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Winter Storms Batter Midwest Utilities

Consumer advocates say utilities aren't properly prepared. But energy companies that spent big to restore service want to recoup costs

For much of last week, the trees crusted with ice and snow in Kentucky and many parts of the Midwest seemed like images from a Robert Frost poem. But the interaction of winter weather and utility lines poses a daunting challenge when it comes to keeping the power on. "It paints a beautiful picture to see the snow and ice on the trees," says Sergeant David Jude, a spokesman for the Kentucky State Police. "But under that picturesque beauty it looks like a war zone."

Fixing these zones of destroyed trees and downed power lines isn't cheap. When utility companies are faced with a winter storm as severe as the one that recently slapped states from Oklahoma to Pennsylvania, they are forced to spend heavily to restore light and heat. The Jan. 27 storm encased Kentucky and portions of several other states in ice and left nearly 1 million households without electricity. WKYT, a CBS (CBS) affiliate in Lexington, Ky., reported that cleanup workers had trouble navigating icy roads littered with trees and downed power lines.

Early Warnings and Shared Resources

Power and communications firms are rushing to pick up the pieces, but consumer advocates feel some pockets of outages could have been prevented if utility companies had been more willing to invest in preparation for major storms. Nearly 300,000 customers remain without power in Ohio and Kentucky more than a week after the storm. "Utilities used to be companies that would provide a service to their customers," says Janine L. Migden-Ostrander, consumers' counsel of the Office of the Ohio Consumers' Counsel. "Now they're companies that are looking to provide more dividends to their shareholders."

American Electric Power (AEP) provides electricity to 5.2 million customers in 11 states, primarily in the Midwest. Of those, six states were affected by the tempest, leaving at least 250,000 of AEP's customers without power. Despite the massive power losses, AEP says it was prepared. The company employs four meteorologists who sounded early warnings, which allowed AEP and several other utilities, including E.ON U.S. and Duke Energy (DUK), to mobilize with shared staffing and other resources in the days before the ice struck. "Before a storm even comes about, we maintain our electrical system," says Brian Tierney, an executive vice-president at AEP Utilities East. "So that when the weather does come, the damage to our system is minimized as much as possible."

The advance notice and pooled resources help the utilities keep costs lower than if each company acted alone and staffed accordingly. After the storm struck, AEP's call centers began fielding calls from concerned residents or emergency personnel, informing them of downed power lines. AEP's on-site employees have free rein to spend money and command other assets to get the power back on as quickly as possible, Tierney says. "They're doing what they need to do, and they have the authority to marshal those resources as quickly as possible to get the power back," he said.

Consumer Complaints

However, even before the most recent storm, consumer advocates in Ohio were incensed about local power companies' lack of preparedness for severe weather. "It's more than an inconvenience factor that's involved here," says Migden-Ostrander. "There's a cost factor for people who are struggling. Losing all the food in your refrigerator is no small matter. Going without heat in the wintertime is no small matter, and the utilities have an obligation to serve and to provide adequate service, and they're not doing it." In December, the Office of the Ohio Consumers' Counsel filed a complaint with the Public Utilities Commission of Ohio, which regulates utility providers in the state. The complaint, which requests an investigation of the power companies, was filed on the heels of a windstorm caused by the remnants of Hurricane Ike that cut power to 2.6 million customers for up to 13 days in some areas.

The Consumers' Counsel claims that power companies are cutting costs by failing to trim trees around power lines and by neglecting status checks on older power poles, many of which they say are rotting. They feel that the lack of preventive measures is exacerbating storms' effects and argue that the power companies' efforts to cut costs and please shareholders are leaving consumers out in the cold. "I'm just trying to stay warm and trying to sleep," 60-year-old Betty Sanders of Kentucky told the Associated Press. "I don't know how much longer I can handle it."

Rate Hikes for Repair Costs

AEP's Oklahoma unit was faced with a pair of ice storms in 2007. The first in January cut power to 80,000 customers and cost the company $26 million in repairs. The second storm, in December, was more severe: it cut power to more than 250,000 people and cost $88 million. In March 2008, Oklahoma state regulators allowed AEP to begin collecting $82.67 million to help cover the expenses the power company incurred from those storms. In October, AEP began collecting an extra $1.40 per month from most of its bill payers to recoup the storm damage expenses. The rate hike will stay in place for five years. The company thinks it can also receive reimbursement from costs of the 2009 storm, but this time from several states on a much wider scale. "We always hope" to recover repair costs, Tierney says. "To the degree that major storm recovery expenses exceed our base rates, we will seek recovery for those."

The power companies may seek recovery for their role in the storm cleanup, but in states that heavily regulate utilities, they aren't likely to receive everything they request. Regulators say it's too soon to assess how much reimbursement the utilities will seek, or how much they may receive. In Kentucky, the utility companies are regulated by the Kentucky Public Service Commission, which picks apart utilities' expenditures when they appeal for a rate hike to cover their storm repair costs. Also, the Commission examines the utilities' labor hours, ensuring that the 2,500 to 3,000 utility employees on the ground statewide used their time efficiently. "We expect a certain level of competence from them when it comes to these sort of events," says Andrew Melnykovych, a spokesman for the Kentucky PSC. "They have to justify all the costs. Simply because you ask for help doesn't mean that it's all going to be recoverable through rates."

Electric providers aren't the only utilities affected by the storm. Though they're not burdened by wires, which can easily succumb to icy conditions, wireless providers haven't dodged the winter storm either. Verizon Wireless' cell towers rely on local power to function, but when the power goes out there are contingency plans. Of the several hundred cell sites in Kentucky and southwestern Indiana, Verizon Wireless had two dozen cell sites out of service and 87 running on diesel generators because of local power outages after the storm struck. Verizon has invested heavily to ensure that every tower site has an eight-hour backup emergency battery; 96% of Verizon's cell phone towers in the Kentucky have backup generators. The generators cost $32,000 and use nearly $170 per day of diesel fuel. "Come hell or high water," says Verizon Wireless spokeswoman Laura Merritt, "we're going to be out there checking to see what the problem is and working to fix it as quickly as possible."

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