Storm could lead to higher electric rates
Saturday, November 12, 2011
HARTFORD, Conn. (AP) — A rare October snow storm that caused record-breaking power outages could lead to increased electricity costs in Connecticut, where residents who endured days in the dark and cold already pay higher rates than any other state in the continental United States.
The price tag is expected to run to $100 million or more for the 12-day campaign that involved crews from as far as Colorado and Michigan in restoring power to more than 850,000 customers.
In a recent financial filing, the parent company of Connecticut’s main electric utility said it expects to recover costs for the Oct. 29 snow storm by going through regulators. With multiple investigations probing the utility’s storm response, however, the state’s energy commissioner and a key state lawmaker told The Associated Press that claims of mismanagement and subpar performance — if proven true — could block the company from passing costs on to ratepayers.
“We don’t know if it’s going to be borne by ratepayers. I think it’s very premature to make that statement,” said Connecticut state Rep. Vicki Nardello of Prospect, co-chairwoman of the legislature’s energy committee. She said Connecticut Light & Power has insurance against storms and a reserve account, and state energy regulators can prevent the utility from passing storm-related expenses on to customers if they are deemed to be “imprudent.”
The rare, pre-Halloween nor’easter dumped up to 2 feet of wet, heavy snow that snapped tree limbs and power lines, and knocked out power to more than 3 million customers in the Northeast. It broke a state record for the number of customers left in the dark by a single storm that had been set only two months earlier when the remnants of Hurricane Irene slammed the Connecticut shoreline. A week after the storm hit, 176,000 customers were still without power. Electricity was restored to virtually all customers by Thursday.
Connecticut Light & Power has described it as the region’s worst October snow storm in centuries.
Northeast Utilities, the Hartford-based parent company of CL&P, said in its filing with the Securities and Exchange Commission that it expects the storm costs will meet the criteria for reimbursement. A CL&P spokeswoman, Katie Blint, said the utility will make its case to the Public Utilities Regulatory Authority and it will be up to that agency to decide whether ratepayers will bear some of the burden.
An NU spokesman, Al Lara, said it will take weeks or months to determine the total cost of the restoration effort. He said he expected the regulatory review would not be influenced by the investigations targeting the outages.
“I would expect the process to be independent,” he said.
Although it may make for good politics to side with customers after such a storm, utilities are able to recover most of their costs from ratepayers in the vast majority of cases, according to Neil Kalton, a senior equity analyst for Wells Fargo Securities in St Louis.
“I think at the end of the day pragmatism tends to prevail and there is a realization that when you have a massive storm like this at a bad time of year when the leaves are still on the trees, it’s really out of the control of the company,” Kalton said.
Only Hawaii has higher electric rates than Connecticut, a happenstance blamed on the state’s high cost of living, the lack of coal-fired power plants and a fee that a former governor and state lawmakers imposed on electric utilities to pay off borrowing that helped balance the state budget. The average homeowner’s electric bill in Connecticut is about $143 a month, compared to the national average of about $104 a month, according to the latest data from the U.S. Energy Information Administration.
Any request for a rate increase would go before the Public Utilities Regulatory Authority, which meets at least once every four years to set new rates and last did so in 2010. The utility could ask for a rate hike in the interim to cover storm-related costs.
Daniel Esty, who oversees PURA as commissioner of the state Department of Energy and Environmental Protection, said there are several concerns involving CL&P staffing levels, how quickly crews responded after the storm and whether enough crews were on standby.
“The expense of responding here is going to run in the hundreds of millions of dollars. But I think there’s a significant question of whether some of that should be disallowed,” he said.
The storm response is the subject of several investigations at the state and federal level, including a review by the Washington, D.C.-based disaster response consulting firm Witt Associates. In announcing that probe into CL&P’s response last week, Gov. Dannel P. Malloy said: “I presume we’re going to find some level of malfeasance.”
Elin Swanson Katz, the state’s consumer counsel, said the findings of the various investigations will affect the utility’s ability to recover storm-related costs. Katz, whose office advocates for electric ratepayers, said she was concerned in particular by stories of crews that were paid to sit in parking lots for hours while they waited for instructions from CL&P.
“The burden is really on them to come explain the extent of the damage and explain why it’s fair to attribute not to any sort of management issues but to the fact that this was the storm of the century,” she said.
Northeast Utilities has offered $10 million to establish a fund to help residential customers who experienced losses because of the storm.
State Senate President Donald Williams said it would be more fair if CL&P offered a $50 credit to each affected customer — a gesture that would cost the utility a tenth of its $388 million in earnings in 2010.
“I understand the storm was not CL&P’s fault, but CL&P has admitted that their response could have been better,” Williams said. “Homeowners and businesses lost an untold fortune in spoiled food and missed business, as well as covering the cost of hotel stays, takeout meals, flooded basements and a myriad of other, unnecessary daily expenses.”