Concerns About Electric Industry
Are Growing as Probe Continues
Cuts in Staff, Maintenance Believed
To Have Eroded Reliability of System
By REBECCA SMITH and LEE HAWKINS JR.
Staff Reporters of THE WALL STREET JOURNAL
Even before this month's massive blackout, state regulators in the Midwest and Northeast were concerned about the extent to which utilities
had slashed staffing and cut spending on maintenance.
Such cutbacks were particularly pronounced in states that froze retail electric rates as part of their deregulation laws.
Regulators in states including Michigan, Ohio, Kentucky, Pennsylvania and New Jersey had recently examined utilities in their areas, including
Allegheny Energy Inc., FirstEnergy Corp. and American Electric Power Co. Some of them concluded that utility-spending cuts were
contributing to more frequent and protracted outages.
These outages mainly affected the utilities' distribution networks -- the lower-voltage electric system that brings power into homes, offices
and factories. The big Aug. 14 blackout, which affected 50 million people in eight states and parts of Canada, stemmed from problems with
the high-voltage transmission system, which carries juice over long distances.
While the cause for that big blackout hasn't been determined, many industry experts already are pointing to the country's fragmented system
of generation and transmission providers that fall under a myriad of regulatory jurisdictions. The confused state of the industry is widely
believed to have eroded the reliability of the country's electric industry.
A study in the summer of 2002 by the Pennsylvania Public Service Commission, which regulates that state's utilities, found that in the years
1997 to 2001, equipment-related maintenance expenditures by utilities declined by 6% annually, excluding the costs of trimming trees that
grow near power lines. It found that electric outages caused by equipment problems at Allegheny jumped from 1,140 incidents in 1996 to
4,914 in 2000, the latest year for which statistics were available. While the increase in part reflects the installation of an improved
data-collection system by Allegheny, "these are the sorts of numbers that make us take a closer look," says Robert Rosenthal, director of
utility services for the Pennsylvania commission.
One reason that the problem appears most pronounced in states that deregulated their retail
electricity markets is because market-opening laws typically allowed utilities to recover millions
of dollars in of costs for past investments, but only if they agreed to freeze retail rates for several
years. Such a formula was designed to provide price stability until new entrants created more
competition.
The frozen rates actually worked in the utilities' favor, by allowing them to get higher rates of return than would have been authorized in
today's low-interest-rate environment. But with rates frozen, the easiest way to get dollars to the bottom line is by whacking expenses.
"There's very strong incentive to make cuts," says Robert Burns, senior researcher for the National Regulatory Research Institute in Ohio. "It
takes years for maintenance cuts to show up in the reliability numbers, so that's where you tend to cut."
Judy Palnau, a spokeswoman for the Michigan Public Service Commission, said the commission investigated maintenance practices at Detroit
Edison, a unit of DTE Energy Co., and Consumers Energy, a unit of CMS Energy Corp. The effort was prompted by consumer complaints.
She said the commission urged Michigan utilities to spend more on maintenance.
In Kentucky, utilities commission investigators sharply criticized AEP's maintenance practices in a heavily wooded, mountainous part of the
state following an outage on December 25, 2001. An audit released this March found that "staffing has been significantly reduced over the
past five years," and that despite some computer-system improvements, "outage results are getting worse." It also concluded the that AEP's
tree-trimming program in the region, which keeps trees away from power lines, was "quite simply ... under funded."
AEP says numbers can be misleading. It said reorganizations have changed the way personnel are accounted for. AEP, like many utilities, has
been reducing its payroll by hiring more contract workers, such as tree trimmers. "The number of employees involved in maintenance
operations -- line crews, etc. -- has remained pretty constant," said AEP spokesman Pat Hemlepp. "We've made it clear that neither reliability
nor safety will be compromised in any effort to become more efficient."
In New Jersey, a utilities-board spokesman said that the agency is searching for a firm to conduct an audit of maintenance practices at
FirstEnergy unit Jersey Central Power & Light Co. It was prompted, in part, by problems restoring electricity after outages last summer, said
Eric Hartsfield, a spokesman for the New Jersey Board of Public Utilities. JCP&L also came under criticism as a result of power outages at
the Jersey shore this past Fourth of July weekend.
Getting to the bottom of how many utility employees have lost their jobs in recent years itself isn't easy. An analysis by the Energy
Information Administration, tapping numbers supplied by utilities to the Federal Energy Regulatory Commission, showed total utility-industry
employment falling from 478,803 in 1990 to 289,000 in 2001, the latest year for which numbers are available.
Part of that employment drop would have resulted from utilities selling off pieces of their businesses, like generating plants. But experts say
there is also widespread evidence that many utilities are cutting the number of people they have assigned to specific tasks, such as maintaining
some kinds of equipment. The tricky part is determining whether these staff reductions really are eliminating waste or reducing a utility's
ability to keep equipment running and respond to emergencies.
Jim Dushaw, director of the utility department of the International Brotherhood of Electrical Workers, the biggest union in the electric-utility
industry, said that deregulation has shifted attention away from service quality. He said it is clear there's a "changing culture in the industry
from one that is reliability- and service-oriented to something less."
Gary Klinglesmith, an international representative for IBEW's fourth district serving union locals in Kentucky, Ohio, Virginia, West Virginia,
Maryland and Washington, D.C., said there has been a widespread trend toward delaying work. "Instead of routine maintenance, they wait for
things to break," he said.
Ralph DiNicola, a spokesman for FirstEnergy, said the company has been under attack since the Aug. 14 blackout by those who believe that
the company's power-line failures set up the circumstances that created the cascading outages. He said FirstEnergy has in fact raised its
transmission-system spending in each of the past five years. From the $94 million spent in 1999, FirstEnergy has budgeted $128 million this
year. |
