(March 13, 2015) Customers with private electricity distributors are better protected from blackouts and other disruptions.
Ratepayers across Ontario are wondering whether they’ll be better off if Queen’s Park decides to sell a portion, or all, of the province’s grid operator, Hydro One, to private investors. Evidence from other jurisdictions with privatized electricity distributors show that customers will experience a combination of better service and greater protection from blackouts and other service disruptions when distribution is done by private companies and strictly regulated.
In the United Kingdom, which fully privatized its electricity system in 1990, the country’s regulator has put in place a number of standards that all distributors must adhere to. When a distributor fails to meet these standards, it must offer a rebate to its customers.
If , for example, a customer’s main fuse fails and she contacts the distributor during working hours and it fails to show up within 3 hours to deal with the problem, that customer receives a rebate of $41 (CAD). If that failure happens on the weekend or public holiday, the distributor will be at the door within 4 hours, or provide a rebate.
If, over the course of a year, a customer’s power goes out for more than three hours on four different occasions, the distributor will pay the customer $102.
When a distributor performs maintenance or repairs on a wire – causing a disruption to the customer in the process – and fails to properly notify the customer, that distributor must pay the customer $41. And if the distributor makes an appointment with a customer, but fails to show up on time, it also owes the customer $41.
In times of mass power failures due to extreme weather events, the distributor must provide accurate estimates to customers on when the power will be restored. If it fails to meet those targets, it will pay a rebate to customers of as much as $407. In recent years distributors have gone one step further and voluntarily paid for hotel accommodations for residents that lost power during the winter months.
The UK is not alone in pushing its private distributors to offer better service for their customers. In the southern Australian state of Victoria, which also privatized its distribution network long before the rest of the country followed suit, customers are offered similar protections from blackouts and poor customer service.
If a distributor shows up more than 15 minutes late for an appointment, they must pay the customer $15. If a new customer needs electricity supplied to her house and the distributor misses the agreed to date, it will pay the customer $48 per day up to $244.
If power goes out for more than 20 hours over the entire year, the distributor will pay the customer $98. If the power outages total more than 30 and 40 hours, the distributor will pay $146 and $195, respectively.
Even if the power outages are for short periods of time, distributors are still held accountable. If a customer suffers from 24 momentary outages over the course of a year, the distributor must pay $24.
And if customers are ever unsure of how reliable their electricity services are – if they work outside of the home during the day and are unaware of outages, for example – they can make a request to a distributor, which then has to supply a detailed report within 20 business days. If it is found that the distributor’s service is falling short, it then has to pay the requisite penalties to the customer.
In the case of both the UK and Australia, customers are also free to choose what retailer they would like to supply them electricity. Retailers are in charge of buying power from the wholesale market, arranging to have it delivered – through the distribution system –and billing. The many retailers in both countries compete against one another to attract new customers – helping to keep prices low while offering a variety of different plans and services to meet individual needs.
Hydro One customers face a much different reality.
Hydro One – which operates both the distribution and transmission wires – suffers no penalty when it fails to show up for scheduled appointments. It’s actually argued against them, as the company did in its rate application before the Ontario Energy Board when it said any such penalties are “premature.” In fact, Hydro One wants the OEB to exempt it from a guideline that the company contact customers of missed appointments 100% of the time, arguing that it should be lowered to 90% – meaning one out of every ten customers will be left out in the cold when it comes to their scheduled appointments with Hydro One.
Hydro One also faces no penalties in regards to power outages. While distributors in privatized networks have the incentives to get the lights on as quickly as possible – or pay the necessary costs for failing to do so – Hydro One faces no such costs. Yet, Hydro One’s own research shows that one out of every four dissatisfied customers are concerned about reliability – and that figure has been on the rise in recent years.
Any move to privatize Hydro One will likely be met with howls of outrage that a private company will put profits before customers. But evidence from other privatized distribution networks show how much better their customers are treated than those of Hydro One.
 All figures have been converted from the local currency into Canadian dollars.
Brady Yauch is an economist and Executive Director of the Consumer Policy Institute (CPI). You can reach Brady by email at: bradyyauch (at) consumerpolicyinstitute.org or by phone at (416) 964-9223 ext 236
Normally I agree with a good chunk of Energy Probe’s free market solutions for issues at hand, such as transit and highways, but in your zeal to promote free market solutions this article ignores the basic economic theory of natural monopolies. Provinces and States that have privatized their electric utilities have seen rate increases and brown/black outs far exceeding those of other jurisdictions. You can quote regulations from other countries but that doesn’t change the fact that private competition is not an option in a natural monopoly industry otherwise the provinces with private energy utilities would have the lowest rates and the highest customer satisfaction. However, the reality of it is that provinces such as Manitoba, BC, Saskatchewan and Quebec which have public utilities are among those with the lowest rates and highest customer satisfaction ratings.
Thanks for the comment.
There are many examples of regulatory boards dealing with instances of natural monopolies. The rate increases that many utilities experienced after privatization (many also experienced a decrease) often came because the hidden subsidies that were used to keep power prices low were taken away.
Also, in the UK many private distributors have higher customer satisfaction levels than that of BC Hydro. That’s just one example, but shows that electricity monopolies don’t always perform better in the eyes of the customer.