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News Analysis

Fortnightly Magazine - February 15 2000

Utility restructuring seems to prompt more lawsuits by customers.

In Chicago, Commonwealth Edison Co. settles a class action lawsuit for a heat-wave outage, paying $2.5 million for items including "food spoilage," to customers served by certain city substations. In California, Pacific Gas & Electric Co. spends $8.3 million to resolve 98 percent of some 6,600 outage-related claims. In New York City, Consolidated Edison rushes to offer reimbursements of up to $100 for residential and $2,000 for commercial customers following a July 1999 heat-related outage in New York City, but that doesn't discourage a spate of lawsuits.

Harbinger of a changing landscape or just a run of bad luck? With "ratepayers" becoming "customers," utilities may end up digging deeper into pocket books when the lights go out. Power users today appear quicker to sue for outage-related damages. Eyeing that trend, insurers and technology vendors have stepped in to help utilities manage the risk. In the long run, however, the driving force behind efforts to mitigate liability from outages may come from the utility's simple desire to protect its reputation.

"We're the only industry that can, if you like, instantaneously disappoint 200,000 people," observes Harry McCracken, managing director of Northern Ireland Electricity. It's a fact known by anyone in the power industry, whether they provide service in the United States or the recently privatized United Kingdom.

"Avalanche" Situations

On Dec. 26, 1998, the worst storm in 50 years hit Northern Ireland, with high winds throwing 160,000 of 680,000 customers in the dark. Public relations fell flat in the days following the storm. Soon, NIE was offering up to 50 pounds (about $82 U.S.) to customers whose electricity was off for 24 hours or more, and reimbursement for hotel bills for those still without electricity after five days. In the end, it paid some form of compensation to at least 80,000 customers, doling out 9 million pounds (about $14.7 million U.S.) as a result of the storm.

Worsening the situation was a system that failed to identify some isolated customers who were down for over 24 hours as a result of faults on the low-voltage network (as opposed to most customers, who were affected by a main-line outage). That oversight forced the company to give some customers the final say-so when they requested compensation. The company estimates that the total compensation it paid out was increased by 5 percent to 10 percent as a result.

While NIE never faced legal action for the Boxing Day storm, it was forced to examine its emergency response capabilities, from its software to publicity. Interestingly, McCracken says that criticism of NIE's handling of the outages stemmed less from service interruptions than from misteps in customer communications.

"Traditionally, the industry has been focused on restoration." But, McCracken says, "More and more, today, what you find is communication is vital, before and after the event."

The NIE experience presaged the tone when the New York Public Service Commission conducted public hearings recently on the service interruptions that occurred last July in New York City. In particular, the PSC asked utility customers