For Immediate Release - November 02, 2009

DPU Faults Unitil on Two Counts

Fitchburg utility must shoulder cost of comprehensive management audit for failing its customers during and after 2008 ice storm; DPU order paves the way for further financial consequences.

Fitchburg utility must shoulder cost of comprehensive management audit for failing its customers during and after 2008 ice storm; DPU order paves the way for further financial consequences

In separate case, company must rebate over $4.6 million for overcharging natural gas customers.



 

BOSTON - In two separate orders today, the Department of Public Utilities (DPU) levied steep penalties on Unitil, in one case citing profound service quality failures in the Fitchburg utility company's response to the December 2008 ice storm, and in another rebuking Unitil for overcharging customers for the past two winters as a result of an unauthorized natural gas purchasing scheme. In that case, the DPU ordered Unitil to refund its natural gas customers over $4.6 million, plus interest.

While the investigations that led to the two orders are unrelated, both raise serious questions about Unitil's management and operating procedures. These and other issues will be thoroughly explored at Unitil's expense through a DPU-ordered management audit that could result in additional repercussions for the company. Today's order marks only the second time in at least 50 years that the DPU has invoked its power to order an electric utility to conduct a comprehensive management audit.

The DPU's actions are detailed below.

Winter Storm 2008 Power Outage Order

Following a lengthy investigation of Unitil's performance before, during and after last December's ice storm - an action called for by Governor Patrick, Attorney General Martha Coakley, and area legislators - the DPU concluded that the company's response represented a clear and unambiguous failure to satisfy its obligation to provide safe and reliable service to its customers - an obligation that is a condition of every public utility company granted a franchise in Massachusetts. The DPU cited numerous and systematic failures, called for remedies, and ordered the company to take immediate steps to address all identified problems.

The DPU concluded that the primary contributor to Unitil's unacceptable performance was lack of planning and training for a significant storm event, which left it unprepared to respond to the magnitude of damage caused by the storm. To address this deficiency, the DPU today exercised - for the first time in almost two decades - its rarely-used authority to order a comprehensive, independent management audit at the company's expense. The audit must address the company's management and control and specific areas where its performance was found severely lacking. Results of the audit could inform future actions by the company's board of directors and the Commonwealth.

Although the DPU currently has no authority to impose fines for failure to address storm damage, the department's order states that monetary penalties would be warranted. Further, the department noted that it does have the authority to determine whether a company may recover storm-related costs from ratepayers, as well authority to set a company's allowed return on investment. In its order, the DPU noted that Unitil's gross failures in service quality will be factors in upcoming cost recovery and rate setting cases Unitil is expected to file within a year.

"The DPU's top priority in the wake of this investigation is to ensure the company acts swiftly to repair its failures, operate its system in a manner expected of a franchised public utility, and make certain that what happened to customers last winter never happens again," DPU Chairman Paul Hibbard said.

The department ordered Unitil to immediately implement a suite of management and operational steps to address all shortcomings, and to document its progress monthly, quarterly and annually.

At the request of Governor Patrick, the DPU launched an investigation on January 7 following a major ice storm on December 12, 2008 that left more than 208,000 electric utility customers without power statewide. At the height of the storm, power was lost by all 28,500 customers in Unitil's service territory (Fitchburg, Lunenburg, Townsend, and Ashby), and some remained without electricity until December 25. Public hearings in Fitchburg and Lunenburg drew testimony from more than 240 customers, and the DPU also received 80 written comments. During evidentiary hearings in May, official interveners included Attorney General Martha Coakley, the town of Lunenburg, National Grid, and the Brotherhood of Utility Workers Council and BUW Local 340. Other parties, including the city of Fitchburg, and the town of Townsend, took part on a "limited participant" basis.

The DPU investigation concluded that Unitil fell short of its obligations in seven critical areas:

  • lack of adequate planning and training, which left the company unprepared to assess the adequacy of its Emergency Restoration Plan when confronted by a significant weather event;
  • significantly deficient damage assessment efforts, which resulted in failure to acquire much-needed resources, provide accurate and useful information to the public regarding restoration times, and minimize the overall duration of the power outage;
  • failure to take appropriate and reasonable actions regarding the acquisition of resources that would have allowed the company to restore service in a reasonable period of time;
  • failure to plan, act or ask for assistance on behalf of Life Support Customers, representing an unconscionable failure of duty to its most vulnerable customers who rely on electric service for life support;
  • highly flawed communications with the public, local elected officials, and local safety officials - including confusion and frustration among customers when the company call center was quickly overwhelmed, use of inaccurate and inconsistent public service announcements, and disorganized communication with local public officials that resulted in more confusion and frustration;
  • Underfunded vegetation management activities and failure to adhere to the company's tree trimming schedule;
  • Poor judgment in issuing estimated bills to customers whose power had been interrupted by the storm, which, under the circumstances, added to customer confusion despite being a permissible practice by regulation.

To view the DPU's entire order, click here pdf format of    11209elecdpuord.pd.pdf  file size 1MB .

Natural Gas Procurement Order

In a second order involving Unitil, the DPU found that the company engaged in an unauthorized natural gas price hedging program that cost natural gas customers over $4.6 million. The order followed an investigation into Unitil's natural gas procurement practices during the winter heating seasons of 2007-08 and 2008-09. In addition to finding that Unitil embarked on the procurement program without DPU approval, in violation of agency regulations, the order found that the company was imprudent in the planning and execution of the program by engaging in speculative purchasing and other activities that resulted in payment of above-market prices by Unitil customers.

The DPU ordered Unitil to refund its ratepayers $4,648,075, plus interest.

The DPU first became aware of Unitil's gas purchasing program in January 2009, when natural gas commodity prices decreased significantly and Unitil was the only Massachusetts local gas distribution company that didn't petition the DPU to lower its rates. Unitil's responses to several DPU inquiries about the company's gas costs prompted the department to open a full-scale investigation to determine if Unitil was engaged in an unauthorized purchasing program.

During the summer season (May through October), gas distribution companies typically purchase and store about a third of the gas needed to meet the winter needs of their customers. This DPU-approved practice takes advantage of generally lower prices and transportation costs during the summer - enabling companies to store fuel underground or in liquefied natural gas facilities for use during periods of peak customer demand. The remaining two-thirds of the gas supply needed to meet winter customer requirements is purchased close to the time the gas will be consumed, based on first‑of‑the‑month and "spot" (i.e., daily) market prices. Recognizing that these latter purchases are susceptible to market price fluctuations, the DPU in 2002 authorized a practice that allows companies to implement risk management plans to mitigate the volatility of natural gas commodity prices. These risk management plans are subject to DPU review and approval, however, with companies required to show that their plans are reasonably designed to meet the objective of price stability.

Several gas distribution companies (National Grid, NSTAR Gas, and New England Gas Company) have sought and obtained DPU approval of purchasing programs that allow them to lock in the price of a portion of their supply portfolio. Unitil, however, never sought DPU approval for its purchasing program. Concluding that Unitil would have incurred lower costs for gas if the company had not been operating under its unauthorized purchasing program, the DPU found that Unitil overpaid - and then over-charged customers - $377,206 for natural gas during the 2007 - 2008 winter period and $4,270,869 in 2008 - 2009.

"Rather than allowing its customers to take advantage of plummeting natural gas prices last winter, Unitil charged them above-market prices under a plan that was neither prudent nor approved by the DPU," DPU Chairman Hibbard said. "This order ensures that customers will get back the money they never should have been asked to pay."

To view the full DPU order, click here pdf format of    11209gasdpuord.pdf  .

 

 

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