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Following energy issues in the state of Connecticut and beyond.

Tuesday, May 5, 2009

Making Money The Old Fashioned Way

Any one of a certain age can remember actor John Houseman’s famous commercial for Smith Barney that aired in the late 1970s and through the 1980s: “They make money the old-fashioned way. They earn it.”

Over at United Illuminating, they’ve apparently come up with a new take on making money, if the earnings report for the utility’s corporate parent, UIL Holdings, is any indication. UI’s commercial catch phrase should probably read something like this:

“At the United Illuminating Co., they make money in new way. They defer infrastructure projects."

Even as UIL Holdings was releasing first quarter earnings on Tuesday that showed a 45 percent increase over the same period a year earlier, the company was revealing in a filing with the federal Securities and Exchange Commission (SEC) that much of that growth in profits was the result of deferrals of operating and maintenance projects.

James P. Torgerson, UIL’s president and chief executive officer, will tell financial analysts Wednesday that those deferrals will cover a variety of infrastructure projects at UI, some in the short term and some over longer periods. According to the company’s SEC filing, the projects that UI will defer include:

- Building new substations and furbishing existing ones.
- Cable replacement programs.
- Pole replacements.
- Computer software and hardware upgrades.

Torgerson says the deferrals of the projects are necessary as UI struggles to cope with a decision in February by the state Department of Public Utility Control in which regulators rejected a $51.4 million rate increase the company had sought. Instead, the DPUC’s decision called for a $970,000 reduction in revenue requirements.

Some of the projects being deferred are only being put off until later this year, said company spokesman Al Carbone. But other projects may be delayed for up to several years, he said, although he would not elaborate on which projects were being delayed the longest.

“Obviously, the goal is to insure the reliability and safety of our distribution network,” Carbone said. “All of these projects are part of our 10-year operating plan and will be done. But the schedule for doing them has changed.”

This is a jaw dropping announcement to make for a company that has long been considered a New Haven institution . While I have no doubt that UI officials take their mandate to keep the lights on seriously, it’s a little hard to have unwavering faith in the company’s ability to provide safe and reliable service when they are talking about deferring maintenance or replacement of basic items like utility poles and cables.

I also think it’s fair to suggest that talking about this level of cuts at the same time that you’re announcing a 45 percent increase in quarterly profits requires some explaining to utility regulators and other state consumer advocates.

Look, I don’t think anyone would begrudge UI making a reasonable profit; the company is a major employer in the New Haven area and has been a good corporate citizen over the years. But I don’t think a 45 percent increase in quarterly profits qualifies as reasonable in the minds of most people.

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