The Troubling Connecticut Power Failure

November 3, 2011
The moneyed folk inhabiting the Connecticut environs of the hedge fund town Greenwich wield plenty of power. But many of them have lately been powerless. For the second time in barely more than two months, a huge swath of the two million captive customers of Northeast Utilities, the power company that covers territory from the Constitution State up through western Massachusetts and into New Hampshire, have spent too many days without electricity.

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A Connecticut Light and Power worker in South Windsor on Monday. (Jessica Hill/Associated Press)

In an echo of the financial crisis, it turns out that better risk management and stronger regulation could have made the fallout much less bad. This raises serious questions about Northeast’s competence — and whether it should be allowed to complete a $4.7 billion takeover of a Massachusetts rival, Nstar.

The first blow was Hurricane Irene in August. Then came a once-in-a-generation pre-Halloween snowstorm. Both were highly unlikely and unpredictable events, utilities argue, so when uprooted trees and snow-laden branches took down power lines, the responsibility lay mainly with God.

But giving Northeast, specifically its Connecticut Light and Power subsidiary, a divine pass is like absolving Lehman Brothers of any blame for its demise in 2008. Like financial firms, utilities need to manage risks. And they have it relatively easy: much of the task simply involves clearing overhanging trees and other hazards from power lines.

Yet according to regulatory filings, Connecticut Light and Power cut its maintenance spending by 26 percent, from $130 million in 2008 to $96.5 million last year. Put simply, that seems to suggest that one in every four trees that could have been trimmed was left untouched, though the company says the maintenance line was depressed by a deferral of expenses for accounting purposes.

The utility showed the same kind of tin ear as some banks, too. Even as customers still faced a week without electricity after Irene struck, the Connecticut Light and Power boss, Jeff Butler, suggested any restoration costs should be covered by increasing electricity rates — when Connecticut’s power is already the most expensive in the continental United States. Mr. Butler later backtracked. But this week he suggested the weekend snowstorm came without warning — words he was again forced to eat.

There’s even a near-perfect model of how Connecticut Light and Power could have done the job better. Norwich, Conn., a city of 40,000, has owned its own electric utility, as well as those for sewage, gas and water, for 107 years. Norwich Public Utilities’ customers pay, on average, a bit less than Connecticut Light and Power’s. Yet after this past weekend’s snow dump, power was out for only about 450 of its 22,000 customers — and for no more than an hour. As of Thursday morning, nearly half a million Connecticut Light and Power customers were still waiting for the lights to go on.

That’s not luck, either. After Irene hit, just 13 percent of the city’s customers lost their power for more than a day. Within three days, the whole of Norwich had been restored. It took more than a week for Connecticut Light and Power to fully restore power.

That makes it seem odd that Gov. Dannel P. Malloy has tended to appear alongside Connecticut Light and Power’s Mr. Butler and to support the utility, even though far more customers lost power than should have and restoration proceeded too slowly. There’s solid numerical evidence to justify Mr. Malloy’s berating Connecticut Light and Power and calling for Mr. Butler’s head on behalf of the citizens of his state.

In contrast to Connecticut Light and Power, Norwich’s electric unit last year increased operations and maintenance spending by 11 percent, to $2.9 million. Put another way, in 2010 Norwich allocated about $132 a customer to this line item in its accounts. Connecticut Light and Power reported maintenance, unadjusted for deferred expenses, of $96.5 million, or around $78 per client.

It helps that the Norwich utilities are not slaves to the profit motive — though they hand 10 percent of gross revenue to the city. Last year, before paying this slice to the city, the electricity division made just a 3.6 percent operating profit margin on its $52.3 million of revenue. The Connecticut Light and Power division of Northeast, meanwhile, booked $3 billion of revenue last year and reported an operating margin nearly five times the size of Norwich’s. But it surely also helps that Norwich Public Utilities’ general manager, 12 linemen and five commissioners live in the community, drive the local roads, see the overhanging branches and bump into their customers at the Norwichtown Mall. That’s a rare kind of accountability.

Absent more help from the governor, the example of Norwich and similar municipally owned utilities in Groton and Wallingford, Connecticut communities fed up with the lights going out might consider emulating Boulder. Citizens of the Colorado college town this week voted to study a plan to buy back their local utility assets from a Minnesota-based mega-utility, Xcel Energy.

Meanwhile, the Massachusetts Department of Public Utilities should pay close attention. Northeast’s purchase of Nstar has been pending approval of the department’s three commissioners for a year now. If they want the residents of their state to avoid the cold and darkness experienced by hundreds of thousands of Northeast’s customers next time the wind shifts, they may need to resist the persuasive powers of big business trying to get bigger still.

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