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CONSOLIDATED UTILITIES COMPANY ANNUAL REPORT (Management’s Letter to Stockholders)

Dear Fellow Shareholders:

By now you have heard news reports of Consolidated Utilities (ConU)’s $1 billion cost overrun on the construction of our nuclear plant. However, that’s just part of the good news we have to report. If all goes according to plan, we will be able to overrun another $1 billion before the project is complete. You are, of course, aware this extra $2 billion in our capital base will mean higher earnings for decades to come with increased dividends for us all. We are, indeed, a green company.

This achievement brings with it challenges that your management team is well equipped to handle. While these cost overruns and associated incremental profitability is our fiduciary duty in our world of public-utility regulation, they come with increased public criticism, large expenditure of political capital, and problems for our regulatory allies.

Defending Ratebase Inflation

Your management has responded to the public relations-public sector issue proactively as you have come to expect. We are building on our strengths and experience with these specific measures:

· We have set up a full-time damage control “war room” to take the place of our weekly meetings on stifling critics and manipulating the press.

· We have expanded the scope of services from our outside PR firm. They have been tasked to collect excuses used by other utilities in the past. These excuses will be duly polished and passed to our state regulators where they can be used to provide them with cover.

· Our law firm’s energy practice group now has experienced criminal defense attorneys as part of their team. We are ready for the lawsuits that are sure to come.

· We are continuing our practice of ruining the lives of whistle-blowers and making lucrative arrangements for those who help cover-up our mistakes, falsehoods and corruption.

· We have expanded our regulatory affairs group with three new positions. We are already known throughout our industry for having some of the best where-the-sun-don’t-shine kissers in the business.

· We are systematically increasing the political contributions to incumbents required from the suppliers and subcontractors who do business with us.

· We have put two recently retired members of the utility regulatory staff on retainer as consultants. Not that we really need their advice, but we need to show the still-active members of the regulatory staff that we watch out for our friends.

· We now have a huge advertising budget to spend with the key news media outlets around the state. We are giving subtle and not-so-subtle hints that criticism of our nuclear project will not be tolerated. Oh, that’s part of the cost-of-service passthrough.)

Your management knows how to bring a nuclear plant into its ratebase. We have shifted all risk to our customers. And we have the highest authorized return-on-equity among regulated companies. Our achievement is being documented in a case study to be used by business schools in their political capitalism classes (subtitled,  ‘The Art of Rent-Seeking’).

New Gaming Opportunities

Nuclear cost overruns are not the only way we are inflating our ratebase for you the passive, opportunistic investor. Due to intense, expensive lobbying on the federal level, in coordination with other regulated utilities, we have successfully shaped major new environmental regulations in a way to add ratebase to ratebase (our ratebasePlus strategy).

New anti-coal regulations will allow us to shut-down still operational generating assets, while we continue collecting the remaining capital with associated profits, as if the assets were still performing. Better yet, we get to build new replacement power plants which will also have guaranteed returns of both capital and profits on capital. It’s collecting twice for the same amount of generation!

Companies in the competitive sector can only dream of such schemes. While our sales volume and customer count is declining, we expect to realize 5% annual growth in capital and profits for the next ten years.

We are also happy to report that our unregulated subsidiary, ConU Power, is again a real profit producer. Once we realized this venture into independent power production could not compete with market oriented companies, we successfully concentrated more fully on making sweetheart deals with the regulated wing of the company. This is called our RegGap™ strategy.

Our compliant, well-trained regulators have allowed us to rig the bids for new generating resources so blatantly in favor of our subsidiary that no real independent generating company will participate in our bids any longer. We have had to develop a new strategy to shift sizable revenues to our unregulated wing.

Here is the way it works. We cut a deal with another utility that also has an unregulated generating venture. We rig our bid for new power sources so their subsidiary wins, and they in turn do the same in their territory. This way we still make a bundle and avoid the charge of self-dealing. This is called BuddyGreen™.

Your Company would not be where it is today without our focus on gaming the monopoly-regulatory system. When it comes to high guaranteed profits, the passthrough of any and all costs and the mastery of regulators, we are the envy of regulated utilities everywhere.

Yours for ever higher dividends under public-interest, White Hat regulation,

Tom Powers (via Jim Clarkson)

CEO, Consolidated Utilities Company (via   www.rsmenergy.com)

3 comments

1 Eddie Devere { 08.21.12 at 7:50 am }

Great post.
But remember to stay optimistic. The rate-payers may eventually have options. If the rate-payers don’t pay for electricity from their utilities, then the cost of the nuclear plant is on the utility (and the tax-payers who voted politicians…both Republican and Democratic…who allowed DOE loan guarantees to nuclear.)
I’m still hoping that one of these fuel cell companies (like ClearEdge) comes out with a cheap enough fuel cell that runs on reformed natural gas so that you use the fuel cell in your car to supply the electricity to you house when the car is in the garage…running on natural gas that is piped to your house.
The utility won’t be able to pay back the loans they took out if rate-payers stop buying electricity from the utilities.
Until there are cheap alternatives that homeowners can buy (either fuel cell or solar PV), many people in places like CA, NY, and GA are at the whims of large companies like ConU. Though, luckily many people in the US live in the PJM where there is a free-market for electricity generation.

2 Ed Reid { 08.21.12 at 8:46 am }

Jim,

You left out the part about working with legislators to expand the state RPS, so that the company would be forced to increase its investments in solar and wind facilities, with their higher investment requirements and shorter depreciation periods. :-)

I hope your mention of “guaranteed profits” was in jest. As a survivor of a “simple, single issue bankruptcy” of a regulated utility, I can assure you that utility profits, while admittedly lower risk, are hardly “guaranteed”.

3 Richard Betts { 08.21.12 at 11:02 am }

Good post. Was it modelled on the Clinton, Ill project of 40 years ago? The only thing you left out, per the Clinton experience, is the role of organized labor.

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