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PHOTO: John Whipple

False Promises

Energy deregulation was supposed to lower costs and make service more efficient—but it didn’t

By Shawn Stone


Here’s what energy deregulation was supposed to do: By letting the big utilities sell their power-generation plants, they would be able to concentrate on efficient delivery of electricity. Giant corporations like Niagara Mohawk would be able to buy electricity on an open market at the best price, and pass that savings on to customers.

It didn’t happen that way.

Most spectacularly, it didn’t happen that way in California, where Enron was able to bring the Golden State to its knees by manipulating energy costs.

Less ostentatiously, it can be convincingly argued that energy deregulation failed everywhere it was implemented, including New York state. Costs didn’t go down; they went up in many cases. Service didn’t improve; downsizing led to a worsening in service.

According to Public Service Commission data, the number of power outages experienced by New York state customers of National Grid declined from 15,398 in 2001 to 13,680 in 2005. However, the number of customer hours without electricity actually increased, from 2,783,316 in 2001 to 3,598,884 in 2005.

National Grid couldn’t quite explain why or how this happened.

Joe Quinlan, a National Grid line foreman in Syracuse, recently told WSTM-TV (also in Syracuse) what he thinks the problem is: “It’s [taking] us longer because we don’t have the help, don’t have the physical help.” National Grid, he explained, now has about 700 line workers—half the number they employed two decades ago, before energy deregulation.

Anjan Bose, a distinguished professor in power engineering at Washington State University in Pullman, Wash., explains how this happened: “In the 1990s, many of the big power companies went on a cost-cutting spree.” They not only fired crew workers, but also engineers. This has made it harder for utilities to respond to emergencies.

“When a big weather storm comes,” Bose explains, “there are agreements between power companies” to pool their workers and restore service. The problem is that, now, every utility has many fewer workers than they did even 10 years ago, the result being that a widespread problem really taxes the ability of the companies to compensate.

The PSC made some recommendations after a review of the way National Grid handled a severe windstorm that disrupted service across upstate New York in February 2006. This was a storm that caused 211,000 National Grid customers to suffer service interruptions; it took five full days to restore power. (This was a storm during which winds of 98 mph were recorded at the Saratoga County Airport.)

Most of these proposals, issued in Aug. 2006, were designed to deal with what the PSC saw as management-related problems, like offering additional training for employees, refining the ways initial damage assessments are conducted (so as to more effectively deploy line crews), and test the “outage management system” once in a while to see if it was actually workable.

The company’s own assessment of their performance, the PSC suggested, “inadequately addressed workforce deployment and communication issues.” National Grid, the PSC suggested, was also too slow to call in crews from outside areas when major storms hit: “National Grid needs to be more aggressive in the future when requesting mutual aid resources during emergency recovery actions.”

The first test for the utility—following the PSC recommendations—came on Oct. 12, 2006, when a freakish lake-effect snow storm, complete with thunder and lightning, hit a large region of western New York, including the city of Buffalo. The snowiest October day in 137 years (according to the National Oceanographic and Atmospheric Administration) dumped over 2 feet of heavy, wet snow, damaging, literally, almost every tree in Buffalo, as well as closing a 100-plus mile section of the New York State Thruway from Buffalo to the Pennsylvania border.

The day after the storm hit, some 400,000 people in the greater Buffalo region were without power. Altogether, according to the utility, “over 265,000 homes and businesses were affected by the storm and without power.”

A National Grid vice president for business affairs, Dennis Elsenbeck, told Transmission and Distribution World that the utility was “amazed at the extent of the destruction that was wrought by this storm. . . . Our survey crews estimate that the storm left 9,000 neighborhood blocks with tree damage, 10,000 individual services to be reconnected and more than 1.5 million feet of wire in need of repair, replacement or re-stringing.”

Perhaps having taken the PSC recommendations to their corporate heart, National Grid quickly brought in their own out-of-town utility workers, linemen from other utility companies and assorted private contractors—as per the industry policy detailed above—from Massachusetts, Rhode Island, New Hampshire, Pennsylvania, New Jersey, Ohio, Michigan, Indiana, Virginia, West Virginia, Kentucky and a trio of Canadian provinces. (As a company spokesman told the Niagara Gazette, National Grid had 2,600 people in motels from Rochester to Buffalo.)

The result? Eighty percent of customers had their power restored a week after the storm first hit; all customers were back on line two days after that.

This was enough of an improvement that, last month, a utility trade group, the Edison Electric Institute, gave National Grid an “Emergency Recovery Award” for this effort.

Then, four days later, on Jan. 15, the ice storm hit which knocked out power to thousands of customers in the Capital Region—over 40,000 customers in Saratoga County alone. Again, National Grid crews were brought in from New England; the Binghamton Press & Sun-Bulletin reported (on Jan. 16) that New York State Electric and Gas (NYSEG) line crews from the Southern Tier were on their way north to join the effort. Con Edison crews from the metro New York City region helped out, too.

This time, there were complaints.

“I am astonished at how this was handled,” Essex County Manager Clifford Donaldson, Jr., told the Plattsburgh Press-Republican. “There is no need for people to be out of power that long. We have a life-threatening crisis.”

What Donaldson was specifically complaining about was National Grid’s restoration plan, which concentrated on getting power to Saratoga Springs and other “population centers” first. This left small towns like Westport and the surrounding rural areas—which have a significant senior citizen population—to wait . . . and wait.

“Westport was still out of power Sunday. . . . That’s completely unacceptable. Water lines will be freezing, people are in shelters.”

National Grid recently said that they have been adding staff. This reflects, Prof. Bose explains, a national trend: The utilities “now realize that many people are retiring,” and are making recruiting efforts a priority.

Traditionally, Bose says, utilities liked to hire young people with some technical background, and then spend a lot of time and money training them. This was de-emphasized at the beginning of the era of deregulation.

“I don’t think people paid enough attention to the pipeline,” Bose says, referring to the process of bringing new people into the industry. Now, he notes, there is “concern across the board, from the utility companies and their trade associations.”

“There’s a big interest in hiring new people,” Bose says, but adds a cautionary note: “Hopefully, things will get better. Deregulation, however, leads to a constant pressure to keep costs down.”

Deregulation—as has been proven in both the energy and media industries—also leads to mergers and mega-mergers. Thus, there is National Grid’s proposed acquisition of KeySpan Corporation. (The PSC has been holding public-comment meetings on the merger over the last month.) KeySpan owns a number of smaller utilities, including the Brooklyn Union Gas Company (which serves Brooklyn, Staten Island and Queens), KeySpan Energy Delivery Long Island, and, as the PSC describes it, “other companies that provide assistance to the Long Island Power Authority.” Of course, this is promised to lead to “synergy savings” of $1.6 billion over the next decade.

Not everyone is convinced. Writing about this proposed merger a year ago in the Boston Globe, Robert Kuttner (editor of The American Prospect) argued that “public utility deregulation has been mainly an invitation to price-gouging and greater risks to the system’s reliability.”

Just as critics predicted before the energy deregulation boom.

In his essay, Kuttner put forward a pretty straightforward argument against energy deregulation: “The states that kept integrated public utilities, which both produce power and sell it to retail customers, have enjoyed much lower consumer electricity prices. In a number of states in the southeast and in Michigan, for example, recent rate hikes have been in single digits.”

Unlike, say, in deregulated Massachusetts where, Kuttner noted, “prices have risen about 50 percent.”

Energy deregulation is certainly losing its appeal. The Associated Press reported this week on a Montana lawmaker’s proposal to get rid of his state’s decade-old deregulation laws. In Connecticut, the Journal Inquirer reported last week, “sharply rising electric rates have prodded [Gov. M. Jodi] Rell and state lawmakers to seek ways to modify deregulation enacted . . . in 1998.” For some Connecticut customers, electric rates increased 22 percent last year. (The New Haven Independent noted this week that the city of New Haven actually considered, at one point, taking utility facilities by eminent domain and setting up their own public power company—only the legal fight would have been too costly.)

The Washington Post has reported that “rate increases have been higher in states that deregulated than in those that kept the old regulated framework.” There is widespread dissatisfaction with deregulation in Maryland and Washington, D.C.; one D.C. official told the Post that “everyone is just looking at Maryland,” where many residents faced a 72-percent rate increase last year, “and getting sick to their stomach.”

Then there are the surprises in store for some customers lured to alternative suppliers; you make not like Con Ed or National Grid, but consider the fate of Brooklyn restaurant owner Changsheng Yang. The New York Daily News reported on Feb. 12 that Yang switched to a company called U.S. Energy Savings earlier this year, ostensibly to take advantage of a “fixed” rate, and then was shocked when his bill fluctuated wildly. (Turns out that only part of his bill was “fixed.”)

Still there are still plenty of folks singing the praises of deregulation. A Florida-based energy company founded by a couple of ex-Enron employees put out a press release last week giving New York and Texas high grades for “the ability of small businesses to shop for power.” The Binghamton Press & Sun-Bulletin dutifully reported this in a brief story Feb. 12, but smartly pointed out: “While New York and Texas were awarded highest grades, Montana and Nevada, two states boasting relatively low electric rates, were given failing grades.”

Even the press is having trouble taking the apologists seriously.

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