All Catastrophes Are Created Equal
The electricity is back on in our house. Verizon just called to confirm that our phones our working. After seven days, I finally have Internet access. The first thing I will do (after writing this blog post) is to order an iPad. Never again will a cable company hold my Internet access hostage to a broken power line.
Some of you who are reading this probably do not even know that the worst Nor'easter since 1955 swept the Long Island Sound area a week ago Saturday. This storm was not anticipated by, apparently, anyone. The forecast that afternoon called for rain. After a couple of hours it was indeed a bit windy and rainy. My husband looked out the window and said, maybe we can build a fire tonight. Then he went out to run some errands.
The next few hours featured fallen trees, downed power lines, an exploded transformer, my husband trapped in his car behind a huge mass of trees and tangled power lines a quarter of a mile from our house, a woman who died after being hit by a fallen tree, a group of parks department personnel stuck in their trucks inside a matrix of fallen evergreens, and a policeman entombed for ten hours in a car draped with power lines because the city fathers could not get a live person from CL&P on the phone .... for eight hours.
We are very grateful. My husband was taken in by some neighbors who are now new friends and got home safely by 7 a.m. the next day. Our house is fine, we are safe, and while we lost 14 trees and our deer fence, that is no big deal compared to destruction we saw around town the next couple of days. One thing we did not see was many CL&P trucks. That's not unusual; nearly everybody in our area has backup generators; over time we have learned not to rely overmuch on our local electric company. After the last big storm, in winter 2006, it took four days to get the power back on. The Verizon trucks were out right away, but CL&P trucks were hard to spot. At the time, CL&P responded to accusations that it had cut service and was ignoring its customers with a lot of boilerplate about how it was doing its best.
This time, four days after the storm, more than half the town still had no electricity. CL&P's projections that 99% of the town would have power by Thursday night, repeated faithfully by the emergency management department, sounded more and more ridiculous. The company's union told the newspaper that they were not being allowed to work longer hours to repair the power lines because CL&P didn't want to pay the overtime. The town held a press conference, then a meeting. The power on our street finally came back on Friday night after I had left to fly to California for a speech. A headline in this morning's paper (eight days after the storm): "CL&P getting closer to restoring service" to its remaining customers.
None of this was entirely a surprise. I had a casual conversation with the head of a major midwestern utility after the power outage in 2006. After deregulation, he said, CL&P was one of the companies that had cut service to avoid rate increases, maximize profits (and enrich the management). Eventually, the deferred maintenance can no longer be deferred, and it shows up in customers' electric bills. But in the meanwhile, it's easier for management to pay itself a lot of money because customers aren't complaining to the state utility commissioner about rising electric rates. Or so the theory goes.
In the aftermath of the storm, Governor Jodi Rell has launched an investigation into CL&P. I would not be surprised if it turned a weather event into a financial scandal.
In its tiny way, the Nor'easter of 2010 bears all the hallmarks of our recent financial catastrophe. Before the event, the signs were there. It's 100% predictable that every fifty years or so, a huge Nor'easter will strike the Long Island Sound area like a buzz saw. But when one hasn't happened for awhile, it's easy to dismiss the small probability that it will happen on any particular day. Kind of like assuming that house prices can never fall by using only data from the past 20 years.
You also have a business that is "too big to fail," one that is semi-regulated in the worst possible way, meaning that oversight takes place, but the regulators are actually hostages. The too big to fail status means the utility gets the upside, and the public pays any downside. This is a recipe for moral hazard.
Sure enough, the people who were responsible for maintaining the utility infrastructure explained away shortfalls in service. Some people thought there was a problem anyway, but nothing happened. After the event, everybody is looking back with hindsight and starting to realize the problem was there all along. The search for the culprits has begun.
We need to go back to a system that makes sense. When a business functions as a public utility, it should be fully regulated (meaning the public gets the profits). When the public doesn't get the profits, the business should not be afforded the protected status of a utility. (There are other ways around this than going back to a regulated nonprofit monopoly. Why not put CL&P's contract out to bid every year. Maybe Mid-American could run CL&P. It's a highly efficient company and I suspect would provide better service at a lower cost.) That solves CL&P's problem. Unfortunately, it doesn't take care of the banks....