THE QUEENS BLACKOUTS: KENNETH LAY'S REVENGE?

by Bill Weinberg, WW4 REPORT

It's a neat little ironic juxtaposition of headlines that the July 5 passing of former Enron CEO Kenneth Lay—while awaiting sentencing on securities fraud and a host of related charges—came just days before several neighborhoods in the New York City borough of Queens were plunged into darkness and sweltering heat. Certainly the Queens blackouts are nothing so dramatic as those which plagued California in 2000-1, when Enron and its ilk were riding high. Nor are they likely as intentional—although the degree to which Enron contrived the California crisis was never revealed until months after the fact. But the chaos and misery in Queens is likewise the bitter fruit of energy deregulation.

On July 21, when many Queens residents had been without power for five days, local politicians began calling for dramatic action. Assemblyman Michael Gianaris of Astoria demanded a "criminal investigation of Con Edison on the grounds of reckless endangerment." City Councilman Peter Vallone, also of Queens, chimed in: "Heads need to roll. Con Ed has sent us back to the dark ages. People of this community want to storm Con Ed with...pitchforks."

Con Ed estimated that 25,000 customers were without power in the neighborhoods of Astoria, Sunnyside, Woodside, Long Island City and Hunters Point. Streetlights were dead and usually bustling commercial districts were deserted. Even Mayor Michael Bloomberg, who had been giving the utility the benefit of the doubt, said he was "annoyed" that its original estimate of those without power was just 25,000. Bloomberg said that 25,000 paying customers translated into 100,000 people without electricity.

On July 19, when the blackouts were at their worst, even local subway lines were slowed. Brutally, this also corresponded with the peak of a local heat wave. Con Ed, which claimed not to know the cause of the failure, reported that day that 10 of the 22 feeder cables that supply the area with power were down simultaneously

On July 21, New York's WABC News reported that a check of New York State Public Service Commission (PSC) data showed continued under-spending on maintenance. In a three-year period in which Con Ed budgeted $32 million dollars for maintenance in Queens and Brooklyn, the utility actually only spent $27 million, the report found. Gerald Norlander of the Public Utility Law Project told ABC: "Maintenance data suggests that Con Ed is spending less on regular preventative maintenance in the system and that needs to be investigated."

WABC also quoted Ariel Antonmarchi, a former Con Ed worker who said he was fired for blowing the whistle on poor maintenance: "It's not only the feeders. That's what Con Ed is leading the public to believe. It's the whole infrastructure. In Queens, and in certain areas, it is not being kept up." Con Ed, of course, disputed the claims, insisting it has spent billions upgrading the system.

But as early as January, 2003, Con Ed and other New York utilities were petitioning the Federal Energy Regulatory Commission (FERC) for new rules that would reduce their legal liability for damages arising from blackouts or system failures.

The New York PSC already exempts Con Ed from liability for "ordinary" negligence. Lawyers for the City of New York were able to prove "gross" negligence on Con Edison's part following the devastating July 1977 New York blackout, even though it was initially precipitated by a lightning strike. However, the liability of utilities for damages due to the August 2003 Northeast blackout—the first significant outage of the post-deregulation era—remains uncertain.

The very structure of deregulation makes the grid more vulnerable, many experts warn. FERC's Order 888 mandated the "wheeling" of electric power across utility lines as one of the first steps towards deregulation in 1996. Order 888 was held up in litigation until March 2000, when it was approved by the US Supreme Court and took effect. But critics—including some in the federal government—warned that the new policy would have a destabilizing effect. "The system was never designed to handle long-distance wheeling," Loren Toole, a transmission-system analyst at Los Alamos National Laboratory told The Industrial Physicist journal in an article following the 2003 blackout.

The bitter irony is that, having effectively gotten out of the generation business under New York state's deregulation plan, nearly all Con Ed has to do these days is to maintain the cables. The 2003 blackout—although apparently originating from a power surge at Ohio's Toledo Edison—was the first indication that New York's grid was seriously vulnerable.

Under the deregulation regime, which took effect in New York in the summer of 1999, out-of-state companies are encouraged to purchase or build local power plants and sell the electricity to the local utility, which is to serve as a broker rather than a producer. So California's Pacific Gas & Electric was compelled to purchase from Texas-based Enron, and finally forced into bankruptcy by the power disruptions. This same PG&E was simultameously building a natural gas plant at Athens, on New York's Hudson River—to sell power to Northeast utilities, which are likewise getting out of the local generation biz. (After PG&E's bankruptcy, the Athens plant was taken over by a consortium led by Morgan Stanley.)

Queens residents are especially miffed that their communities host a disproportionate share of the city's power plants, which have been the focus of local citizen campaigns around their health impacts. The three plants currently operating in the western Queens area have all been sold off by Con Ed. The largest is the 1,753-megawatt Ravenswood Generating Station, owned by KeySpan Energy; the 1,090-megawatt Astoria Generating Station is owned by Orion Power Holdings, and the 1637-megawatt Poletti Power Plant is owned by the New York State Power Authority (which actually purchased it from Con Ed when it was first built in the '70s).

KeySpan, owner of the massive Ravenswood, is the successor company to the Long Island Lighting Company (LILCO), which was forced to relinquish control of the grid in Long Island's suburban Nassau and Suffolk counties by state regulators in 1998 as the price of a bailout of its debt-crippled Shoreham nuclear power plant. Just days after the deal was closed, it was revealed that LILCO had awarded its top executives a severance package of more than $67 million, including $42 million to CEO William J. Catacosinos. The payments came despite the fact that Catacosinos and his fellow officers had secured similar positions in KeySpan. New York state Attorney General Elliot Spitzer charged that "a pattern of deception by the company's CEO and senior officers, as well as a dereliction of duty by the company's board, led to an outrageous giveaway." (The bad publicity shamed Catacosinos, at least into stepping down—but not relinquishing his golden parachute.) Relieved of its Shoreham debt, LILCO's new incarnation moved from suburban Long Island to inner-city Queens. KeySpan is now seeking approval from federal and state authorities for its pending $11.8-billion takeover by the British energy giant National Grid. Rather than progress towards accountability to the consumer, it looks more like an elaborate game of musical chairs.

In June 2000, after a brief blackout on Manhattan's Upper East Side, then-City Council Speaker Peter Vallone (the incumbent councilman's father) publicly suggested that Con Ed, in connivance with its new deregulation partners, was using power disruptions to pressure the state PSC to approve new power plants. And the new plants were proposed, not surprisingly, for poor areas of city, including post-industrial and gentrifying but still-bleak Long Island City. Other targeted neighborhoods are Brooklyn's immigrant enclaves of Williamsburg and Sunset Park, and the Harlem River Yards and Port Morris in the South Bronx. Con Ed is also proposing increased capacity at the 14th Street plant on the Lower East Side (not yet divested), adjacent to low-income public housing projects, to make up for the closure of its plant up the East River near the United Nations--where developer Donald Trump wants to build a luxury residential high-rise.

And notwithstanding the brief incident on the upscale Upper East Side, it was generally the low-income areas that were hit with the blackouts. Manhattan's Dominican neighborhood of Washington Heights was without power for 18 hours in the midst of a heatwave in July 1999, just weeks before the state deregulation hit in—again due to feeder cables burning out.

In its investigation of the Washington Heights blackout, the state PSC found that "managers had been told to reduce the operation and maintenance budget in each of the four years leading up to the black out." And Gerald Norlander of Public Utility Law Project, in words almost identical to those he would utter after the 2006 Queens blackout, stated: "The company, despite growing demand for service, [was] spending less and less each year on maintenance."

There were certainly reasons for discontent with the status quo ante. Con Ed charged among the highest rates in the country. In August 1994, New York Newsday, citing leaked documents, revealed the Con Ed was paying bonuses of up to $20,000 per executive to the very mangers who had slashed spending on pollution control citing budgetary constraints. The costs for these bonuses were passed on to the rate-payer. Deregulation was pushed as a formula to bring down rates.

But in August 2000, in the first summer after deregulation, New York's consumers were shocked to find that rates were actually 40% higher over the previous summer—resulting in city officials blasting the provision allowing Con Ed to base its rates on wholesale market costs (a supposed hedge against California-style chaos). The Public Service Commission blamed high oil princes, and the temporary closure of Con Ed's Indian Point 2 nuclear reactor some 30 miles up the Hudson River—a frequent occurrence. Indian Point was soon to be divested under the deregulation plan, but its shut-downs would remain frequent—and Con Ed's rates would remain among the nation's highest.

In the wake of the Queens blackouts, concerns were raised of Enron-type market manipulations under the deregulation regime. Assemblyman Paul Tonko, chair of the state Assembly's Energy Committee, told Newsday July 27 that KeySpan and the other generating companies had clearly "gamed" the market "at the expense of the consumers." He pledged his committee would "fully investigate these market manipulations that are artificially raising electric prices, and make those who are responsible for this disgrace accountable."

Health and safety concerns were also dire under the old regime. In 1995, Con Ed was slapped with a $2 million fine for lying about the release of asbestos at an August 1989 steam pipe explosion at Manhattan's Gramercy Park, in which two workers died. In a November 1999 settlement, Con Ed again paid $2 million to 270 New York firefighters and rescue workers exposed to toxic chemicals when they responded to a fire at the utility's Arthur Kill plant on Staten Island the previous September. In October 1999, Ravenswood (by then owned by KeySpan) was evacuated following a spill of a cleaning compound outside the plant, sending acrid fumes into the building.

The daily functioning of these plants is ultimately a greater concern. In April 2000, Rep. Carolyn Maloney complained to the Queens Tribune: "More than 35,000 Queens schoolchildren already suffer from asthma and a 1998 federal study found that the presence of three dirty power plants, two major airports and six major highways has made air quality in Queens particularly toxic."

The three Queens plants, already under construction, were "grandfathered" in when the Clean Air Act took effect in 1970, exempting them from the new standards. Therefore, they can continue to emit quantities of carbon dioxide (CO2), nitrogen oxide (NOx), and sulfur dioxide (SO2) that would be illegal in newer plants. Although Ravenswood was built to burn coal, it has now switched to natural gas and may at this point be in compliance with the Clean Air Act—even though it is still not required to be. This progress has been the fruit of a long activist campaign by Queens residents—not deregulation.

After the Queens blackouts, a July 26 New York Times story found that the affected areas, especially Long Island City, had a disproportionate rate of cable failures, and some local cables had parts that were up to 67 years old. For all the emphasis on shiny new generators, the aging transmission system was being allowed to deteriorate—and, not surprisingly, being allowed to deteriorate the fastest in the very neighborhoods slated for the power plants.

One of the real tragedies of the push to build new generators in the city's low-income neighborhoods is that it has pitted urban clean-air activists against upstate opponents of nuclear power. The closure of Indian Point would make the new power plants in the city inevitable, the argument goes, and the health impacts shouldn't be shifted to low-income urban residents. However, given that Indian Point is far closer to New York City than Chernobyl was to Kiev, the safety issues at the reactors should be a concern to down-staters too.

In 2000, the Louisiana-based Entergy Corp. bought the Indian Point 3 reactor from the public New York Power Authority (which had relieved Con Ed of it following massive cost-overruns in 1975), and the following year purchased Indian Point 2 from Con Edison. (Indian Point 1 had been permanently closed when the Power Authority took over reactor 3.) Since 9-11, local residents in Peekskill, NY, and surrounding communities have been increasingly demanding the plant be closed down—or at least the airspace above it be closed to commercial flights. Entergy has responded by officially changing the facility's name from the "Indian Point Nuclear Power Plant" to the "Indian Point Energy Center." All area signs indicating the plant have been changed, removing the word "nuclear," and the utility has also launched a local PR blitz plugging the plant's supposed "safety." One recent newspaper ad urged readers to "Take confidence in the security of Indian Point Energy Center."

The Indian Point reactors are among the oldest and most decrepit in the country, and Entergy's record in keeping them up and running has been little better than Con Ed's or the Power Authority's. The most recent shut-down of Indian Point 3, prompted by an electrical mishap, came on July 21—in the very midst of the Queens blackout. The reactor was brought back on line the next day, and Entergy claimed it had no impact on consumers.

Westchester County's Rep. Sue Kelly has introduced a measure in Congress to require the Nuclear Regulatory Commission to authorize an Independent Safety Assessment at Indian Point—a measure advocated by the local Indian Point Safe Energy Coalition, which has collected 5,000 signatures in support of the bill.

The Queens blackout will doubtless be used as propaganda against both advocates of closing Indian Point and opponents of the new urban generators. With nerves still frayed, it may be a while before the argument can be made openly. However, while local Queens politicians play to their pissed-off constituency, New York's Sen. Charles Schumer is not only a proponent of the new plants, but is calling for deregulation to be mandated at the national level by federal legislation. (Nearly half the states have already imposed some kind of deregulation plan, although the pace has slowed since the Enron scandal.)

Mayor Bloomberg has already played a blackout card in a bid to wear down public resistance to new plants and pylons. "Nobody wants to have a power line going through their backyard, but we have to face the issue that if you want to have electricity—and we really have no choice, we have to have electricity, our society depends on large amounts of electricity and it has to be reliable—that means building power plants, upgrading power plants and building transmission lines," Bloomberg said in the aftermath of the 2003 blackout.

But the 2003 blackout was caused by a breakdown in the transmission system, and the 2006 blackout by a failure in the distribution network—neither by insufficient generation. And today we all understand (hopefully) that the 2000-1 California blackouts were not caused by a deficit of power any more than Stalin's bureaucratically-induced Ukraine famine was caused by a deficit of grain.

New York's deregulation program was supposedly designed more cautiously than California's. But the same measures which allow the utilities to pass increased costs on to rate-payers as a hedge against bankruptcy and chaos also hurt the consumer—canceling out the still-ephemeral savings of the "spot market" overseen by the New York Independent System Operator. This is the entity created by the PSC for the deregulation regime, which supposedly directs the cheapest power where it is needed at a given moment.

The California Independent System Operator's own records indicate that blackouts were happening when demand was considerably below peak—indicating that supplies of electricity were being held back. Meanwhile, at the very height of the California crisis in early 2001, Kenneth Lay was meeting with Dick Cheney—who then headed the White House energy task force. The task force report, explicitly invoking "electricity shortages and disruptions in California," called for opening the Arctic National Wildlife Refuge to oil drilling, harnessing the oil resources of post-Soviet Central Asia, and a "renewal" of the nuclear industry. And although Cheney's task force was not so indiscrete as to mention it, the California crisis helped set the tone for a war for oil in the Persian Gulf.

Despite growing public skepticism of the energy giants and deregulation, this dynamic still seems to be at work. Conveniently, on July 26, just as power was being restored to the last suffering residents of western Queens, blackouts hit several communities in Staten Island, leaving an estimated 16,000 consumers without power for several hours. Meanwhile, 80,000 households in Missouri and Illinois were without power after storms brought down power pylons. Right on cue, the US Senate began debate on an energy bill that would expand oil drilling in the Gulf of Mexico, and seems assured of passage. The House version goes even further in removing federal controls on offshore drilling.

The Queens blackouts may not have been as contrived a crisis as that which shook California five years ago. If Con Ed was a monolithic bureaucracy under the old regime, today it is the public face of a Kafkaesque labyrinth of often out-of-state companies with no roots in the communities they now serve. While the California blackouts were the design of the out-of-state firms like Enron to make a mint and (it seems) create a political climate conducive to war and corporate resource-grabs, the Queens blackout really seems the work of the old utility that still controls the lines. But it has similar roots in the erosion of public accountability under the deregulation dogma. More ominously, it may end up helping to serve similar aims.

RESOURCES:

"Why is Con Ed having all these problems?" WABC Eyewitness News, July 21, 2006
http://abclocal.go.com/wabc/story?section=investigators&id=4388181

"States pull the plug on electricity dereg," by Eric Kelderman, Stateline.org, July 21, 2005
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