Power & Gas Utility - Regulatory and Legal Developments
| Unitil to conduct management audit, refund ratepayers more than $4.6M |  |
November 03, 2009 5:47 PM ET
By Corina Rivera
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Massachusetts regulators said Nov. 2 that Fitchburg Gas and Electric Light Co. must shoulder the cost of a comprehensive management audit for failing its customers during and after a December 2008 ice storm. In a separate case, the Unitil Corp. subsidiary must rebate more than $4.6 million for overcharging natural gas customers, said the state Department of Public Utilities, an agency within the Executive Office of Energy and Environmental Affairs. While the investigations that led to the two orders are unrelated, both raise questions about Unitil's management and operating procedures, the DPU said, adding that these and other issues will be explored at Unitil's expense through a department-ordered management audit that could result in additional repercussions for the company. The audit must address the company's management and control and specific areas in which its performance was found severely lacking. The audit's results could inform future actions by the company's board of directors and the state, the DPU added. According to the order, Unitil is to submit a draft request for proposals including a full description of the goals and processes associated with an independent management audit. The DPU will accept comments on the RFP through Jan. 15, 2010, and within 30 days of DPU approval of the RFP, Unitil is to issue it to at least 10 firms. In its statement, the DPU said it found that the company's response to the ice storm represented a clear failure to satisfy its obligation to provide safe and reliable service to its customers. Furthermore, 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. The DPU found that Unitil fell short in seven critical areas, including: * Lack of adequate planning and training that 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 that resulted in the 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. * Poor judgment in issuing estimated bills to customers whose power had been interrupted by the storm, which, under circumstances, added to customer confusion despite being a permissible practice by regulation. The DPU also 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. In a Nov. 3 statement, state Attorney General Martha Coakley said the DPU not imposing fines in this proceeding "does little to hold Unitil accountable for its dismal response to the December 2008 Ice Storm and shoddy treatment of its customers in the following weeks." Company spokesman Wesley Eberle said in a separate statement: "Unitil has taken significant steps to strengthen its ability to prepare and respond to future events including undertaking a comprehensive self-assessment led by former Massachusetts DPU Chairman Bob Yardley that identified 28 specific recommendations for improvement to Unitil's storm response. The company has undertaken each recommendation and recently conducted a system wide storm drill in conjunction with state and local emergency and public officials." Unitil to refund ratepayers more than $4.6M In the second order, which followed an investigation into Unitil's natural gas procurement practices during the winter heating seasons of 2007-2008 and 2008-2009, the DPU found that Unitil engaged in an unauthorized natural gas price hedging program that cost natural gas customers more than $4.6 million. The order also found that Unitil was imprudent in the planning and execution of the program by engaging in speculative purchasing and other activities that resulted in customers paying above-market prices. The DPU, which ordered Unitil to refund its ratepayers roughly $4.6 million plus interest, said it became aware of Unitil's gas purchasing program in January when natural gas commodity prices decreased significantly, and Unitil was the only Massachusetts local gas distribution company that did not petition the DPU to lower its rates. Several gas distribution companies have sought and obtained DPU approval of purchasing programs that allow them to lock in the price of a portion of their supply portfolio, but Unitil never sought approval for its purchasing program. The DPU found that Unitil overpaid and then overcharged customers $377,206 for natural gas during the 2007-2008 winter period and roughly $4.3 million in 2008-2009. "Consistent with other utilities in the Commonwealth, Unitil's gas procurement program utilizes price lock contracts to reduce the volatility of energy prices for our customers," Eberle said. "Unitil's gas procurement policies have been fully disclosed in public hearings and detailed in filings with the Massachusetts DPU and Attorney General for the last several years. The company is reviewing the orders and assessing its options." | 
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