERVICES

As a journalist, I've found covering utility rate hearings to be unlike anything else. It mixes protracted boredom, complex methodology, stacks of studies and experts-for-hire happy to speak on either side of the issue.

After logging many hours sitting through rate hearings over the years, however, I also am aware how important utilities are to average citizens in their daily lives.

A hot topic

Utilities remain a hot topic:

Consolidation of utility companies continues, with firms pointing to economies of scale as a primary focus.

Investment star Warren E. Buffett intends to buy more utilities, focusing on regulated ones in which the government must stipulate decent returns.

Public debate over expansion of nuclear power is beginning, because nuclear reactors provide electricity without harmful greenhouse gasses.

Investors in mutual funds that specialize in utilities are prospering. But having utilities at center stage isn't new. Long before Enron was telling us it had the answers, America was coping with "black-box" utilities, stock hype, lack of transparency and huge bankruptcies.

Sam Insull story

"We have permitted private corporations to monopolize the electrical industry and sell electricity at the highest rates they could obtain," charged then-New York Gov. Franklin Roosevelt in 1930, before he became president.

The Merchant of Power: Sam Insull, Thomas Edison and the Creation of the Modern Metropolis, by Bloomberg News columnist John Wasik, does a fine job of telling the early story of utilities, moguls and scandal.

Beginning as Thomas Edison's secretary, Insull for a time helped create what would become General Electric. Then in the early 1900s he personally built up Chicago's Commonwealth Edison, bought up smaller utilities and ruled myriad utility holding companies and subsidiaries that led to our modern electrical power grid.

Despite spirited ad campaigns promoting power generation and company stock, Insull's utility empire gave scant financial information and stock value was inflated.

Insull lost his fortune in the 1929 market crash and many average citizens who invested in his stock lost their life savings.

End of the story

Though Roosevelt blasted his financial dealings, Insull was acquitted of fraud charges in a high-profile trial. He ultimately died of a heart attack, penniless, in Paris.

As president, Roosevelt pushed through legislation to curb holding company abuses and increase transparency. The Public Utility Holding Company Act of 1935 was designed to halt consolidation in the power industry.

Yet Enron happened and the industry is still consolidating in 2006. That means those tiring rate hearings and the reported results of utilities are always important. Our dependence on utilities and the vital services they provide is real, but history shows we must still monitor them carefully.

Andrew Leckey writes for Tribune Media Services.

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