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Holding Distribution Utilities Liable for Outage Costs: An Economic Look

Resources for the Future DP 13-16, July 2013

24 Pages Posted: 13 Jul 2013 Last revised: 26 Jul 2013

Timothy J. Brennan

Resources for the Future

Date Written: July 5, 2013

Abstract

Storm-related service outages in electricity and telecommunications have created public controversies regarding the adequacy of ex ante efforts to prevent outages and ex post efforts to restore power. Product liability rules, used to promote quality of service throughout the economy, might seem to offer a solution to this problem in the utility context. Strict liability rules avoid the need for determining whether utilities were appropriately careful but increase ratepayer costs because of moral hazard and, in effect, force ratepayers to buy outage insurance from the utility. By leaving customers exposed to damage, negligence rules can avoid these shortcomings but force upon regulators and courts the need to make difficult decisions regarding efficient care levels. Profit regulation, risk aversion, regulatory commitment failures, and distributional considerations add further complications. Still, the consideration of liability rules may provide worthwhile reminders that increased reliability is neither free nor guaranteed by public provision of service.

Keywords: electricity, distribution, reliability, outage, blackouts, liability, negligence

JEL Classification: L51, K13, L94

Suggested Citation

Brennan, Timothy J., Holding Distribution Utilities Liable for Outage Costs: An Economic Look (July 5, 2013). Resources for the Future DP 13-16, July 2013. Available at SSRN: https://ssrn.com/abstract=2293171 or http://dx.doi.org/10.2139/ssrn.2293171

Timothy J. Brennan (Contact Author)

Resources for the Future ( email )

1616 P Street, NW
Washington, DC 20036
United States

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