Irene should blow U.S. utility deal off course
By Rob Cox and Christopher Swann
The authors are Reuters Breakingviews columnists. The opinions expressed are their own. Rob Cox lives in Connecticut and, at the time of publication, was among those still without electric power.
Hurricane Irene may not have done much damage on Wall Street. But she ought to blow one deal off course: the $4.2 billion merger of electric utilities Northeast Utilities and NSTAR. Huge blackouts following the storm have exposed NU’s deficiencies in serving customers despite charging some of America’s highest rates. Regulators should take a critical look before approving the deal.
Utility mergers present special problems to begin with. The companies are regional monopolies providing an essential service. So state watchdogs tend to demand that consolidation create benefits for customers, for example in the form of lower electricity rates or improved service. That’s why the benefits to shareholders from any synergies in such deals are generally downplayed.
Indeed, the need to appease regulators, specifically those in Massachusetts where both NU and NSTAR are headquartered, was one reason for the lack of any premium in the merger deal announced last October. The companies also promised not to eliminate jobs in customer-facing positions or in operations, commitments of the kind local regulatory authorities like to hear.
But what matters most is what they see on the ground. And NU’s botched handling of the Irene mess provides compelling evidence that its customers are not being served properly. At the company’s Connecticut Light & Power subsidiary, a quarter of customers still had no power four days after the storm. Connecticut residents pay more for their electricity than any other state in the lower 48, according to the Energy Information Administration.
True, Irene was an unusually powerful storm. But after years of cost-cutting, CL&P was not adequately prepared. It had expected out-of-state crews to pitch in, but many of them had their own problems to contend with. Over the past 35 years the utility’s number of customers has grown by 41 percent while its line worker ranks have shrunk by 21 percent, according to a letter one of the company’s unions wrote to Connecticut’s governor.
The Massachusetts regulators will soon be asked to approve the NU-NSTAR deal. Judging by the evidence in Connecticut and elsewhere — as opposed to the promises of the companies’ executives — the watchdogs need to take care to extract a few pounds of customer service flesh before they let the deal go ahead.