Our Corporate Citizens: Electric Utilities Edition

Earlier this month, the state’s Supreme Judicial Court pulled the plug on a legal challenge electric utility companies had brought to fines that the state had imposed on them.

The fines were levied because the utilities failed to respond adequately to power outages resulting from a pair of whopper storms late in 2011. The biggest companies bringing the suit were NStar and National Grid. The Court upheld fines against those companies totalling just under $20 million.

Here’s more of the story, which may lead you to conclude that the utilities wasted their own money — and ours — by pursuing this case.

A few years back, in December 2008, New England suffered a fierce ice storm. The Fitchburg, Massachusetts area was particularly hard hit and some customers there were without electricity for up to two weeks. The state documented the utility company’s extremely poor response, noting that there was no state law allowing for fines to be imposed on utility companies acting unacceptably slowly in restoring power.

And almost as fast as you could say “upskirting,” the Legislature went to work. They compared the experience of the Fitchburg customers to a nightmare, compared the utility company to the Three Stooges, and passed a law directing the state to establish standards of acceptable performance for restoring electric service and to impose fines on companies violating those standards.

Fast forward to 2011. In August of that year, Hurricane Irene hit. NStar customers were without electricity for six days and National Grid customers for seven. Then in October, a snowstorm dropped at least a foot of snow across most of the state, and once again, NStar customers lost power for six days and National Grid customers for nine. The state reviewed the utilities’ performance in restoring service after the two storms, concluded that it was inadequate, and levied fines against them.

The utilities challenged the fines in court with the extremely implausible argument that, in directing the state to impose fines when standards of acceptable performance were not met, the Legislature intended that the state should look to the utility companies themselves for those standards. The appropriate question, according to the utility companies, should be — what is “fair and prevailing utility practice.” That’s right. The utilities asserted that the legislative intent of the law was that the Three Stooges be left in charge.

The Court’s seven justices patiently explained what is obvious to the rest of us: the Legislature intended the state to enforce its own standards of acceptable performance, not the standards of the utilities: “a practice that every utility follows,” the Court wrote, “may still be unreasonable where it fails adequately to restore service following a storm in a safe and reasonably prompt manner.” It might be said that the Court showed restraint in not concluding its opinion with “Manifestus!!” (Latin for “duh!!”).

It may seem to you that this entire exercise was a waste of the Court’s time and the utilities’ time as well. The utilities would likely respond that they owed it to their shareholders to put up a fight (plus, their legal costs can be deducted as a business expense from their taxes). In case you are wondering about the amount of money those shareholders are paying their CEO’s, the combined annual salaries of the NStar and National Grid CEO’s last year were $15.5 million, just about three-quarters of the amount of the fines the companies contested. Something to think about the next time your electricity bill goes up.

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