Anger in Houston over Post-Ike Power Outage


Two weeks after Hurricane Ike, many Texans remain in the dark. Yet the power company, CenterPoint Energy, has come away mainly unscathed

At first the loss of power after Hurricane Ike was kind of novel, says Terry Weir, an immigration attorney who lives in Houston. "I was hanging out in the courtyard with neighbors, drinking wine by candlelight and having grand barbecue gatherings to cook all the meat thawing from the freezer," she says. At Day 10, however, Weir began to lose her cool.

Without a hair dryer, her locks go wild in the Houston humidity. She says her unironed clothes are perpetually wrinkled. She's out of touch with the world because cell-phone coverage is spotty and her battery keeps dying. Nights are spent hounded by the roar and smelly fumes from a neighbor's diesel generator. "Nothing is quaint about the lack of power!" Weir says.

It's been 13 days since Hurricane Ike ripped through Texas, and nearly one-quarter of the residents of the fourth-largest U.S. city still don't have electricity. But for the city's big utility, CenterPoint Energy (CNP), the financial impact of the storm appears to be less than expected. In a regulatory filing on Sept. 23, CenterPoint estimated that its storm-related costs could hit $500 million. The company said it expects to take an unspecified hit to earnings this year but recover most of its repair expenses from customers.

Houston is still reeling from what many are calling the worst storm in the city's history. Texas faces at least $11.5 billion in damages from the storm, with the full economic impact possibly soaring to $35 billion, David Dewhurst, Texas' lieutenant governor, told a Senate panel in Washington on Sept. 23, according to news reports. Galveston Mayor Lyda Ann Thomas testified that in her community, the hardest hit, 10,000 to 20,000 residents lost their homes, Bloomberg News reported.

Lights Out

Ike initially left 90% of CenterPoint's 2 million customers in the dark. Some schools are still closed. Nearly half of the city's 2,500 traffic lights are down. Some residents are enduring three-hour commutes because the electric signs that operate the high-occupancy vehicle lanes on a couple major freeways are not working, leading to agonizing traffic jams. "The mood has gone from patient to irate," says Tom Smith, director of the consumer advocate Public Citizen of Texas. "The volume of calls into our office has really picked up." Residents now speak of "power line envy" of neighbors who've had their electricity restored. Families without power have had to stock up on ice and batteries at convenience stores, keeping their food chilled in coolers. Kent Smith, who runs a metals-trading firm, says he's glad he bought a backup generator for his office last year. "It shows our customers that we understand risk management," he says.

CenterPoint says it hopes to have power restored to its remaining 495,000 customers without juice by Sunday, Sept. 28. The company, which released an updated map of its work effort on Wednesday, has more than 5,000 employees tackling the problem, with an additional 10,000 line workers and tree trimmers summoned from other states.Most of the outages were caused when power lines got hit by falling trees and debris flying in Ike's 100 mph winds.

For CenterPoint shareholders, though, the damage could be worse. At a recent price of 14.75, the stock is down only about 10% from where it was trading before the storm clouds began gathering. Independent bond research firm Gimme Credit warned on Sept. 19 that CenterPoint's expenses could hit $1.3 billion and that the company didn't have storm insurance.

Pole Position

But CenterPoint said in its latest regulatory filing that it is standard industry practice not to insure poles, wires, and other transmission equipment. The firm said it intends to recover much of its hurricane-related costs from customers, adding that it will also seek new state legislation to sell bonds backed by rate increases so it can recover its expenses at a lower cost than if the company had to borrow the money.

The company has come under fire by some local politicians for resisting efforts by state regulators three years ago to replace wooden electric poles with more storm-resistant metal or concrete. In the wake of Hurricane Wilma in 2005, Florida officials did that and required more regular cutting of tree limbs near power lines. CenterPoint says steel poles wouldn't have prevented its transmission lines from being knocked out. "There is no hardening [of the system] that could protect against uprooted trees," says Leticia Lowe, a company spokeswoman.

A second area utility, New Orleans-based Entergy (ETR), said it has restored power to all of its 390,000 East Texas customers who had lost electricity due to Ike. Some 7,200 homes were so damaged, however, that they cannot receive power. On Sept. 19, Entergy said that it suffered as much as $600 million in damage on Hurricane Gustav alone, which swept through parts of Louisiana, Texas, Alabama, and Mississippi on Sept. 1. In 2005, Entergy put its New Orleans subsidiary into bankruptcy and sold $688 million worth of hurricane recovery bonds to help come back from the destruction of Hurricane Katrina.

Palmeri is a senior correspondent in BusinessWeek's Los Angeles bureau.

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