Power giants NStar and Northeast Utilities won a green light from Massachusetts’ regulators for their multibillion-dollar merger without having to answer serious questions about the catastrophic outages that darkened vast swaths of New England last fall, a review of merger records shows.
The review by the New England Center for Investigative Reporting found that regulators spent most of their time working out a deal to have the new combined company buy power from the controversial Cape Wind project. The final agreement includes multiple provisions related to Cape Wind plus a temporary rate freeze for customers but no requirements to either upgrade power lines and poles or maintain adequate levels of front-line storm personnel.
Connecticut regulators, by contrast, demanded and won a pledge by the merged utility to make $300 million in upgrades to lines and poles, though that money will come out of ratepayer pockets, not corporate coffers.
Yet regulators in both states may have missed a rare opportunity to use the leverage that comes with a merger review to make the two power giants say how they plan to avoid another round of disastrous outages, critics say.
“It seems like a glaring oversight not to use that opportunity to create the incentives to make sure power outages are not happening like they were and, if they are, they are getting corrected,” said Deirdre Cummings, legislative director at consumer group MassPIRG.
The newly merged Northeast Utilities empire includes most of Connecticut and a vast swath of Massachusetts, combining NStar and its Eastern Massachusetts/Cape Cod base with Western Massachusetts Electric Co.
The combined company also controls most of New Hampshire’s electric grid, which includes towns like Windham, Derry and Londonderry in the southern tier. Public Service of New Hampshire is a subsidiary of Northeast.
New Hampshire regulators declined to review the merger at all, citing jurisdiction issues.
NStar and Northeast utilities first announced plans to merge their companies in October 2010.
In the midst of the merger review by regulators, two major outages left more than a million homeowners and businesses without power for up to a week, first at the end of August with Tropical Storm Irene, then two months later with the “Snowtober” blizzard.
The storms outraged homeowners, businesses and local officials and immediately raised concerns over whether NStar, Northeast Utilities and other power companies had adequately prepared for the emergencies.
The Massachusetts Department of Public Utilities and Attorney General Martha Coakley’s office last fall launched investigations into the Irene and Snowtober outages.
The findings are due this summer, and the utilities face fines and other penalties.
But the final merger settlement between NStar, the DPU and the Massachusetts Attorney General’s Office includes little reference to the storms and the issue of the system’s reliability.
The only requirement is that the combined company provide safe and reliable service, with penalties for failing to meet unspecified customer service benchmarks.
Wind at any cost
The settlement deals at length, however, with an agreement by the newly combined utility to buy power from Cape Wind.NStar agreed to buy just under a third of Cape Wind’s electricity over the next 15 years — at a premium price that will cost $940 million more than power from conventional sources.
The company also agreed to a four-year, $200 million rate freeze, though NStar can come back in two years to ask approval to recover $40 million in costs related to last year’s storms.
Thomas May, chief executive and president of the newly combined Northeast Utilities, said after the merger was approved that customers would “benefit from significant investments in upgrades to our infrastructure.”
But others question why the behemoth company was not forced to back up its reliability pledges with hard numbers.
“It is fair to assume an even larger investor-owned utility would have the potential to be even more out of touch and even more lacking in responsiveness and accountability,” said Geoff Beckwith, executive director of the Massachusetts Municipal Association. “This is an issue we are watching.”
State Rep. Dan Winslow, R-Norfolk, contends the Patrick administration was simply more concerned with getting the Cape Wind deal done that grappling with gritty reliability issues.
“The Patrick administration has made it clear that wind power, at any cost, was their priority,” Winslow said. “My priority is reliable power.”
Barbara Kates-Garnick, the state’s undersecretary of energy, said the outage issues were not explored during the merger review because the DPU and attorney general are investigating them.
She also said the new company pledged not to lay off workers after the merger, easing fears linemen and other key personnel would be cut.
The newly combined Northeast Utilities has pledged to wring out more than $785 million in savings over the next decade, but Kates-Garnick said she is not concerned the utility might divert or cut funds for maintenance to make good on the pledge.
Critics say regulators may missed a golden opportunity to pressure the newly merged Northeast Utilities to ramp up efforts to prevent major outages.
Regulators enjoy considerable leverage when they review mergers because the companies are under pressure to move ahead quickly to combine operations and cut costs.
MassPIRG’s Cummings blames the lack of in-depth analysis on deregulation of the power industry in Massachusetts more than a decade ago.
While state regulators retain oversight of the industry, the companies are largely left to decide the details of staffing and maintenance.
But with a rising tide of epic outages, this hands-off approach is proving to be problematic, Cummings argued.
Overall, there have been eight storms in Massachusetts since 2007 that have left at least 50,000 homes and businesses in the dark, compared to just two during the previous five-year period, industry filings with the U.S. Department of Energy show.
“If we keep going on this path, we will have more weeks out of the year where we don’t have power and consumers will end up paying more,” she said.
Kates-Garnick said regulators will look at the reliability issue in detail when the newly combined company comes forward with a rate request.
That will likely not be for another four years, given the rate freeze in effect. But by then the company will have a more accurate picture of the amount of money needed for linemen, maintenance and upgrades, Kates-Garnick said.
That’s too long to wait, said Cummings.
“You want to fix the roof before the rain – you want to correct the problem now before we get into another season of crazy weather,” she said.
Ken Akroyd, a retiree who moved to the Cape from Washington, D.C., said he has lost power three times in six years.
He was so angered after losing power for three days after Hurricane Irene that he submitted a complaint to state regulators.
“On Cape Cod, we are like a third world country – we get power and electricity sometimes and sometimes we don’t,” he said.
Akroyd said NStar didn’t have enough front-line staff to restore power in Barnstable, where he lives, and few if any repair trucks were to be found in the area the first day after the storm.
Akroyd fears what could happen if the next storm is a full-fledged hurricane, not just a tropical storm like Irene.
“The thing that concerns me most is this was not a direct hit from a hurricane,” Akroyd said. “If we do get a direct hit, we could be out for weeks and weeks.”