James F. Vergon, president and chief operating officer of Central Illinois Light Company, has been associated with CILCO for 26 years. Vergon was born in Peoria in 1948, attended Peoria High School, and graduated from Bradley University in 1971 with a bachelor’s degree in mechanical engineering. He joined CILCO in 1971.
While advancing through various positions in engineering, Vergon earned his master’s degree in business administration from Bradley University in 1981. In 1986 we was elected vice president of CILCO with responsibilities over the following ten years that included customer service, sales, operations, and corporate services. He was elected president and chief operating officer in 1996.
Vergon is, or has been, a member of the board of directors of Bank One, Peoria; the Economic Development Council for the Peoria Area, Heart of Illinois United Way and the YMCA. In addition, he is a member of the board of trustees of Proctor Hospital and the Bradley University Associate Board and the advisory boards of Forest Park Foundation, The Institute of Public Utilities, and the Bradley University College of Engineering and Technology.
Vergon has a daughter, Emilie, age 17.
CILCO is part of the CILCORP corporate structure. Would you describe the organization of the enterprise and CILCO’s role in that structure?
CILCORP, Inc., is a holding company that was formed in 1985. It is the parent company of four first-tier subsidiaries which include CILCO. Central Illinois Light Company (CILCO) is CILCORP Inc.’s principal subsidiary, a utility engaged in generation, transmission, distribution, and sale of electricity, and purchase, distribution and sale of natural gas. CILCO serves more than 150 communities in central and east central Illinois, with a service territory of about 4,500 square miles. Revenues totaled about $520 million in 1996.
QST Enterprises Inc. was formed in December 1995 to facilitate CILCORP’s expansion into non-regulated energy and related services businesses. QST Energy’s initial focus has been participation in CILCO’s Power Quest programs and in energy markets in Pennsylvania and California which are now opening to competition. QST Environmental (formerly Environmental Science and Engineering) is one of the largest firms in the environmental consulting industry. QST Communications Inc. provides fiber optic and advanced Internet-based communication services and products. QST Enterprises revenues totaled $100 million in 1996.
CILCORP Ventures Inc. invests in new and expanding ventures related to energy and environmental services as well as biotechnology and medicine. CILCORP Investment Management Inc. administers CILCORP’s investment policy and manages the company’s passive investments.
CILCO has a rich and dynamic history that is closely associated with the growth and development of the Peoria area. What are the main historic milestones?
CILCO’s name and presence in Illinois goes back some 84 years, when between 1911 and 1913 a series of mergers involving seven existing companies took place to form the Central Illinois Light Company. This positioned CILCO to provide Peoria and 26 surrounding communities with gas, electric, and steam service. By 1923, the population had grown and so had the demand for electricity. CILCO and other interested companies began the construction of a large steam electric plant on the Illinois River. This plant was later renamed the R.S. Wallace Station and became a familiar landmark to people as they entered Peoria.
The years that followed World War II were “boom” years, not only for babies but for industry as well. During this decade, improved lighting took to the streets. In response to the increased demand, CILCO continued to complete additional lines to carry more gas and electricity to Peoria, Springfield, and rural communities all over central Illinois.
By 1951, all farms in the service area were electrified. The growth and success of the late forties and early fifties continued into the sixties, propelled by the rapid industrial development that took place.
The greatest industrial expansion in this time span took place with Caterpillar Tractor Company as it was known then. The company acquired a site near Mossville on which they would construct a new industrial engine plant and a research facility. The Morton and Mapleton plants went into operation, and the multi-story headquarters building was constructed in downtown Peoria. With industrial and economic growth throughout its service area, CILCO had to grow to meet the demand. In 1957, the company started filling the natural gas storage field in Glasford. Natural gas would be pumped into the field through the summer and drawn back out in the winter to help meet peak demand needs.
Additional electricity also came on line in 1960 as the first of three generating units at the E.D. Edwards plant south of Bartonville went into operation, generating an additional 125,000 KW. The 1960s had plenty of power, but the power supply of the 1970s took a much different direction with the onset of the “energy crisis.” Not only did the short supply of energy sources affect CILCO, but the increased concern about the effect of energy production on the environment also presented a new challenge.
What steps did CILCO take to meet that challenge?
During this period, CILCO made consumer education a top priority. A whole program of conservation was launched to remind people that their conservation efforts at home could make a difference. Many people remember national advertising campaigns that focused on turning off lights, turning down the thermostat, and turning to car pools or public systems for transportation.
The future of the environment was also a concern of the seventies. CILCO installed permanent environmental recording equipment in the downtown office. The special equipment monitored pollution levels in the air continuously so that we would have immediate knowledge of any potential problems.
CILCO was also concerned about the effects energy production might have on the water supplies, and scheduled a long-range study on the effects of discharge waters on aquatic life. By 1978, a sulfur dioxide removal system at the newly constructed Duck Creek plant near Canton was in full operation – a measure that would greatly reduce the levels of sulfur dioxide put into the air by energy production.
What other steps did CILCO take?
CILCO’s Customer Advisory Council was developed in 1976 to create the vital communication link between company management and customers. The council was one of the first of its kind in the country, and its success helped in the development of councils in other cities. The early eighties brought an end to the nagging energy shortage, but unfortunately these years brought the beginning of a new shortage – jobs.
Unemployment and economic instability rippled through central Illinois. To help our industries cope more effectively with the new economic climate, CILCO created a special rate, to be applied to the interruptible electric rate to waive demand charges for industrial customers during peak periods when additional generating capacity was available.
Purchasing more Illinois coal was one more way CILCO hoped to help the central Illinois economy get back on its feet. By 1986, the company was doing even more to promote economic development in the area. Special incentive rates were offered for new and existing businesses that qualified through increased employment, investments, or usage. In 1986 alone, 11 companies enjoyed reduced electric rates, and nine other major companies were able to lower their operating costs.
The Neighborhood Energy Weatherization (NEW) Program was one more way that CILCO demonstrated its commitment. TO help low-income residents, the Company provided free materials and coordinated volunteer labor to weatherize more than 600 homes in Peoria and Pekin.
The educational effort was also strong as we developed an energy audit program to teach customers how to conserve more effectively. Included with an audit, CILCO supplied free conservation kits with materials to put knowledge into action. In addition, a special energy audit for businesses called “Ener-Check” was designed to help even large energy consumers keep their utilities in check.
With economic development for central Illinois as a primary concern, CILCO filed a petition with the Illinois Commerce Commission to establish a holding company, with CILCO as a subsidiary. The move was made to allow greater diversification would find it easier to raise money and further economic development. Since the economic development of the area had always been a top priority for CILCO, the establishment of CILCORP in 1985 was the best way to insure that economic development would remain a priority for the future.
What’s been CILCO’s focus since then?
Since the middle 1980s, CILCO’s focus has been on trying to increase customer service while keeping the price charged for electricity and natural gas the lowest in Illinois and among the lowest in the country.
CILCO had a leadership role in the deregulation of the natural gas industry resulting in multimillion dollar decreases in price paid for natural gas by CILCO customers beginning in 1987. Efforts to control costs and to look for alternatives to building new generating plants to meet increasing demand for electricity has allowed CILCO to keep the 1982 price for electricity in effect today.
Going fifteen years without an increase in the price charged for electricity is a record no other utility in the country can match. In recent years, CILCO’s leadership role has switched from natural gas to electricity, as CILCO became the first in the nation to open its service area to customer choice in order to demonstrate that competition can and would work in lowering the cost of electricity for all, most notably in areas not served by CILCO which have some of the highest rates in the country for electricity.
How did you become attracted to CILCO as a career opportunity? Tell us about some of the people who influenced your career decision.
It must have been sheer fate that introduced me to CILCO. Growing up, my dream had always been to study engineering and, upon graduation, move to the West Coast and work in the aerospace industry. When I graduated in 1971, the aerospace industry was entering a severe recession and rather than job offers there were widespread layoffs. While I was content to live at home with my parents while sending out resumes and reflecting upon my college education, my parents were very interested in seeing their investment in higher education employed.
So it was through my parents networking that I became aware of an engineering position open at CILCO. While I really wasn’t aware of or interested in CILCO, my parents gave me strong encouragement to apply – or else. A job offer came a few months later and I decided to take the job for awhile until my “real” job came along. That was 26 years ago. Every May 10th, I never fail to remind myself of how things started for me and how wise our parents really are.
Could you put CILCO in perspective compared to other energy providers…in terms of power produced, number of customers, revenues, service territory and other dimensions that would help the lay person understand your position in the industry?
Within the utility industry, CILCO is not a large company. Among the four principal suppliers of electricity within Illinois, we are the smallest. Central Illinois Public Service is twice as large, Illinois Power three times, and Commonwealth Edison is over ten times our size.
With respect to the other dimensions you mention, a general rule of thumb applies in that a company twice our size has twice the number of customers, generation, revenues and so forth. That rule fits reasonably well in Illinois and around the country, with the exception of revenues where high cost utilities have a disproportionate amount of revenue, as is the case in Illinois.
CILCO’s generation totals about 1200 megawatts, which as a number probably will not mean much to most people. We serve over 250,000 customers in 150 communities with electricity and/or natural gas. In 1996, our revenues were about $520 million. Our service area covers 4,500 square miles. We have over 3,000 miles of gas mains and over 10,000 miles of electric lines, which comprise our delivery system. Since we have been in business, over $1 billion has been invested in assets.
Our industry is unique in some respects in addition to the absence of competition, which is about to change. Natural gas and electric utilities in this country are a $300 billion a year industry, yet the largest of the utilities has only 4 percent of the market. There are few, if any, industries that have to invest more capital to receive a dollar of revenue. While in the past, this revenue-to-asset ratio may have been a point of distinction, in the real world it is the exact opposite of what businesses seek to achieve. The nature of the industry and the significant investment required to expand and extend capacity will make operating in a competitive environment that much more interesting.
Negotiations with your major union – the International Brotherhood of Electric Workers (IBEW) – resulted in a new agreement. Can you share with us the main features of the agreement and how it was accomplished?
CILCO and IBEW Local 51 entered into a new three-year agreement following five months of negotiations. The focal point of discussion was the anticipation of deregulation of the electric utility industry in Illinois and what changes would better prepare and position CILCO to succeed in a more competitive environment. Changes proposed to the previous contract and agreement were intended to provide better quality, faster delivery and lower cost – all in support of increasing customer service and satisfaction. Safety, reliability and job security were emphasized as well throughout the negotiation.
The mutual recognition and acceptance that our world was about to change dramatically by the introduction of customer choice brought about through deregulation was, in my mind, most significant in working together toward a new contract. We recognize that customer satisfaction is a key to retaining customers and many of the changes agreed to will enhance our performance.
We hear the term deregulation often as it involves the generation and distribution of power. The state government is heavily involved, and CILCO operated within a regulatory environment unlike those in the manufacturing sector. What are the main issues?
The driving force behind deregulation is the objective of lower electric bills for customers. While deregulation involved both generation and distribution of power, the primary focus is upon generation, which is the source of most of the difference in price that consumers pay for electricity in Illinois and around the country.
The difference in the price of electricity is dramatic when comparing nuclear generation with coal or natural gas fired generation. This is reflected in Illinois where customers of nuclear based utilities pay as much as 50 percent more than CILCO customers.
Over the past two years, a legislative battle has been waged throughout Illinois. The main issues in the deregulation of the electric utility industry revolves around which consumers would be able to choose their electric supplier, when and how their ability to choose happens.
Other significant factors include stranded cost, or who pays for the multibillion dollar investment made in nuclear power plants, assets that will not be able to compete against lower cost generating plants. CILCO’s legislative position advocated that all consumers should be advantaged, not just a select few. We proposed that freedom to choose should begin for all consumers on January 1, 1998, and without the burden of stranded costs. Initially, those opposing CILCO’s position sought to limit choice to only the very largest of businesses and industry and wanted to delay the start and the extent to which savings would be realized.
The issue of deregulation has enormous economic implications for the state of Illinois and nationally. One well-supported study estimated that is electricity were sold in Illinois at CILCO’s rates instead of current prices, over $2.7 billion a year would be saved by Illinois consumers.
On November 14, the Illinois General Assembly passed legislation that would deregulate the electric utility industry in Illinois. While CILCO’s original position did not prevail, all customers of Illinois electric utilities will be able to experience savings sooner and to a greater extent than what would be otherwise happened without CILCO’s efforts.
Much controversy remains surrounding perhaps the most economically significant and complex piece of legislation to be taken up in Illinois. Part of the confusion relates to how CILCO will be affected under the new laws.
The first step in delivering savings to Illinois consumers was to reach the current regional average price for electricity, which is 8,4 cents per kilowatt-hour for residential customers. CILCO’s price is already well below that level at about 7 cents and has been for years, while the majority of the state pays in excess of 10 cents. Even though CILCO must now also reduce its prices by 5 percent over the coming years, the motivation to have CILCO reduce was driven by those who opposed CILCO’s position and the significant change we were leading within the state. In the future, CILCO’s opportunity to earn a high return is tied to our ability to keep our price of electricity below the regional average, which is a good incentive for CILCO and is good for customers as well.
CILCO has taken a number of steps over the years to support a good physical environment (air, water, and land). What are the major ways CILCO contributes to a better environment? We hear so much about global warming these days, for example. Do you and your colleagues have any thoughts about your industry’s role in the global warming debate?
The Clean Air and Clean Water acts of Congress in the early 1970s, and subsequent revisions, have presented a significant challenge to all industries, but with important and desirable effects on the environment. CILCO’s commitment to the environment and the challenges that accompany it are nowhere more visible than in the generation of electricity. Burning coal to generate electricity requires controls, equipment, and continuous monitoring to assure that the emissions from our power plant stacks are within limits for sulfur dioxide, nitrous oxides and particulate matter. These limits are to be reduced even further beginning in the year 2000 and we are working now towards those objectives. On a number of occasions we have either met early or gone further than what was required. CILCO received Pollution Prevention Awards from the governor’s office each of the last three years. We’re voluntarily participating in the President’s climate challenge program, which related to global warming.
We have agreed to take voluntary measures to reduce carbon dioxide and greenhouse gases. President Clinton and Vice President Gore seem focused more at this time, however, on international politics than what’s in the best interest of the United States.
As a final point on this issue, CILCO has done much to bring attention and awareness to our service area regarding the environment. In Concert with the Environment is a nationally acclaimed program that has introduced thousands of area high school students and their families to how each of use truly impact the environment at home and at work.
CILCO and its employees have a long and distinguished record of community service. What is the company’s approach to volunteerism and philanthropy?
CILCO views voluntarism and philanthropy in a special way because of our link to all the communities we serve. Employees are encouraged to be involved, and we support that to the extent that we can within the company. Our giving guidelines are broader than other companies’ because everyone is – at least today – our customer.
Our efforts are focused in four main areas of contribution: civic improvements, education, health and the arts. CILCO has a strong commitment to the future success of the communities it serves. We support efforts that enhance the economic vitality of the communities, improve the quality of life for residents, strengthen educational opportunities, and attract businesses and residents to the area. Our approach is viewed as social investing. The future success of CILCO depends on the success of the communities it serves and the fulfillment of our social responsibility to our customers.
What are some of the ways CILCO supports community betterment?
Our focus on community betterment falls into two categories: providing support services through contributions, and enhancing quality of life opportunities through sponsorships and programs. The support service s through contributions is explained by our social investing concept. Enhancing the quality of life includes participating in community events to make them better, and creating community events such as Summer Serenades to bring events to the community that might not otherwise be available. Of course, we hope the payoff comes when customers can choose a new supplier and will think of us first because we have given them added value for their energy dollars.
Does CILCO have a list of priorities for community development and progress? Transportation? The Illinois River siltation problem?
Priorities for community development and progress include education, economic development, strengthening neighborhoods, riverfront development and youth causes. Education is a major priority.
Adopt-A-School and In Concert with the Environment put major emphasis on education. Obviously that’s our future and by adopting two minority schools – Manual and Trewyn – we are trying to influence the lives of young people who may not have a lot of opportunities. By providing resources and people, we are letting them know there are good paying jobs available. We’re doing what we can to help lift them up into better circumstances.
In Concert with the Environment is a fantastic way for us to reach out to smaller communities. It’s a significant educational program we can provide to schools in which we don’t have other activities. In Concert, reaching over 50 high schools in our service territory, has been a major support from an educational standpoint.
Economic development is a major priority and we support that through not only our contributions to the Economic Development Council, but by keeping rates low. Being attractive from that standpoint is a major benefit to the community.
We are trying to strengthen neighborhoods, and haven’t had a lot of opportunity to do that. We’ll be looking for future opportunities as part of our social investment process in civic improvement. That is a new area and one we’ll be developing more in 1998.
What is your philosophy of management? How would you describe your leadership style? What advice to you have for aspiring CEOs?
I would characterize my philosophy of management as evolving and undergoing radical change as CILCO prepares to enter a totally different market environment. Over the pats two years, CILCO’s officers and overall leadership group have taken the challenge of change and sought out fresh thinking and the experience of others familiar with the rigor and discipline of managing an industry that is going through deregulation. Going forward, we have new management tools, technology and a mindset that focuses on delivering outstanding customer service.
I would describe my leadership style as one that’s significantly people-oriented. I believe in order to be an effective leader you need not only the vision but, more importantly, the ability to communicate and be believed.
My advice to others would be that it is difficult if not impossible to lead if the people and organization you are leading do not know and trust you. Being known and being trusted takes much time, effort, and sincerity – all worthy investments.
You graduated from Bradley University and have remained active in various capacities with the university. As you reflect on your years at Bradley, how would you describe the relationship between CILCO and Bradley?
I feel fortunate to label my high education at 100 percent Bradley with a bachelor’s degree in mechanical engineering and later an MBA. Over the years, many of the people coming to work at CILCO have graduated from Bradley. I look to and value the relationship that I personally have and that CILCO enjoys with many of the Bradley faculty and staff.
You have diverse outside interests. What do you like to do most when you’re not worrying about regulation, severe weather, labor negotiations and the cost of power?
I have had many wonderful opportunities, especially over the last ten years, to get involved with many of the charitable organizations and causes that truly add to the quality of life in central Illinois. Being involved with the Heart of Illinois United Way, chairing the 1992 community campaign and getting to know the agencies and organizations that receive United Way dollars has been rewarding. Serving on the boards of Proctor Hospital, Forest Park Foundation, Economic Development Council, Bank One, YMCA and several councils and committees at Bradley University have given me contacts, connections and friends I would have otherwise never had.
Much of my time away from work has been taken up with running. Last year was my best, with over a thousand miles run including two marathons – Boston and Washington D.C.
I have had the thrill of looking down from the tops of several mountains, with Mount Rainier in Washington being the last. I have decided to postpone any further climbs until my daughter Emilie, who is 17, has graduated from college. My fascination with auto racing reached another type of peak last year when I was able to witness the Italian Gran Prix in Monza, Italy. I can’t think of better ways to see and travel the world than by running, climbing, or watching fast cars.
Finally, and to the extent you can share it with us, what are the main challenges and opportunities in the future for CILCO and its people?
The challenges which will be brought by our own efforts to hasten the deregulation of the electric utility industry will be of the highest order. I cannot envision a more fundamental change and challenge for any organization than in leaving the security of a protected market and entering the world of competition that virtually all of CILCO’s customers experience every day. We have been preparing for this day for over two years, with many changes just now starting to happen and be visible. Over the past two years, CILCO has reduced its number of employees by over 300 through early retirement offers – a 20 percent reduction. We are beginning a total reorganization which I believe will and must result in significant enhancements to customer service and lower costs of running our business. We are investing significantly in information technology which will help us to have better quality, faster delivery and lower costs.
Success in these initiatives will provide many opportunities for CILCO as the energy market in Illinois begins to open in the very near future. IBI
