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Sunday, January 11, 2009

Municipal utilities pondered after storm mess

Irate customers looking for options


Andrew McMahon is superintendent of town-owned Massena Electric Department in Massena, N.Y. (RYNE R. MARTIN)

Customers of Unitil have been outraged since last month’s ice storm plunged thousands of them into darkness for nearly two weeks. Petition drives are being held this afternoon in Lunenburg and Fitchburg seeking the company’s removal and local officials are exploring their long-term options for replacements.

One recurring idea is the establishment of a municipal utility. There are 40 municipal utilities already operating in the state, but the last one was formed — in Chester — in 1926, according to David Tuohey, corporate communications director for the Ludlow-based Massachusetts Municipal Wholesale Electric Co. Mr. Tuohey’s agency buys power in bulk and resells it at cost to municipal utilities.

“All municipal rates are lower than the investor-owned utilities,” Mr. Tuohey said, chalking up the lower prices to being nonprofit agencies, eligible for tax-exempt financing and able to own pieces of their own power supplies. Investor-owned utilities such as Unitil, meanwhile, had to divest from power generators in the industry-wide deregulation of the 1990s.

“If a city or town would create its own utility today, they’d have to go about establishing their own power supply,” Mr. Tuohey said. “The primary challenge is purchasing the assets of the utility that currently serves the town.”

Many of the current municipal utilities were formed as electric service was first being brought to their communities, Mr. Tuohey said, so the process of forming one today would be much more complicated.

There is legislation on the books covering the formation of municipal utilities, but critics say it is vague and weighted toward existing companies, one reason there has been no expansion in their number for decades.

“The investor-owned utilities are fortunate the statute was written 100 years ago,” said Patrick Mehr of the Massachusetts Alliance for Municipal Electric Choice. The Lexington resident has championed the formation of a municipal power company in his community for years. The century-old language in the current statute all but gives utilities “a veto right” on municipal power projects, Mr. Mehr said.

Mr. Mehr is seeking support for proposed legislation — first introduced in 2005 and scheduled to be refiled this week — that would make it easier for municipalities to take over power infrastructure. Once a fair price for the infrastructure was set, the bill proposes, the utility would have to sell. Any disagreements in values would be decided by the state Department of Public Utilities.

“It’s a very simple process,” Mr. Mehr said. “It’s as if a tenant wants to become the homeowner.”

Greater competition would benefit customers, he said, and municipal utilities would not offer the multimillion-dollar pay packages awarded to top executives at investor-owned utilities.

State Rep. Jay R. Kaufman, D-Lexington, is the chief sponsor of the proposed legislation, known as House Bill 3319. State Rep. Stephen L. DiNatale, D-Fitchburg, is one of Mr. Kaufman’s numerous co-sponsors. The issue is expected to be referred to committee for review.

“There are a number of hurdles you have to get over,” Mr. DiNatale said, describing the path to creating a municipal utility. “Clearly it’s the way to go, but there are some challenges to do it.”

The residents of Massena, N.Y., on the St. Lawrence River, found that out more than 30 years ago.

In 1974, residents of that town of about 13,000 people began a campaign to chart their own utility path. The town was home to a major New York Power Authority operation, but saw the low-cost electricity produced there shipped elsewhere and instead paid Niagara Mohawk Power Corp. for its energy. Niagara Mohawk was acquired by National Grid in 2002.

A legal battle ensued that lasted seven years. In the end, Andrew McMahon, the superintendent of New York’s Massena Electric Department, was able to purchase the infrastructure from Niagara Mohawk, and the Massena Electric Department turned on the lights in May 1981.

The rates dropped immediately, Mr. McMahon said in an interview last week. The municipal utility’s charges remain in the bottom 25 percent of the country.

“When we took over in 1981 our rates went from 4.2 cents (per kilowatt hour) to 4.17 cents,” Mr. McMahon said. “But since 1981, National Grid’s rates have continued to climb, while ours remained the same.”

The utility charges a total of 6 cents per kilowatt hour today, he said, while neighboring National Grid towns are charged more than twice as much.

Massena Electric is able to accomplish this because the finances involved with a municipal utility are different from an investor-owned operation such as Unitil or National Grid, Mr. McMahon said.

“We’ve paid off our debt and reinvested in our system,” he said. “We’re not shipping money out to shareholders. We’re not playing any economic games. We’re just trying to make the system better.”

When northern New York was ravaged by an ice storm in 1998, the power was back on in Massena in two days. Parts of neighboring communities served by National Grid were in the dark for three weeks, Mr. McMahon said. He attributes the quick recovery to an aggressive maintenance program still employed by the municipal utility.

“We give ourselves the best chance to keep the lights on,” Mr. McMahon said, boasting the department’s customers lose power an average of 40 minutes per year, while the national average is two hours.

Fitchburg Mayor Lisa A. Wong said a study was done in 1981 about the feasibility of Fitchburg creating a municipal utility. She said she has not read the study in its entirety, but has learned it concluded there were legislative hurdles that would make it difficult to accomplish.

The mayor said seeing better service provided to Fitchburg residents is her immediate goal.

“There is somebody who owns the infrastructure and there is somebody who should be held responsible,” she said. As for undertaking a municipal utility project, the mayor said much more investigation was needed.

Fitchburg City Councilor Dean A. Tran is pushing for such an investigation.

“We have given Unitil one too many opportunities to make right and they have not,” Mr. Tran said last week, describing his petition to explore the feasibility of taking the utility’s electric and gas infrastructure by eminent domain. “Unprecedented or not, I believe our community would have responded quicker and more efficiently to the ice storm than an investor-owned utility.”

Mr. Tran wants the mayor to convene a committee to look into forming a municipal utility for the city.

“We can either provide our own utilities or find a distributor of our choosing,” the councilor said. “The community can be better served with us dictating to the distributor for the kind of service we want than having the distributor dictate the kind of service they like to provide.”

Unitil Senior Vice President George R. Gantz said he understands the public frustration and the difficulties the prolonged outages created.

“We are sincerely sorry about that and we are taking it very seriously,” he said last week. “We are doing a top to bottom review. There is a long process under way to look at what happened and to look at what we and the other utilities can do to do a better job.”

Mr. Gantz said he knows that some of the communities in Unitil’s service area are exploring municipal utility options.

“It’s understandable,” he said. “You always want to look at your options.”

He said the company had not seen the proposed legislation that would ease the process for creating new municipal utilities.

“We haven’t looked at it,” Mr. Gantz said. “We’re focused right now on learning the lessons we need from the storm.”

Contact Matthew Bruun by e-mail at