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New York Post

 

Con Ed's Next Crisis

June 30, 2008

By Nicole Gelinas

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NINE thousand Con Ed workers might go on strike this week, making it harder for the utility to prevent a blackout in the heat. But the strike isn't New Yorkers' only power problem. Even if Gotham avoids a blackout this summer—far from assured—the bigger worry is that it's impossible to tell whether Con Ed is doing what's needed to avoid large-scale blackouts down the line.

To be fair, Con Ed performs better than the national average. But the uncertainty over a repeat of summer 2006—when tens of thousands of customers in Queens lost power for a week and Con Ed seemed to have no idea what was going on—is unacceptable in a world-class city.

Unpredictable power cuts add to the city's growing reputation as unable to provide a 21st-century infrastructure.

The massive 2003 blackout of the whole Northeast wasn't Con Ed's fault. But two protracted brownouts and blackouts in the last decade were: the 1999 upper Manhattan failure and the 2006 Queens one.

The trouble isn't so much producing the power; it lurks in how to carry the electricity from a Queens power station to where you are. Con Ed's aging distribution and transmission infrastructure is struggling to handle the power pushing through it—and summers smash power-usage records in electricity-hungry New York.

Because the lines and transformers are mostly underground, it's hard to pinpoint failures until they've caused outages. (That's also why a possible strike is dangerous—this isn't really an automated business.) After the 2006 blackout, state officials found an "alarming rate of corrosion among . . . underground transformers, and . . . no reason to believe this high rate of corrosion does not exist" elsewhere in the city.

And the system that failed was 25 percent newer than elsewhere in the city—making you wonder about how the older infrastructure will fare in future heat waves.

But Con Ed itself is a problem, too. It claims that, since the Queens nightmare, it has improved its infrastructure and procedures to keep small problems from turning into big ones. It also points to its $1.7 billion worth of upgrades this year as evidence of greater reliability.

But the utility also touted a $1.2 billion investment in 2006—six weeks before the blackout.

We can't rely on competition to ensure that Con Ed does its job: You can't fit two sets of competing power lines beneath New York. But one fix proposed by Con Ed's critics—having a regular expiration and recertification of its franchise—wouldn't work, either: The company couldn't get debt financing if it risked losing its only assets every decade or so.

What Con Ed needs is a regulator who knows what's going on and who acts as an honest broker—making sure the utility gets the money it needs to upgrade the system without fleecing ratepayers who have nowhere else to turn.

But Albany's Public Service Commission—which approves the regular rate hikes Con Ed needs for its system investments and sets shareholders' maximum profit levels—is only now performing its first operational audit of the company in 18 years.

And despite the thousands of pages of testimony and material each rate review produces, neither Con Ed nor its regulator produces a snapshot document that spells out what level of investment the company would require to build the modern power infrastructure New York needs.

That includes wires that don't heat as quickly, newer grid technology (like that used in Asia) that offers more redundancies and fail-safe mechanisms, and increased use of technology to relay when and where there's a problem before it gets worse.

This year, Con Ed asked for $1.2 billion to improve its system. (This doesn't include money to generate power, only to move it around; Con Ed is simply the middleman.) That would have increased revenues by 30 percent—but the utility only got a third of the hike, after having gotten much more modest increases for the three prior years.

Was the rate hike sufficient? It's nearly impossible to tell.

Some evidence shows that Con Ed may be falling behind in its ability to finance upgrades. Right after the rate announcement, S&P cut Con Ed's credit rating, making it more expensive to borrow.

Plus, Con Ed has spent more in infrastructure than it has won "permission" for—evidence that the company is worried about asset deterioration, is falling behind in its cost management, or both. After the rate announcement, it cut this year's expected capital spending by about 10 percent. As the current labor dispute shows, it's got a tough task controlling salaries and benefits as inflation, and workers' cost of living, rise.

New York City hasn't helped. As Con Ed is squeezed by rising material costs, the city is levying $100 million a year in higher property taxes on its assets just because the materials they're made of, including copper, are worth more. This cost alone could eat up one-fourth of the recent rate hike.

City and state government should work with the utility to create a long-term capital plan similar to the one offered by that other city monopoly, the state-run Metropolitan Transportation Authority.

Con Ed and its overseers should produce a 10-year blueprint that discloses, in 100 pages or less, how much money and time it would take to get the system into a "state of good repair" and how much to make 21st-century upgrades.

Of course, cost and program estimates aren't foolproof, even with independent engineering input. And Con Ed would never get all of the funding it wants.

But observers could evaluate Con Ed's spending in the context of how much investment is needed and assess Con Ed's performance. We could know whether $1.7 billion a year spent on infrastructure represents progress—or evidence that our capacity to keep the lights on is shrinking.

Original Source: http://www.nypost.com/seven/06302008/postopinion/opedcolumnists/con_eds_next_crisis_117792.htm

 

 
 
 

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