Privatizing Electricity

    Do not think about, write about or deal with  human behavior without determining the effects of incentives.

   When CNN and The New York Times start to report, with some glee, on “record” cold temperatures, one can sense that “Global Warming” has reached the end of its popularity in the leftist media. On to concentrating on inequality, the next made-up problem.

    Wherein we see a natural experiment in privatizing electricity generation and distribution, an event which can’t work, according to statists, is working just fine in the UK.

National Post – (Latest Edition)
Brady Yauch
Financial Post

Tale of two blackouts
While Canadians endured hardships during recent storms, U.K. power consumers got compensation

Over the holiday season, severe weather swept across the United Kingdom and much of the eastern half of Canada — from Ontario to Newfoundland — leaving hundreds of thousands of homes without power on both sides of the Atlantic. While the effects from the storms were similar — power lines downed from fallen trees and countless workers called upon to work long hours to restore order to the grid — the treatment of customers in the two countries couldn’t have been more different.

In the U.K., where the power system was privatized in 1990, where companies must compete with one another to keep the loyalty of their customers and where government regulation of the private companies is strict, power companies are required to offer compensation when they fall down in the service they provide. The compensation not only applies when the lights go out over extended periods of time, it can also apply for a variety of infractions, such as repeated power failures for short periods, failing to provide a timely estimate for work to be completed and failing to show up on time for appointments.

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   The UK experience is in answer to two assertions by statists. The first is that electricity is too important to place in the hands of private interests. The UK does alright. The second is that it’s impossible to privatize something with wide-spread infrastructure, although the politicians usually pronounce it “infastructure”, such as power lines, transformers and power generators. An assertion, as a good lawyer will tell you is not a fact no matter how frequently, hysterically and confidently it is given. When statists tell you something must be done their way, you can be sure they have no idea.

Those penalties — and the need for private companies to keep their customers happy — have had a bracing effect on the companies. Under public ownership they fared poorly at keeping the lights on; once private they upgraded their systems and their response times, leading to greatly reduced periods of outages and shareholders who benefited along with customers when the power system operated reliably.

The recent storms presented the U.K. companies with an unusual circumstance. Due to the severe nature of the outage and its worst-of-all-possible-timing — during the Christmas holidays — U.K. companies decided to do more than provide their customers with the compensation required of them by law. To minimize the public relations disaster that was accompanying a cold Christmas, the private companies decided to voluntarily offer their customers goodwill payments.

UK Power Networks, one of the “Big Six” power companies in the U.K., decided to triple its required payment to £75 ($131 in Canadian funds) for those customers without power for 48 to 60 hours, including Christmas Day. It then offered customers an additional £54 ($95) for each subsequent additional 12-hour period without power. In all, customers received as much as £432 ($756) to take the chill off the Christmas that the blackouts brought.

To help restore service quickly, the company also brought in engineers from across the country. To help its most vulnerable customers cope, the company provided them with Christmas dinners as well as hotel accommodation, all at shareholder expense.

Other U.K. companies responded differently in their voluntary offerings. For example, Scottish and Southern Energy — another major power company in the U.K. — offered £75 to any of its customers that were without power at any point, no matter for how long, on Christmas Day.

The U.K. power system’s independent regulator — Ofgem — also decided to investigate to ensure that the companies hadn’t let down their guard. It has the power to impose further fines if it finds that they took too long to restore power. Under rules established during privatization, power companies must have the necessary resources to distribute electricity “properly and efficiently.” Because of that rule, a senior official at the regulator says the power companies have “questions to answer.” The heads of the six largest power companies are also being called upon to answer to a legislative committee.

Now compare those actions with the government-owned and operated power companies that dominate in Canada, including in Ontario where as many as 16,000 customers were still without power one week after the ice storm first hit. To date, the power companies have yet to offer any compensation to the hundreds of thousands of customers who were left without power during the busy holiday season. It took Toronto Hydro more than 11 days to officially declare the power crisis over.

For power customers, the only form of compensation came from the province of Ontario — i.e., taxpayers, not shareholders — which offered up to $100 in grocery gift cards to those it said were “most in need.” Those cards were matched by a number of sympathetic retailers who decided to help out their customers. They included Loblaws, Shoppers Drugmart and Metro, companies that were in no way responsible for the outages and in the U.K. would themselves have received compensation from the power companies.

That Ontario government’s makeshift program fell well short of what was needed. Thousands of customers were turned away when demand for the cards far outstripped supply. Unlike the needy in the U.K., who received a hot Christmas dinner and hotel accommodation, many of Ontario’s most vulnerable — including the elderly and handicapped — were even unable to make the trek to the centres where the cards were being distributed.

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   If Ontario power generation and distribution were privatized what would those privileged government workers do without their high salaries, generous benefits, early retirement and minimum performance requirements do? Would ever-increasing electricity rates go down. And, of course, what would happen to THE GREEN JOBS?

    When statists say the only way is their way, they’re almost always wrong. The world tells us; however, that, aside from the evidence, they’re always right.

Cheerio and ttfn,
Grant Coulson
Cui Bono–Cherchez les Contingencies

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