After 10 years of incentive regulation, reliability has declined in Ontario. Regulators failed to enforce service-quality standards, and consumers are suffering as a result.
Are We Smart Yet?
Rising expectations in the Dog Days of summer.
In this month 13 years ago, Electric Light & Power (EL&P) magazine published my editorial, “ It’s Reliability, Stupid! ” I’d been covering this industry for 10 years, but that editorial elicited more phone calls and letters than anything I’d previously written. A few readers were angry or offended, but most strongly supported my assertion that utilities needed to start replacing their aging distribution infrastructure, or they would see their market positions erode—along with customers’ fraying patience. One utility even sought permission to re-publish the editorial in its company newsletter, along with a note from the CEO endorsing the message.
I think the editorial gained attention partly because of its cheeky title, which echoed the famous slogan from the Bill Clinton campaign. And partly it struck a nerve among executives and regulators who had become weary of the industry’s apparent fixation on retail and wholesale competition, arguably to the neglect of boring old utility tasks like reliability and resource adequacy. But mostly the editorial was just timely, arriving on the heels of a heat wave and extended outage in New York that had Con Edison’s customers and regulators screaming—and that led Mayor Rudy Giuliani to file suit against Con Edison for “an act of gross negligence” in failing to maintain adequate infrastructure.
However, the Con Edison outage wasn’t an isolated event. One year earlier, in the summer of 1998, supply shortages caused wholesale price spikes in the Southeast and Midwest. With power prices rising by two orders of magnitude or more—to $7,000 per MWh in some places—even pro-market diehards were beginning to question whether competitive markets could be trusted to ensure adequate generation. And then, in the summer of 2000, California experienced the worst energy crisis in its history—a crisis that caused rolling brownouts over a year-long period, sent PG&E into bankruptcy, cost Gov. Gray Davis his job, and led lawmakers to roll back retail competition. It also set into motion a series of events that sparked Enron’s implosion and the virtual collapse of the energy trading business as we knew it—and prompted the so-called “back to basics” shift among investor-owned utilities.
The volatility of those times caused executives and lawmakers across the country to step back and ask whether, amid all the changes that had been happening, was the industry losing its focus on providing safe, affordable, and especially reliable service?
Now, 13 years later, yet another sweltering summer is causing its share of outages and supply problems, with predictable backlash from customers and policy makers. And with the advances we’ve seen in recent years, perhaps again we should be asking whether we’re adequately focused on our most critical mission: keeping the power on.
Demand-Side Déjà vu
In August 2000, one year after EL&P published “It’s Reliability, Stupid,” Public Utilities Fortnightly printed an article titled “ The Next Killer App: Load Management, Only This Time For Real ” by William M. Smith, then EPRI’s manager of market-driven load