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The clown-show economics of storm-hit utilities, and in search of open primaries

By Steven Brill
November 13, 2012

1.   My Alaska-Hawaii electricity repair team:

It’s 10 o’clock and the lights are out. Do you know where your local utility actually lives?

I have already written that New York State Electric and Gas — the incompetent, uncaring electric company that services our home in northern Westchester County, New York ‑- is not exactly a community utility. It is part of a Spanish energy conglomerate. Nonetheless, when a repair crew finally arrived six days after Hurricane Sandy hit and I chatted up the guys who were about to climb our poles, I was amazed to hear that one was from Hawaii and the other two from Alaska. That they had come that far seemed so absurd that I asked to see their driver’s licenses.

Adding to this theater of the absurd was the fact that the truck they were driving was owned by something called Michels Company and had come from Syracuse, New York. That’s about 250 miles from our house. And they had been commuting all week on that truck to the repair jobs in our neighborhood from a motel in Kingston, New York – which is 72 miles away.

My new Hawaiian and Alaskan friends told me they were recruited by Michels and flown to New York on the Wednesday after the storm. Michels, they explained, is a far-flung construction contractor based in Brownsville, Wisconsin (which is about midway between Green Bay and Milwaukee) with 27 field offices from Seattle to Syracuse. The company handles jobs ranging from the Keystone Pipeline  to building highways to climbing our light pole. The crew chief, who was from Green Bay, told my wife that for New York State Electric and Gas and many other utilities, Michels has become the lead outside contractor for storm repairs. From headquarters in Wisconsin, it coordinates the now-standard practice of rounding up electricians from all over the country to become an electric company’s temporary storm recovery crew.

All of this ‑- not to mention the obvious broader tableau of how we seem to accept it as the new normal when our public utilities routinely tell customers that power outages will take a week or more to fix ‑- cries out for comprehensive reporting.

What has happened to this most basic core of our infrastructure – the electric companies that, town by town, have been awarded monopolies that our public officials are supposed to regulate? Have they become shells that simply hold their monopoly licenses and do the billing and collecting while outsourcing the work their customers rely on?

How could the way we regulate those monopolies have failed so miserably that they apparently have an economic incentive to hollow out their own repair crews and outsource that work to a seemingly prospering contractor who recruits and flies people in from across the continent and beyond, and then has them commute an hour and a half by truck every day to climb light poles?

Beyond the clown-show economics of that, serving customers cannot possibly be part of the equation in those incentives; by definition, my crew couldn’t get in position to start work until two days after the storm lifted and even then they had to orient themselves to a new continent. It would be great to read a bunch of stories that explain all this, along with sidebars on Michels Company and its itinerant pole climbers.

The state and local officials who regulate utility monopolies set rates by allowing companies a certain profit margin above their costs. Does that mean my rates are now going to go up to pay the tab (and maybe a profit margin, too) for my repair crew’s plane fares and motel bills? How does the rate setting work in states and communities across the country? What is it about the way rates are regulated and profits accounted for and allowed that seems to encourage utilities to cut their staffs but then pay for outsourced workers to fly in days later? Has any state or local government tried to reverse those incentives by building in penalties – say, $200 per home per day – for outages lasting more than 24 hours? Or are the utilities’ lobbyists in our state capitals too strong to allow that?

More important, what kind of twisted incentives let utilities get away with not making the kinds of investments – such as putting the wires underground, in the case of my community ‑- that would prevent blackouts and probably pay for themselves in unspent repair crew time and overtime (not to mention tickets on Hawaiian Air) within 5 to 10 years?

In theory, the state and local officials who regulate utilities allow the monopolies because you can’t have two or three or four companies running wires across poles or underground. But with cable and telephone companies also running wires, does that still make sense? I now use Cablevision for phone service because Verizon had a lousy repair record in prior storms. Both have wires running up and down my road. So why couldn’t two electric companies be allowed to run wires and compete?

I enjoyed meeting my friends from Alaska and Hawaii, and they did a great job. But I’d sure like some good reporters to explain how we’ve lapsed into an almost Third World state of affairs, in which our basic infrastructure is so vulnerable that in a state with an 8.9 percent unemployment rate, we had to fly those guys in to put our lights back on.

2. Scoping out open primaries:

If next time around the Republicans are going to nominate the kind of semi-middle-of-the-roader who can appeal to people other than white men, they need to avoid the kamikaze ritual of primaries that we saw this year, in which almost every contender, especially the eventual nominee, tries to get to the right of everyone else. The way to do that is to change the rules and allow “open primaries,” in which independents and even Democrats can vote in a Republican primary. That way someone like Jeb Bush – who has great appeal to moderates – would have a far better chance of getting the nomination.

Some key primary states, like New Hampshire and South Carolina, already have open primaries. But major sources of delegates ‑such as California, Florida, New York and Pennsylvania – do not. So I would like to see a story about what it would take to open up those primaries and whether Republicans backing someone like Bush are likely to begin working behind the scenes to make it happen.

Sure, it’s a wonky “inside baseball” issue, but it may be the only way to bring the Republican Party back from the right-wing edge. Imagine the different dynamics in Florida and California if Bush – who has consistently pushed for immigration reform and whose wife is Hispanic – could benefit from support in those states from Hispanics who, because of the current Republican stance on immigration, aren’t registered Republicans.

PHOTO: New York Air National Guardsmen guard downed power lines in Westchester County, New York in the aftermath of severe storm damage caused by Hurricane Sandy in this November 7, 2012 handout released by the New York National Guard November 8, 2012. REUTERS/ Capt.Jasmine Candelario/NY National Guard/Handout

Comments
10 comments so far | RSS Comments RSS

Well, Mr. Brill, you have seen the future — your utility service has been outsourced and, yep, it is you who will pay whatever it turns out to cost (though not necessarily on a per job basis), since the guarantee of a set profit is in place. But, just be glad Romney did not get elected (this time, anyway), considering that he was ready to outsource (to his buddies, of course) any public program that had revenue, and discontinue the rest.

Thanks for writing about the utility matter. Most of the innocent US population still cannot grasp that our democracy is fast sinking into oligarchy. We have won a little breather by electing Obama again, but the margin of victory offers little room for optimism that people will wake up in time for the next assault. We are mostly living in a dream of a past era of US wellbeing.

Posted by bcrawf | Report as abusive
 

Mr. Brill,

You hit the bell loud and clear on “storm-hit” utilities. Except for them it’s “business as usual” and it’s the people, primarily taxpayers, the disabled, the retired and, of course, the able-bodied “stay-at-homes”, that are the most “storm hit”. I consider myself lucky to be served by a local co-op utility with real “boots on the ground” and an office and employed work crews in the town near where I live.

As for immigration, yet, it’s a mess. America keeps GIVING a “cut the line path to citizenship” to fence-jumpers that are an economic burden in total cost beyond defense spending! We clearly aren’t serious about controlling our borders or we’d mine them and leave the bodies to warn those tempted that the risk isn’t worth it. That won’t reverse the ever-increasing “diversity” of this nation, but it sure will slow down the present rate of “transition” to a voting majority that do not and will not economically and meaningfully contribute (put in more than they siphon off one way or another) to the fiscal well being of the country.

Posted by OneOfTheSheep | Report as abusive
 

We need regulation and government that works for the people, not their next donations…

The USA, the best democracy money can buy

Posted by GA_Chris | Report as abusive
 

You ask:

> “… What has happened to this most basic core of our [Electric] infrastructure …” ?

I do not know, but think we have ourselves to blame. We supported “deregulation” of the this basic infrastructure service to get cheaper electricity. After all we reasoned, private industry and market competition can do it better. And I think we get what we pay for (the shell companies with few line crews, plus profits for more companies, fewer local line crew jobs, etc).

Of course, the distribution system for the power is still a monopoly. Who would want to pay for this infrastructure twice? You may have noticed that they don’t even like to maintain it any more (i.e. tree trimming, etc). The risks and returns would not favorably impress an investor, so I would guess that two distribution systems is just a silly investment suggestion.

And if you think your electrical infrastructure was a mess after the hurricane, imagine that there were two independent electrical distribution systems taken down by one tree. Who should fix what and when? Are both power grids powered down, or just one? What happens if one power grid shorts to the second? Is it safe to work on the second system after the first is powered up? Two distribution systems goes beyond silly and becomes dangerous to the lives of your new friends.

I think the actual power in your local distribution system is what was at least partially “deregulated”. They split the bill with the “local” distribution company stuck with responsibility for the high risk, capital intensive distribution system. They get the commodity part of the deal. They buy their power or maybe even produce it, resell it to you at a profit, but their accountants probably want these companies to keep their capital investments low, and not waste margin on employees or distribution systems.

So who are you mad at? I would guess you think you are mad at the company that owns and operates the local distribution system. This system was probably built when a single company got to own 100% of both the distribution system and the power generation system. Now they may get only half the bill. In these cases, they will have less income per mile of wire to support expensive line crews. So they staff for a minimal run rate and outsource peak demands for line crews. This approach works most times, unless there is a demand spike for services…

So have you looked at phone companies lately? Have you notice how things work great unless there is some unexpected demand spike? This didn’t use to be a problem back in the days of the “big” ATT when they were required to maintain extra capacity for emergencies, and they had the scale to afford it. Heck, they use to even be able to invest in basic research, etc. at Bell Labs. How quaint… :-)

Posted by Rumphius | Report as abusive
 

Spot on article. We have to bring the lobbyists and the corporations they represent to heel by making elected officials less beholden to them, and improve the power/transmission grid to make it more efficient. Possible, yes. Probable, no.

Posted by Andvari | Report as abusive
 

Good article, but out of date regarding California and open primaries. CA did even better – the top two open primary candidates, irrespective of party, compete in the general election. So in our House district we had a fresh Democratic face competing against a Democrat who had well outlived his ability, but who would never have lost had he been up against a Republican. CA is headed toward a truly centrist representative government.

Posted by Wimbledon | Report as abusive
 

How about commenting on FEMA’s role in helping the utilities when disasters like Katrina and Sandy hit communities hard?

Posted by emmanduke | Report as abusive
 

The weather can sometimes get pretty bad in my part of Britain…
http://www.dailymail.co.uk/news/article- 2083149/Wind-turbines-cope-UK-weather-3- blown-pieces.html
— However, in Britain, we have a fairly robust power grid (which rarely experiences millisecond power outages) even in these conditions. Buried cabling helps a lot!

I believe the ideal solution for North America (cities and rural areas alike) would be MICROGENERATION. Even if your local renewables can only service 1/3 of your usual needs, that can still make a big difference during a disaster like this.

Please cut the power companies a little slack: salt water is no good for electrical infrastructure, and I read that they had a lot of that in some parts of the NYC subway system. It’s no wonder if it takes a while to get on top of this!

Posted by matthewslyman | Report as abusive
 

Well I suppose Mr. Brill and those who imagine they understand the economics of utilities from talking to two guys from Hawaii and Alaska could apply their economic theories to their local police and fire departments and pay the necessary taxes. Do you want to have a fire department capable of handling any fire on its own, a suburban police department with its own bomb disposal team, crime labs etc even if they do nothing most of the time? Want to pay the pensions for these supernumeraries?

Utilities have mutual aid agreements but it is quite rare to have the largest population center in the nation get pummelled by a hurricane. Of course there will not be enough local linemen unless you want to pay outlandish distribution costs to keep an army of linemen, bucket trucks and supplies on hand to meet every contingency.

Posted by sangell | Report as abusive
 

So a few things about disaster response.
1. Did you know that your local fire brigade is wholly understaffed to manage “the big bad one”? Indeed, they’re only staffed to manage a fire of moderate intensity, unless you live in a large city. But even New York was calling for help from surrounding cities during the attacks of 11 September 2001.
2. Ditto for your local police department. If there’s a riot in your town, expect them to cry out for help from surrounding communities.
3. This is entirely how the playbook is written.

You can’t afford the cost of a gold-plated disaster response team that can manage anything, anytime. More than that, you don’t want that.
Disasters, thankfully, are a rare event. To have adequate staffing on a local level would require massive resources, and on top of that, the responders would spend about 99.99% of their time training for something they’d likely never see in their lifetimes. Ask any firefighter in, say, South Bend, IN, how he’d respond to a 100 story high rise fire.

Utility companies and emergency responders are smart to allocate local resources that will cover their realistic needs. For everything else, they’re smart to draft contingency plans that include how (and whom) to contact to bring in extra support in times of unexpected need.

Look at the facts: New York hasn’t been touched by a storm of Sandy’s magnitude in ages. Why is it reasonable that power crews suitable for managing such a storm are kept around, when mutual aid agreements with utilities around the country and Canada are already in place, and have boots on the ground within 48 hours? Millions of people in New York and New Jersey were affected, and yet not even .001% of the people died as a result. More people died in 9/11, and look at the bazillions of dollars that have been spent very questionably, and the massive hit to the global economy that this has brought. You want more of that?

You’re demanding protection equivalent to a fire engine on every street corner (and the costs that brings) to protect against an occurrence where you’re far more likely to be struck by lightning.

Let’s get real, please.

Posted by magicdragonfly | Report as abusive
 

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