Good morning. I’m Gary Rainwater, Chairman and CEO of Ameren and with me today are Tom Voss, our Chief Operating Officer, and Richard Mark, Senior Vice President of Missouri Energy Delivery. We're here today to answer your questions about the recent ice storm, but first I’d like to make a few opening comments.
As you know, for the second time in less than a year, extreme weather conditions seriously damaged our company’s electric delivery systems. Just as the July storms were among the worst on record, the ice storm that hit southeastern Missouri and central Illinois the night of November 30 was the most severe winter storm this area has seen in nearly 30 years and possibly longer.
With both storms resulting in hundreds of thousands of our customers losing power for extended periods of time, we fully understand that many people are upset and frustrated and that questions have been raised about the causes of these outages and whether anything can be done to prevent them in the future.
We hear loud and clear the critical comments many of our customers have expressed, and I can assure you we are not dismissing these comments or ignoring them. We recognize that as a business, it is essential that we meet the expectations of our customers. If there are ways we can improve our performance, we want to do it.
There’s been a great deal of discussion, both by the public and by government officials, about how to minimize or prevent widespread storm-related power outages. We agree that this discussion is essential, and we will actively participate in it. However, we also believe it is critical that the discussion be based on an accurate understanding of the facts.
This morning I would like to address several major misconceptions that are affecting the debate, and I'd also like to discuss some ideas we have on ways we might be able to do a better job of meeting our customers' expectations.
One common misperception is that no other electric utilities experience major outages like Ameren. This is simply not true. An Edison Electric Institute survey of just six utilities, not including Ameren, showed that over a 14-year period these six companies suffered 31 outages lasting from four days to 18 days. Five of the six companies experienced eight ice storm-related outages that lasted from eight to 10 days―along what some people call Ice Storm Alley.
For example, in 2002 two utilities, Duke Power and Progress Energy, experienced a nine-day outage as a result of an ice storm that affected, at its peak, nearly two million customers in North Carolina. That same year, 300,000 customers of a neighboring utility, Kansas City Power and Light, were out of power for up to 10 days.
Widespread power outages occur wherever severe wind or ice storms occur. The reality is that tornados, violent wind and thunderstorms and ice storms occasionally cause great damage to utilities and everyone else in Missouri and Illinois, just as they do elsewhere in the Midwest and other neighboring states. Once in a great while, two especially devastating storms can hit us in the same year, as happened this year.
The cause of the major outages our customers experienced in 2006 was a combination of wind, ice and trees. No pun intended, but trees are really the root cause of the problem.
Without trees, Ameren would have very few outages from either wind or ice. Our systems are designed, built and maintained to withstand severe weather, but they cannot withstand large trees or large tree limbs falling on the lines.
And that's exactly what happened during both the July storm and the recent ice storm. Tens of thousands of trees – some of them 100 years old and 80 feet high – fell on our lines and poles. In a report released a few weeks before the ice storm, the Missouri Public Service Commission staff acknowledged the St. Louis area is often called an “urban forest.” The report said, and I quote:
“The density of large old-growth trees represents a risk to utility service following storms with high winds or heavy ice.”
Similar conditions exist in much of our Illinois service territory.
This raises an issue that has been the subject of much controversy – and much misunderstanding. Tree trimming. Many people have argued that trimming trees more frequently or more fully will prevent or significantly minimize outages from major storms.
That’s simply not the case. The reason is that our company is very constrained in how much we can trim trees and which trees we can trim. It's important that people understand that we can legally trim trees only to the limits of our easements – typically four to six feet from the centerline of the poles. We cannot legally remove trees, even those planted within our easements. In Illinois and Missouri there are literally millions of large trees planted within a few yards of our overhead distribution lines. There are countless more planted close enough to lines to knock them down in a bad storm. That’s what happened thousands of times during the recent ice storm. When a 60-foot tree which is 40 feet from a power line falls on that line, no amount of tree trimming is going to prevent an outage.
The Missouri Public Service Commission staff recognized the problem in its report on the July storm. The Commission's November 17, 2006, report said, and I quote:
“Significant damage to AmerenUE’s system was caused by trees and tree limbs that would not be removed by AmerenUE’s current trimming program or are not on AmerenUE’s right-of-way.”
One way to minimize storm outages would be to cut down all trees in large areas around power lines – something which is currently not authorized under the law and something which we do not support. Trees add to the beauty of our communities, and we believe their widespread destruction would be unacceptable to almost everyone.
Some people have also suggested identifying trees that are especially problematic ahead of time and removing them. But virtually any tree above the height of a line and within falling distance of a line is a potential problem tree. As I said a moment ago, there are millions of potential problem trees along the Ameren system. Even if we had the legal authority to do so, we would have to remove a high percentage of trees in St. Louis and other communities to make a meaningful reduction in storm outages. Again, that’s something we don’t recommend.
Just for the record, although tree trimming was not a significant factor in the recent major outages, Ameren is in compliance with all Illinois and Missouri regulations on tree trimming. In Missouri we have increased our spending on tree trimming from $26 million in 2001 to $32 million last year. In Illinois we have spent in excess of $30 million each year since 2002. In both states the amount we spend in 2006 will be even higher.
Another way to minimize or prevent major storm outages would be to underground our distribution lines. While not completely weather-proof, undergrounding would be very effective in reducing the scope and frequency of storm outages. The problem is that it is very expensive to convert overhead distribution systems to underground systems. That’s why no electric utility in the United States has undertaken the step of undergrounding its entire system.
Just as with tree removal, undergrounding raises major public policy issues. However, we don’t think it should be dismissed out of hand. Industry cost estimates for undergrounding range from $25,000 to $50,000 per customer. To bury all our wires, the cost to Ameren’s customers would be tens of billions of dollars. We currently estimate electric rates would likely increase by 100% to 200% to pay for it. Considering current public attitudes towards storm outages and the importance that electricity plays in 21st century life, we believe that this option should be fully examined and debated. Perhaps there might be ways to mitigate the cost or provide other alternatives for people who cannot afford undergrounding. If there is public support for undergrounding, we should start as soon as possible, since it would take 20 years or more to complete the job.
Other options that should be considered include more widespread use of back-up generators and whole-house back-up generation systems. This option might be the least expensive way to provide nearly perfect power supply reliability. And, while there are significant safety issues involved with the use of portable generators, as well as social equity and other issues raised by all back-up options, these ideas deserve exploration and discussion.
Some customers have said that the fact that our utilities have suffered serious outages twice this year must mean that we have not invested enough money and effort in maintaining our transmission and distribution infrastructure. That is simply not true. There are very few outages that are caused by the direct impact of weather on our lines. All our systems are built to industry standards and maintained according to those standards. In recent years, Ameren has invested $4.5 billion in maintaining and upgrading both our generation and our delivery systems, $2.6 billion in Missouri and $1.9 billion in delivery alone in Illinois. The fact of the matter is that there are no maintenance procedures that will enable lines and poles to withstand the impact of large trees and limbs.
A recent newspaper editorial criticized our planning for storm emergencies as well as our ability to quickly mobilize resources for outage restoration work. Both of these allegations are badly misinformed. Not only do we have a detailed emergency restoration plan in place, but we fully implemented it during both the July and the December storms.
Here’s what the Missouri Public Service Commission staff investigation into our response to the July storm said about our emergency plan, and I am quoting again from the November 17 report:
“AmerenUE’s planning process was well developed” and “AmerenUE’s restoration effort was well executed.”
During the ice storm we activated our Emergency Operations Center at 11 pm on November 30 and immediately began mobilizing our personnel. As the scope of the storm damage became clear, at 7 am on December 1 we began calling utilities and contractors around the country for help. Teams began flowing in as quickly as the icy and often blocked roads and highways permitted, and we reached a peak of 7,000 people working on restoring power by the third day of the restoration effort.
I would like to close my comments by saying that while there are no easy answers to the problem of major storm outages, we recognize the dangers, inconvenience and costs created by lengthy outages. Because of the importance of this issue, Ameren will hire independent industry experts to examine all options for how a utility built in the 20th century can do a better job of meeting the expectations of customers in the 21st century.
In the days ahead we also look forward to meeting with our regulators, elected officials and our customers and discussing their concerns and any new ideas they may have.
In closing, I again want to thank our customers for their patience and all of our employees for pulling together during this critical time.
Now, we would like to answer your questions. Again, Tom Voss, Ameren’s Chief Operating Officer, and Richard Mark, Senior Vice President in charge of Missouri Energy Delivery, are here with me to provide additional information as needed.
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