Terrance Heath

Powerless: Conservative Failure Returns Us to the Dark Ages

Filed By Terrance Heath | July 06, 2012 3:30 PM | comments

Filed in: Living, Politics
Tags: derecho, Maryland, no electricity, PepCo, poor infrastructure, Washington D.C.

This is the understatement of the year.

pepco-power-outage.jpegThe top utility regulators in Maryland and the District accepted a measure of the blame Tuesday for the lingering power outages that have plagued the region for years, saying they did not move swiftly enough to hold Pepco to higher standards for delivering power and restoring service. “We, as a commission, can fairly be criticized,” Douglas Nazarian, chairman of the Maryland Public Service Commission, said Tuesday in an interview. “We didn’t pick up early enough on the need for comprehensive reliability regulations. . . . You can call us on that one.”

Call you on that one? Call you? I’ve got a couple things I’d like to call you.

But I digress.  It was about 10:30 on Friday night, when the derecho that hit the mid-Atlantic plunged my family and 5 million others into darkness. One minute we were watching television in our well lit, air conditioned home. The next minute we were stumbling around, cursing the darkness and lighting candles.

While The derecho only lasted about 15 minutes, its 75-plus mph winds turned the lights off. But a perfect storm of conservative failure kept them off, and plunged much of the Washington metro area into the dark ages.

Actually, we were lucky this time. The latest blackout happened the night before we were due to leave on a week long family vacation. After living through at least one extended outage per year — usually in the winter, spent shivering in a home without heat. This time we spent it sitting in an air conditioned hotel, checking power restoration updates, instead of sitting in our now overheated home, in 100-plus degree heat, with the kids.

Five days. That’s how long we would have spent sitting, sweating, and waiting. That’s how long it took before we finally got confirmation that our home had power again.

Once we get home, we’ll have to throw out the food in the fridge, order Chinese, and make sure our son’s goldfish survived. We’ll probably wonder when the next outage will hit us.,

You see, about six years ago our previous Republican governor appointed a man with close ties to the industry to the Maryland Public Services Commission who lobotomized the commission, which is supposed to regulate utilities. MPSC has never really recovered from that “lobotomy”.

Maryland Public Service Commission Chairman Kenneth D. Schisler discussed with a power company official how to get Republicans into the leadership of a national utility regulators association and how to draft legislation that would boost energy competition in Maryland, a new batch of recently released e-mail shows.

The November 2004 discussion took place when the official, Loyd “Aldie” Warnock, was working for Mirant Corp., an Atlanta-based company that owns three Maryland power plants rated by an environmental watchdog group as among the dirtiest in the nation.

…Disclosure of the correspondence comes days after The Sun obtained e-mail between Schisler and utility industry lobbyist Carville B. Collins, revealing discussion of commission appointments and political strategy on utility deregulation.

In the e-mail, Schisler and the lobbyist discussed how to address criticism that the chairman had “lobotomized” the agency by replacing high-level staff members. They also discussed how to keep an energy deregulation plan on track despite expected criticism of rising rates.

Mission accomplished. Pepco is accountable to no one.

In recent years, Pepco has placed near the bottom for daily reliability in surveys that compared power companies around the country. Pepco tends to have more sustained power interruptions, defined as those lasting longer than five minutes. And when the lights go dark, they tend to stay off longer. In one 2008 survey, Pepco finished last among participating utility companies on two of three reliability measurements, records filed with regulators show. Pepco stopped participating in that annual study after its last-place finish.

The Post’s analysis found that service was far less reliable for communities served by Pepco in Maryland, on average, than for those in the District. One reason might be that two-thirds of District customers are served by underground lines, while 80 percent or more of Maryland customers get power through aboveground wires somewhere along the route. Pepco is required to report to regulators its worst neighborhood lines and to devise plans to improve them. But there hasn’t been much improvement. A decade ago, Pepco identified its worst 13 feeder lines in the state. Ten of those still need to be improved.

That was after last years big snowstorm. To add insult to injury, ThinkProgress reports that Pepco has made huge profits, paid big bonuses to employees, and appear to have paid no taxes.

Pepco Holdings: The company recorded small restructuring charges in 2010. The study reallocated these charges to the years they were actually spent. This slightly increased U.S. pretax profits in 2010 and slightly reduced them in 2011. Tax deferrals, primarily from accelerated depreciation, reduced the company’s taxes substantially, as did other factors. The company does not appear to have paid any net federal income tax for at least a decade.

In the last four years, Pepco has actually paid a negative 39.5 percent corporate tax rate, meaning it received millions in tax subsidies from the government. And for that, D.C. residents received a company that can’t get the power back on for a week after a storm.

According to OurDC, Pepco spent more on lobbying than on taxes in 2010.

Pepco was called out for spending more lobbying than on taxes after a profit in 2010 of $624 million dollars. PEPCO topped one study’s chart for paying the highest negative tax rate at 57% (taxes – subsidies) of any corporation in the DC area ladt year. Just their CEO was paid $6M in compensation, now PEPCO wants a $42M rate hike?

Over four years, Pepco received over $817 million in federal tax breaks.

The trophy for turning the burden of taxes into a benefit goes not to General Electric, whose skillful use of tax law and lobbying for tax breaks is famous, but to Pepco Holdings, which owns the monopoly electric utility in and around the U.S. capital. Pepco’s three-year tax rate? Minus 57.6 percent. GE’s was only minus 45.3 percent. Pepco says it pays all of its taxes as required by law. For sure that’s true.

Here’s the irony. Pepco’s biggest customer, by far, is the federal government. So, federal taxpayers and other customers paid electric rates to Pepco that assumed about $309 million in corporate tax payments would flow to the Treasury, only to see $508 million of their taxes flow to Pepco as refunds. Ouch.

The roughly $817 million tax benefit Pepco enjoyed — from taxes it collected but did not turn over combined with refunds — almost equaled the $882 million in profits Pepco’s corporate parent reported during the same period. This is an old story at Pepco Holdings. In the six years preceding the study, 2002 through 2007, Pepco Holdings reported pretax profits of $949.2 million.Its cash paid for taxes was negative $116.4 million, my analysis shows. Cash paid for income taxes is a simpler measure than the painstakingly detailed examination in the Citizens for Tax Justice study. Cash paid also tends to understate reality.

There’s still more. And perhaps this is the most outrageous. Last year, after the five-day “thundersnow” power outage, the Washington Post reported on a little known regulation that allows Pepco to raise rates after a power outage.

Pepco customers who struggled through up to five days without power last week could soon pay for the privilege.

Under a little-noticed decision by Maryland regulators, Pepco for years has been authorized to raise rates temporarily to recover money it loses when electricity use drops. The system was meant to encourage energy conservation.

But as an unintended consequence, customers could help make the company whole for outage-related losses next month by paying Pepco more than they would have otherwise. The higher rates would apply to all Maryland customers, including those who shivered in the dark for days.

“They are paying for delivery of electricity they did not receive,” said Eric Friedman, director of the Montgomery County Office of Consumer Protection

…The complicated billing mechanism is known as “bill stabilization adjustment,” or decoupling. Power distribution rates are adjusted upward when customers use less electricity and downward when they use more. The actual adjustment for January usage has yet to be determined.

Similar billing arrangements have been adopted in recent years in a number of states. But in Maryland, the billing adjustment is colliding with a string of outages at Pepco in the past year. Some critics have said that the billing system has removed any incentive for Pepco to reduce outages or to rush to restore service once the lights go out. Either way, Pepco is guaranteed the same rate of return.

So, to recap, we have have a government-subsidized, untaxed, virtually unregulated, corporate monopoly (rather than a city utility) that has no real incentive to reduce outages or downtime, because (a) there’s nowhere else for its customers to go for electricity, and (b) they get paid whether they’re supplying us with power or not.

I guess that’s business friendly regulation for ya.

Don’t get me wrong. We’ve prepared for these things as best we can. That means stocking up on batteries, flashlights, and candles. I’ve even got two chargers for my phone if the lights go out: one that uses regular batteries, and one hand-crank charger. We even got a hand-crank radio, for weather updates.

But I agree l James Fallows. We don’t have a generator, and I don’t believe preparation in this case should mean having our own personal power supply.

To which I say: Of course we all prepare to protect ourselves against foreseeable risks. We buy insurance because we know that the relevant risks — car crashes, break-ins, accidents, expensive disease — are part of the roster of life’s uncertainties. When I was growing up in Southern California, of course our family had an earthquake-prep kit, as my wife and I also did when living with our children in Japan.

But until recently, I had no reason to think that repeated, multi-day power outages were in that same category of foreseeable risk. In our previous decades as homeowners in DC, these episodes had not lasted more than a few hours at worst. We didn’t think we needed our own electric supply, any more than we needed our own private military to guard against invaders from Canada or wherever.

Now a combination of more extreme weather, and the infeasibility of moving all wires quickly (or ever) underground, means that the “normal” risk factor has expanded to not being able to rely on power from the utility company. These two episodes will change everyone’s idea of what “being prepared” means. Still the original point remains: this shift in the risk profile shows something about the effect of a more violent and extreme climate, and something about American infrastructure. Happy impending Fourth of July.

It’s mystifying that the nation’s capitol resembles a third world country every other time it snows or the wind blows.

Count me among those who would be happy to pay more to bury the power lines. Raise my rates. Raise my taxes, even. Call it a stimulus program, since it would get at least some people back to work. Just keep the lights on.

Update: It just keeps getting better. Now, Pepco wants to stick its customers with the $2.5 million legal bill for its failed attempt to defend it’s shoddy work and pitiful reaction. Yes, the same customers rendered powerless by Pepco’s failings.

As you already know if you’ve been following the issue, Pepco’s past greed and incompetence are at least partly responsible for the large scale and lengthy duration of the outages following Friday’s storm.

…But here’s the new outrage: In its current case before the state commission, requesting a $66 million rate increase, Pepco is arguing that it should not be penalized a dime for its past shortcomings — even though its public-relations message has been that it’s learned from previous mistakes.

Moreover, in a move that ought to win it an award for chutzpah, Pepco is justifying $2.5 million of the new rate request to cover its costs for outside lawyers and consultants in the case decided against it in December.

In other words, Pepco wants the same customers who have been suffering the effects of its inadequate upkeep to pick up the tab for experts who argued — unsuccessfully, thank heaven — that its reliability was fine all along.

The good news is that the Maryland Public Services Commission, finally woke up to Pepco’s pathetic performance after 2010′s “Snowmageddon.” (Which was after Maryland’s new Democratic Governor Martin O’Malley took over, cleared out Republican Bob Ehrlich’s appointments, and began filling the commission with his own.)  Now it looks like the commission won’t be going easy on Pepco.

Now here’s why the story could end happily. To its credit, the commission has signaled that it won’t go along with Pepco’s foolishness. When the commission fined Pepco a record $1 million in the December decision, it warned that it was only a start.

The regulators said then that they would reduce Pepco’s future rate requests by whatever amount the company was belatedly spending to make up for its earlier, irresponsible underinvestment. Montgomery and other critics estimate that the result could be that Pepco forgoes rate increases totaling $20 million to $30 million.

If the rate increase is reduced substantially when the ruling is issued this month, it would be a welcome sign that sustained popular outrage can make a difference in holding utilities to account where it matters: the bottom line.

Would that we had utilities that were more focused on service than the bottom line. But that would mean having something other than corporate run utilities.


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