Power to consumers, not monopolies

Fifty million North Americans suffered inconvenience and expense in the Great Blackout of 2003. Not one will receive any compensation.

Millions of companies also suffered inconvenience and expense, and lost business that they will never make up. Amid the ruins, however, lie a lucky handful of companies who will have their losses covered. The lucky are among the electricity monopolies that brought us the Great Blackout of 2003.

Under the system of regulation that dominates North America’s electricity monopolies, customers and taxpayers are almost always at risk, and power companies are almost always saved harmless. The imbalance is even more extreme in central Canada, where deregulation was stopped, where no privatizations have occurred, and where the old monopolies remain largely intact and as unaccountable as ever. To add insult to the injury that Ontarians have just suffered, rates will soon go up, or taxes will increase, to compensate the power companies for their lost business, and the ordeal that they’ve gone through.

In a normal industry, subject to the discipline of a competitive market, heads would roll after a fiasco of such epic proportions. Don’t expect anyone to lose his job at Hydro One — a company that shares responsibility for maintaining reliability on Ontario’s grid. It treats the grid’s failure as someone else’s problem, and happily stands by as politicians on both sides of the border discuss the intricacies of how best to run the electricity business. It also gets grim satisfaction as Ontario Premier Ernie Eves places most blame on distant jurisdictions. (The only ones in Ontario subject to an Eves tongue-lashing are members of the general public. If more blackouts come, he has told Ontarians, it will be because Ontarians aren’t conserving enough.)
A regulatory system that gives a pass to those who cause the damage, and a finger to those who suffer, is worse than no regulatory system at all.

A business whose performance depends on customers conserving — i.e., avoiding — its product is an aberration. Yet in the upside-down world of electricity monopolies, these are accepted as normal, as are the inevitable consequences — frequent minor power failures and infrequent massive ones.

Power customers need strong and independent regulation, a practical impossibility in Ontario where the government effectively owns both the industry and the regulator. Government regulators can be effective — in Ontario, regulators such as the Ontario Energy Board have had a history of being superbly effective — but only when they haven’t been asked to regulate their own masters. I know of no government regulator anywhere in the world that has ever been an effective regulator of a government-owned industry.

To see what independent electricity regulators can do, we need look at the United Kingdom, the only country to privatize and break up a major power monopoly into its many component businesses and then regulate those components — such as the distribution of electricity — that did not lend themselves to competition.

In the U.K., customers are no longer powerless. If the distribution company doesn’t perform, the customer’s inconvenience is the utility shareholder’s pain. You are a residential customer in London with a problem, and you ask the company to make a service call. It doesn’t come at the agreed upon time. You receive £20 in compensation. Or you are a small business and request a quote for upgraded service. The quote arrives late. You receive £40. Or you and your business suffer an extended power interruption, of the duration Ontario and the United States just experienced. You receive £75 and your business £125, or roughly $440 to ease your discomfort.

Except that the company almost never needs to make payments — and has never needed to compensate large numbers of people — because it has invested what was necessary to deliver the service it guarantees its customers. The London utility meets 99.9% of its targets for unexpected interruptions and it meets virtually 100% of its targets in replying to customers or correcting routine service problems. The standards of service that it must meet, meanwhile, get steadily ratcheted tighter with each passing year.

Since the U.K. power system was privatized and regulated, the time that customers have been without power has dropped by almost two-thirds, thanks to more than £30-billion invested in the U.K. grid. Neither are the British exhorted to conserve to forestall a grid collapse: The U.K. is awash in electricity following an unprecedented building boom in clean power plants. Neither did customers’ or taxpayers’ pocketbooks suffer as the privatized power companies upgraded their capabilities: Rates have dropped markedly, for residential and business customers alike.

Fifty-million-odd people in the U.K. now enjoy power from the world’s most modern, most reliable, most efficient, least monopolized and least politicized electricity sector in the world. Fifty-million-odd North Americans, meanwhile, are now recovering from everything that the U.K. system is not.

© Copyright 2003 National Post