The rules could change again20 August 1998
Electricity may not be the most vital good on sale, but it is with food and water as among the not many more than four necessities of life to those who have grown dependent on it. So there is little to wonder at in the public anguish that attends its accidental absences in lands normally blessed with copious supplies of it. One example of widespread deprivation that comes to mind was big news early this year when ice storms wrought havoc in Canada and the USA. Not long after that, there was extraordinary disruption in Auckland, New Zealand. This time the loss of power was due not to the elements but to cable failures that could have been prevented.
It has been argued that the New Zealand disaster exposed the dangers of utility privatization, for Auckland's supplier had been in public ownership, and it failed the public so dismally only after it had been sold off. One of the contributors to the debate has been Will Hutton. He is an economics pundit, a best-seller author on his subject and former editor of a UK newspaper, The Observer. Hutton saw the debacle as a blow to the last fifteen years' international consensus that privatization of the utilities inevitably raises efficiency and improves public finances. Auckland, wrote Hutton, 'has discovered that this is baloney'.
In his view 'Electricity is not a commodity like a designer dress where an interruption of supply poses no wider consequences; it is a precondition for successful modern life. If the owner of the power and distribution system fails to maintain supply and so loses revenue, this is not just an issue for the shareholders of the enterprise. It is an issue for everyone. In economic terms, electricity is a public good'. The privatized utilities, urges Hutton, should be subject to 'a body of corporate law ... to take into account other interests than those of shareholders ... and put on notice that they will be taken back into public ownership in the event of sustained power failure'.
Hutton is surely right in contending that electricity is not just any old commodity but has special features, and that the public good is greatly threatened by deprivation of it. For those very reasons, public ownership was long favoured in many countries. It was likewise favoured for utilities supplying water, the quintessential vital commodity. Water is quintessential, however, alongside food, supply of which has notoriously, and sometimes spectacularly, failed to prosper under state control. Would Hutton and his school plead for the threat of 'renationalization' there? I doubt it. But I think that he is probably right about need for strong legislation. I sense the possibility of a swing toward dederegulation early in the 21st century. Some deprivatization is reported to be already afoot, in New York for instance.
PS Shortly after I wrote the above I read a more searching and authoritative comment on the same subject by Dr Gordon Edge, writing as the editor of our sister journal, Power Economics. He saw as the moral of the Auckland story that privatized distributors should expect scant sympathy from politicians ("lack of a direct ownership link allows governments to kick you when you're down") and that "the word Auckland should be used to make staff afraid - very afraid. Say a prayer to whichever divine being you like and double check the maintenance and investment plan".
1 mg of practice beats 1 Mt of theory
Among the more interesting characters I have known in our business was the boss of a Finnish power station. He was fond of telling instructive stories from his own experience. A favourite was his tale of a maintenance man whom he had once employed on his plant.
The man's practice had been to climb, at privately scheduled times, to an elevated nook in the turbine hall. There he would take the snuffbox out of his pocket, sprinkle some of the grains onto the back of his hand, and then blow them vigorously into the middle air.
The boss had caught the snuffblower in the act on one occasion and had asked him what he was doing and why. "It's to keep the tarantulas out of the machinery", had come the reply.
"But there aren't any tarantulas here", the boss had said.
"You see," had riposted the maintenance man, "it works!".