New England power merger deserves final nixing

December 5, 2011

By Rob Cox
The author is a Reuters Breakingviews columnist and Northeast Utilities customer. The opinions expresssed are his own.

It is now official: Northeast Utilities, New England’s biggest electric utility, failed in the duties that accompany its monopoly. With the release of a new report, regulators have all the evidence they need to power down Northeast Utilities’ $4.7 billion takeover of Massachusetts rival NSTAR.

The report, commissioned by the state of Connecticut and conducted by a consultancy run by James Lee Witt, a former Federal Emergency Management Agency director, faulted the $6.1 billion utility’s Connecticut Light & Power subsidiary for myriad inadequacies in preparation, response and communications before and after snowstorm Alfred swept over the Northeast on Oct. 29.

For the 800,000-plus homes and businesses that lost power for more than a week twice in just about two months – the earlier trigger being Hurricane Irene in August – the conclusions won’t come as much of a surprise. But some of the report’s findings point to a broader problem of competency and accountability that should concern regulators in Massachusetts and elsewhere who are now vetting the merger with NSTAR.

Take, for instance, CL&P’s preparations for the October storm. Its worst-case scenario planning foresaw a maximum outage of just 100,000 customers, or 8 percent of its base of 1.2 million. In the end, 70 percent lost power.

Though it was unseasonal, others had managed to foresee such a storm. Witt’s firm points out in its report that United Illuminating – the other non-municipal utility operating in Connecticut – had a severe-event level contingency in which 71 percent of its customers were assumed to go dark. Better preparation helped United Illuminating to avoid a systemic loss of power – just 15 percent of its customers were cut off. And it was able to restore essential service more quickly.

The report lists 27 recommendations for Northeast Utilities to improve its planning, procedures, training, and performance. Following these non-binding recommendations would require investment. That’s almost impossible to reconcile with the company’s pledge to squeeze $784 million of savings from its combination with NSTAR.

The utility business isn’t like the rest of capitalism, as consumers don’t get to choose their providers. So regulators have to ensure end-users aren’t shortchanged for shareholders’ sake. In the circumstances, it’s hard to see how regulators can give the nod to Northeast Utilities getting an even larger monopoly to mismanage.

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