(January 7, 2014) To help its most vulnerable customers cope, one UK power company provided them with Christmas dinners as well as hotel accommodation, all at shareholder expense.
This article, by Brady Yauch, first appeared in the Financial Post.
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 UK – 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.
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 UK companies with an unusual circumstance. Due to the severe nature of the outage and its worst-of-all-possible-timing — during the Christmas holidays – UK 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 good-will payments.
UK Power Networks – one of the “Big Six” power companies in the UK – 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 UK companies responded differently in their voluntary offerings. For example, Scottish and Southern Energy – another major power company in the UK – offered £75 to any of its customers that were without power at any point, no matter for how long, on Christmas Day.
The UK 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 to 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 UK 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 UK, 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.
Brady Yauch is executive director of Consumer Policy Institute, a division of Energy Probe Research Foundation. BradyYauch@consumerpolicyinstitute.org