SuperStorm Sandy Aftermath: Power Companies Unnecessarily Immiserated Millions

by on December 4, 2012 · 9 comments

in Business, Editor's Picks, Encore, Government, Politics

Weeks after Hurricane Sandy struck, millions of people were still without electricity. At its peak Sandy left 8.5 million without power. A lot of people were angry. Why did it take so long to get the power back on even with crews coming from as far away as San Diego? One power company in New Jersey came in for a lot of criticism – Jersey Central Power and Light (JCP&L)- owned by First Energy based in Ohio.

After Hurricane Irene in August of 2011 and another major storm that October, Governor Chris Christie commissioned a report, Performance Reviews of EDCs in 2011 Major Storms. That report found that JCP&L was deficient in communications with public officials and the general public leading to widespread anger and disappointment with the utility. But they were also deficient on a lot of other accounts.

Although we San Diegans have blessedly been spared from the ravages of hurricanes, tornadoes and other weather disasters, we are still at the mercies of aging utilities much in need of repair and upgrading. In particular, our local power and light company, San Diego Gas and Electric (SDG&E) has been neglecting maintenance and upgrading similar to what JCP&L did prior to the devastation of Hurricane Sandy.

An era of deregulation has left power companies more interested in cutting costs and maximizing profits than in keeping the lights on. You maximize profits by laying off workers, the workers who are supposed to be doing maintenance on the power grid such as replacing wooden power poles. Old power poles can jackknife and snap in a storm, even a storm far less ferocious than Sandy.

Besides replacing wooden power poles, such things as locating substations away from flood zones and tree trimming or vegetation management could have gone a long way to lessen the impact of Sandy. You also can put in concrete power poles instead of wooden ones, raise wooden ones above the tree line and underground utilities. There is a lot that can be done to strengthen our electrical grid, prevent massive outages and shorten the time to restoration of power.

In “The Fine Print,” David Cay Johnston writes:

“The problem … with poorly maintained equipment is widespread.Americais using up its infrastructure instead of rebuilding it. We grow slowly poorer as roads crumble, dams weaken on their way to deadly collapses, and the electric utilities siphon off funds customers pay for reliable power.

“One indicator of this? From 1983 to 2010, the number of Americans rose 36 percent, but the number of utility workers fell 15 percent. As the electric grid and the pipes carrying water and natural gas under high pressure age, more workers are needed for maintenance, repair and replacement, not fewer.”

So to satisfy Wall Street, keep the stock price high and consequently maximize top executives’ pay, maintenance is deferred and workers are laid off. This means that in a disaster such as Sandy, while FEMA has pre-positioned supplies and done all it could to get ready, the most important asset of all – electric power – has been neglected to the point that the electric utilities such as JCP&L are in no position to repair massive damage that could have been been prevented in the first place if the electric grids had been kept up to snuff with scheduled maintenance.  We have reported previously in the San Diego Free Press how Sempra Energy, parent corporation of SDG&E works out of the same playbook:

“It’s standard operating procedure for San Diego based SEMPRA Energy, parent corporation of San Diego Gas and Electric, to delay costly maintenance and then, when there is a breakdown in the system such as the 2007 Witch Creek Fire which burned 198,000 acres, killed two people, injured 40 firefighters and destroyed more than 1,100 homes, to go to the California Public Utilities Commission (CPUC) and get a ruling that would allow them to charge the ratepayers for costs associated with that disaster.”

In California our old friend Pacific Gas and Electric (PG&E) went before the California Public Utilities Commission to request a rate hike to replace 46,000 power poles annually. They said they needed to charge higher rates to replace poles every 50 years. But instead of replacing power poles, PG&E diverted much of that money. It replaced just 15,000 poles in 2002 and 2003, less than a third of the number its own experts said needed to be replaced. Then it replaced even fewer poles in subsequent years falling to about 3300 poles a year. At that rate 700 years would be required to replace all of PG&E’s poles.

This is how a monopoly like PG&E or SDG&E (parent company Sempra) orJCP&L (parent company First Energy) makes money. It lets the power grid become decrepit and then goes before the regulator for a rate increase. With the rate increase, it adds to the bottom line instead of carrying out scheduled maintenance which would subtract from it. That makes executives and investors happy, but not so much the customers when a disaster happens. How much do you want to bet that JCP&L already has plans to ask for a rate increase to replace power poles and aging equipment destroyed by Sandy?

Writing in Newsweek/The Daily Beast.com Johnston says:

“Demand that electric utilities replace power poles as they wear out and maintain equipment, especially changing oils in large transformers before they congeal and stick, to reduce long-term costs. And hire more utility workers. When utilities keep enough staff on hand to maintain systems, taxpayers will not need to fly linemen and cherry pickers in military cargo planes from California to New York.”

JCP&L had to replace 6000 poles and over 400 miles of wire after Sandy. They had to remove 65,000 trees. Numerous substations blew up. If they had done preventative maintenance on these items, there would have been far fewer outages and those outages that did occur could have been dealt with far sooner.

But what is most important is having a large number of boots on the ground in hour one after a disaster hits, people knowledgeable about the particular system and neighborhoods. Crews imported from elsewhere cannot make up for this, but deregulation in the 1990s allowed utilities to lay off trained personnel in order to increase profits. When the power crews came in from different parts of the country, they sat idle in parking lots for days awaiting orders from JCP&L.

JCP&L has had record reductions in  its work force. In 1998 JCP&L had 1650 union workers in its work force, according to a November 20, 2012 report by Dan Rather, “In the Dark.” Today they have about 1100. This is a nationwide trend that’s reflected in the declining ranks of the utility workers’ union, the IBEW, the International Brotherhood of Electrical Workers. Nationwide the number of union members has been halved in the last ten years at a time when electricity has become increasingly more vital especially because of the widespread use of cell phones and the internet.

But at the Association of Electric Utilities annual meeting, they’re still talking about cutting workers and the inventory of spare parts, cutting everywhere in order to satisfy the demands of Wall Street for cutting costs and increasing profits even after Hurricane Sandy.

True to the utility company playbook ratepayers will pick up the tab for JCP&L’s negligence prior to Hurricane Sandy. Ratepayers already face more than a quarter of a billion dollars in increases from last year’s two powerful storms. All of the utilities are entitled to seek recovery of those costs in future rate cases, provided those expenses are deemed prudent by the New Jersey Board of Public Utilities. So the PUCs are essentially in on the game. Sound familiar? SDG&E pulled the same thing after the Witch Creek fire.

Instead of doing preventative maintenance JCP&L cut costs, laid off workers and then did a lousy job responding to the disaster. All of this cost much more than would have been the case if scheduled maintenance had been done properly. But now in the aftermath,JCP&L wants ratepayers to pick up the tab.  This is the power companies’ playbook: 1) defer maintenance in order to cut costs and maximize profits; 2) wait for a disaster to happen; 3) hike rates on ratepayers to pay for the recovery.

Widespread and sustained power outages following Superstorm Sandy amount to negligence, breach of contract and consumer fraud,New Jersey residents and business owners say in a lawsuit filed November 28, 2012 in state court. The suit against Jersey Central Power & Light and its parent company, First Energy Corp., claims the utility didn’t provide electric service customers contracted for. It also claims the utility failed to prepare for weather conditions, to maintain its equipment and to hire enough personnel, and that the utility misrepresented its ability to restore power.

We here in San Diego cannot afford to be smug. While the preponderance of natural and weather disasters have occurred elsewhere, we are still subject to the same power outages which we had a taste of in the blackout of 2011 which left 5 million people in the dark. The playbook is the same for SDG&E as it is for JCP&L. Remember that.

 

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John Lawrence

John Lawrence graduated from Georgia Tech, Stanford and University of California at San Diego. While at UCSD, he was one of the original writer/workers on the San Diego Free Press in the late 1960s. He founded the San Diego Jazz Society in 1984 which had grants from the San Diego Commission for Arts and Culture and presented both local and nationally known jazz artists. His website is Social Choice and Beyond which exemplifies his interest in Economic Democracy. His book is East West Synthesis. He also blogs at Will Blog For Food. He can be reached at j.c.lawrence@cox.net.
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avatar John Lawrence December 4, 2012 at 5:06 pm

Even worse than JCP&L by some accounts was LIPA (Long Island Power Authority), which was sued by its customers. According to the suit: “LIPA failed to give plaintiffs and residents accurate estimates on when their power would be restored using an online map which showed more outages than there were customers and featured inaccurate recovery information,” according to the complaint.

“LIPA also failed to tell customers until a week after the storm struck that inspectors would need to examine electrical panels in flooded homes before it could restore power, according to the complaint. ”

Then LIPA charged each customer $400 to have an electrical inspector come and verify that the electric panel was OK to have the power turned back on. After that it would take 48 hours.

LIPA’s management consists of political appointees and not competent electrical professionals. Maybe this has something to do with it.

The chairman of LIPA, Howard Steinberg, resigned recently under fire.

avatar Wes Demarest December 4, 2012 at 5:44 pm

You hit the nail on the head John, LIPA (Long Island Power Authority) is worse. The out of town workers that came in to help them restore power made many comments to homeowners as to how bad the power system was. Several said that it was held together with baling wire and bubble gum. All to the credit of de-regulation!

Northwest NJ is serviced by 2 power companies, NJ Power & Light and Sussex Rural Electrical Cooperative. We are fortunate that we are members of the Cooperative, a far more efficient system. Here are their 7 principals: http://www.sussexrec.com/cooperative-principals.asp

In fact, some residents served by NJP&L are petitioning to change over to SREC because of poor service. Their outages run into days, not hours and they are fed up. Here is a link to a bit of history of rural electrification. Maybe government isn’t too bad after all: http://www.rurdev.usda.gov/rd/70th/rea-history.pdf

WD

avatar Patience December 5, 2012 at 4:40 am

A question that has been nagging at me: For “regulated” utilities, such as the SEMPRA example you cite, or the various subsidiaries of FirstEnergy, part of their mandated rate base is supposed to be O&M – operations and maintenance. Yet, just as you describe, I have listened to several FE analysts’ calls (and read transcripts of others) where the executives boast about cutting O&M in order to boost shareholder return by a few pennies per share.

If those rates are indeed “regulated,” and include O&M, can the various state utility commissions require that the money collected from ratepayers indeed be spent on O&M? If not, why not?

avatar John Lawrence December 5, 2012 at 7:20 am

Well, the quick answer is that the regulation boards have been captured by the interests they regulate. Many board members are political appointees. And this is not just for PUCs. It’s across the board for regulatory boards.

Political forces will fight anyone who might actually seek to regulate their corporate interests. For example, Elizabeth Warren, who is a strong critic of the banking industry was opposed tooth and nail by banking interests in her bid for the Senate. She won anyway.

Deregulation has meant that the rules are either written or interpreted in the interests of the industries and corporations that the regulatory boards are supposed to regulate.

avatar Patience December 5, 2012 at 7:25 am

Yes, regulatory capture is at the heart of it. (I knew that, but threw the question out b/c others who are less informed about the utility industry need to become aware of it.)

The state utility commissions react with shock and anger after major power failures (whether Sandy or the derecho on the East Coast, or the pipeline explosion in a California neighborhood last year, to name some examples), but it is ratepayers – i.e., CITIZENS – who need to work together to develop a collective voice. That’s the only way to break through the captives’ walls, so to speak, and make them responsive to the public interest.

avatar Paul Keleher December 9, 2012 at 5:29 am

Massachusetts’ electricity grid is also largely maintained by 2 large investor-owned utilities, as is the San Diego area. And as a result we also are stricken with many of the same woes as NJ, NY and CA. A freak snow storm on 10/29/11 knocked out power to my street for 4 days. When a crew from Joplin MO (Yes, Joplin, ironically the same town that was practically wiped off the map by a tornado a few years ago) finally came to repair the severely damaged power lines on our street, the crew chief told me they go all over the county rescuing utilities after storms. And they have NEVER experienced more obstruction, delay and bureaucratic red-tape when picking up the supplies they need to make their repairs than they have at the hands of National Grid, the British utility conglomerate now responsible for the maintenance of the electricity grid in this part of MA.

Not coincidentally, a federal law known as the Utilities Holding Act of 1939 had prevented any electrical utility in the US from owning any source of power. Ie, they were prevented from owning oil, coal,gas companies. This legislation effectively prevented electric utilities from favoring one fuel (and thus one category of customer) over another, because one fuel was more profitable than another.

After 60 years of effective market regulation, The Bush administration struck down this law (around the same time it exempted the natural gas industry from compliance with the Clean Water Act that all other industries must comply with). Immediately, the 2 major investor-owned utilities around here purchased gas companies, and now spend enormously to promote natural gas over electricity in this area. This behavior may help explain why the regional utilities around here spend so little on electrical maintenance while they engage in huge give-away programs to get more natural gas accounts. Meanwhile we all use electricity and suffer from prolonged outages, the explosion of aging equipment, and the inability to incorporate renewable sources of energy like wind and solar (Cape Wind, a 130 tower off-shore (private, unfortunately) wind farm has been delay in part due to the lack of infrastructure needed to feed its output into the local grid. And of course, the investor-owned utility involved is stalling
the project hoping to get the rate payers to pay for this infrastructure investment so the utility can reap the profits from the sale of the power from this wind farm. Meanwhile, this same utility continues to promote the sale of natural gas at its own expense.

One way to combat the selfish dominance of the electrical industry by large investor-owned utilities is to enact legislation that enables smaller regional and hopefully non-profit entities such as counties, or individual municipalities to break away from the grasp of a major investor-owned utility and establish a local utility of their own by purchasing the distribution assets in their area (poles, lines, transformers, etc) at fair market value (“fair market value” to be defined by legislation), tapping the grid for wholesale power on one or a few bulk meters as needed, and setting up their own line maintenance and billing operations, where they will be free dedicate the resources needed to properly maintain the local infrastructure.

This enabling legislation has been proposed to the MA legislature, but has stalled due to an intense lobbying campaign financed mainly be the 2 main investor-owned utilities, and may soon die in committee. At least 1/2-dozen major cities and towns in the area have already made it clear that they would move immediately establish their own municipally owned utilities if this legislation passes. If this legislation fails, as it is beginning to look like it will, MA will continue to be faced with the same lousy status quo we’ve been stuck with for years.

IT’S AN OUTRAGEOUS SITUATION!

avatar John Lawrence December 15, 2012 at 7:36 am

Paul, thanks for your perceptive and insightful comment. You are right; the way to go is for municipalities to own and control their own electrical grids on a non-profit basis so they can properly maintain them and not suffer from the outages they do under the present investor owned systems.

avatar Paul Keleher December 23, 2012 at 5:54 am

There is a rumor that National Grid wants to get out of the distribution business in MA and retain only its transmission business, presumably because transmission is more profitable than distribution. But it will only sell it in its entirety; it will not break it up and sell it off piecemeal, at least not yet. Thus NG will not permit any single municipality that it currently serves to buy only the assets within that municipality’s borders.

What if the State were to purchase the whole thing and operate a government-run electrical distribution utility, much as it has run a regional water authority for many years?

avatar John Lawrence December 25, 2012 at 1:08 pm

Update on JCP&L:

The town of Wayne, NJ is trying to get rid of them. Here’s the link:

Problem is instead of forming their own municipal power company, they want to hook up with another for profit power company which will probably turn out just as bad.

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