Journal of Contingencies and Crisis Management
Volume 18 Number 4 December 2010
Reliability Consequences of
Liberalization in the Electricity
Sector: Existing Research and
Remaining Questions
Stian Antonsen*, Petter G. Almklov**,
Jø
ørn Fenstad** and Agnes Nybø
ø***
*SINTEF Technology and Society, Industrial Management PO Box 4760 Sluppen N 7465 Trondheim, Norway.
E-mail: [email protected]
**NTNU Samfunnsforskning AS, PO box 8900 Sluppen, 7491 Trondheim, Norway.
E-mails: [email protected], [email protected]
***Statkraft Energi AS PO box 200, 0216 Oslo, Norway. E-mail: [email protected]
The generation, transmission and distribution of energy are among the most vital
prerequisites for the functioning of modern societies. Since the early 1990s, the energy
sectors of Western societies have been through a process of institutional restructuring,
where large state-owned monopolies have been divided into several independent
organizations. Also, the organizations responsible for providing energy, like most other
industrial organizations today, have made increasing use of outsourcing strategies. Taken
together, these developments represent a significant change in the framework conditions
for the energy sector. How this development affects the reliability of energy supply and
the capacity for effective crisis management is an important question from both a
research perspective as well as from a societal point of view. This article reviews the
current literature on these issues, aiming to identify research gaps in the existing
literature. Several research gaps are identified.
1. Introduction
T
he generation, transmission and distribution of
electricity in many ways constitute the veins and
arteries of Western societies (De Bruijne, 2006). Moreover, these societies seem to become increasingly
dependent on electricity as different infrastructures
become increasingly interdependent [President’s Commission on Critical Infrastructure Protection (PCCIP),
1997; Rinaldi, Peerenboom, & Kelly, 2001]. As infrastructures within transportation, telecommunications,
finance, oil and gas production and water supply all
depend on electricity, the potential ramifications of
electricity network failures have never been greater
& 2010 Blackwell Publishing Ltd.
(Amin, 2002). Thus, while there are no clear-cut criteria
to define the level of ‘criticality’ of infrastructures (Egan,
2007), few would disagree that the production and
distribution of electricity constitute a critical infrastructure of industrialized societies.
At the same time, the electricity industries in Western countries have been subjected to a massive institutional restructuring from around 1990 and onwards.
The large, state-owned organizations have been
divided into several smaller units, which are increasingly exposed to competition (De Vries, De Jong,
De Bruijne, Glavitsch, & Knops, 2006). The transition
from being an infrastructure monopoly to becoming a
form of ‘infrastructure market’ represents a significant
DOI: 10.1111/j.1468-5973.2010.00619.x
Reliability Consequences of Liberalization in the Electricity Sector
institutional restructuring of the industry and also
introduces a shift in the system of regulatory review1
(De Bruijne, 2006; De Bruijne, Van Eeten, Roe, &
Schulman, 2006).
However, the restructuring of the energy sector
seems, to a large extent, to have been initiated without
a clear view on how the restructuring processes affect
the reliability of the industry. As De Bruijne and van
Eeten (2007, p. 19) have noted, ‘these infrastructures
might be critical to our societies, but that hasn’t
stopped us from subjecting them to the great experiments of privatization, liberalization and deregulation’.
This paradox is the starting point of this article, which
assesses the current knowledge regarding the effects of
restructuring on the operational reliability and emergency handling capacities in the energy sector. The need
for such a review and discussion has been stressed by
leading scholars on the field, most notably Little, who
calls for a ‘comprehensive review and assessment of
ongoing research with the goal of identifying gaps in the
knowledge base and establish research priorities’ (Little, 2002, p. 119). This article aims to answer this
challenge and review the existing empirical attempts to
study the possible reliability consequences of the
restructuring of the electricity sector. The aim is to
identify the gaps in existing research, and point to some
unaddressed issues that should be explored empirically
in future research.
Before addressing the literature on the consequences of institutional restructuring of the electricity
sector, it is necessary to present a brief account on the
logic and context of these processes in general.
1.1. The logic of liberalization and institutional
restructuring
All countries in Western Europe have, to various
degrees, taken steps towards the liberalization of their
electricity industries. The term liberalization here refers to attempts to introduce competition into the
some or all segments of the industry and to remove
barriers to trade and exchange (Sioshansi, 2006). The
organizations responsible for the production and transmission of electrical energy have, to a large extent, gone
from being bodies regulated by governments, to being
organized more like private companies subjected to
more indirect regulation. This process is commonly
referred to as deregulation, but would probably be
more accurately described as ‘re-regulation’ as the
introduction of market forces most often results in
additional regulation (Sheil, 2004).
This development is part of a general trend of public
sector restructuring that is heavily influenced by the
ideals of ‘new public management’ (NPM). These ideals,
often associated with the political regimes of Thatcher
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209
in the United Kingdom and Reagan in the United States,
but ubiquitous also in other modern economies, involve
the transformation of public monopolies into several
decentralized, competition-exposed or privatized organizations (see, e.g., Hood, 1991, 1995; Hood & Peters,
2004). These organizational changes span from internal
reorganization, like internal transfer-price systems or
benchmarking, to full-blown privatization of the public
service. There is a myriad of organizational variants, but
the drift towards management by market mechanisms
and a commoditization2 of services is a common
denominator, what Sheil (2000, 2004) describes as a
‘corporatization’ of the public sector. The objective of
such restructuring is to improve cost-efficiency by
introducing competition.3 This is a radical shift from
the traditional mode of organizing critical infrastructures. Kopicki and Thompson (1995) sum up this shift in
the following way:
As the term implies, ‘restructuring’ entails a clean
break with past public choice practices, corporate
governance protocols, management methods, and
institutional arrangements. It implies as well, a
fundamental recalibration of service expectations
and service delivery standards
(Kopicki & Thompson, 1995, p. 1, cited in De
Bruijne, 2006, p. 11).
This reorganization of the roles of the players mounts
up to an ‘institutional revolution’, as it changes the rules
of the game for the organizations involved, as well as
the regulatory authorities (Högselius & Kaijser, 2007).
As we will argue throughout the article, the processes
of restructuring may have some unintended consequences when it comes to the reliability and societal
safety.
1.2. Institutional restructuring in the electricity
industry
The liberalization trends reached the electricity sector in
the late 1980s and early 1990s. Traditionally, the generation, transmission and distribution were assembled in
vertically integrated utilities, often state owned. The
trend is now that these functions are structurally
separated, and thus involving an unbundling of functions
and decentralization of decisions that were previously
centrally coordinated within vertically integrated utilities
[International Energy Agency (IEA), 2005b].
The first launch of an open electricity market came in
England and Wales in 1990. Before the electricity
reform, the entire electricity industry in these countries
was state owned, but with the reform came unbundling
of generation and transmission, reorganization and
eventually privatization (IEA, 2005a).
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Stian Antonsen, Petter G. Almklov, Jrn Fenstad and Agnes Nyb
Norway began restructuring the electricity industry
in 1991, with unbundling of activities and the establishment of an open marked which other Nordic countries
joined during the second half of the 1990s. The entire
sector was reorganized, creating a distinction between
monopoly (network) and competitive business (production). Nevertheless, many network companies were
included in larger company groups, practicing both
monopoly and competitive activities. Most electricity
companies are still owned by the state or local authorities (IEA, 2005a; OED, 2006).
The electricity sector in the United States has undergone similar changes as outlined above, the historic
picture here being more complex due to differences in
state regulation. The most recent milestones are the
federal energy acts of 1992 and 2005, the first triggering
the unbundling of transmission and generation business
and the latter promoting further development towards
open and competitive markets (Young, 2006).
The IEA concludes that the liberalization process in
the electricity sector has resulted in considerable
economic benefits. Competition has led to a focus on
cost reductions and a more efficient use of assets.
However, low investment levels, loss-of-supply incidents and society’s increasing dependability on electricity have shifted the focus towards the quality and
security of supply in many western countries (IEA,
2005a).
2. Literature review
As this is an interdisciplinary field with somewhat
unclear boundaries, it is hard to provide a definitive
literature review. In order to assess the current knowledge on the effects of institutional restructuring on
reliability and capacity for crisis management, we
performed literature searches covering the following
journals:
Journal of Infrastructure Systems
Journal of Contingencies and Crisis Management
Safety Science
Accident Analysis and Prevention
Risk Analysis
Journal of Risk and Uncertainty
Reliability Engineering and Systems Safety
Energy Policy
IEEE Transactions on Power Systems
Electricity Journal
International Journal of Critical Infrastructures
Utilities Policy
The literature search in these journal was performed
in 2008 and 2009 with various combinations of the
following keywords: ‘Power system’, ‘electricity’,
‘safety’, ‘deregulation’, ‘restructuring’, ‘organization’,
Journal of Contingencies and Crisis Management
Volume 18 Number 4 December 2010
‘organizational’, ‘privatization’, ‘new public management’, ‘outsourcing’ and ‘reliability’.
In addition to surveying these journals, we also
performed literature searches in library databases,
contacted researchers who had previously published
research on the topic and searched the internet for
relevant governmental reports. As is reflected in the
selection of journals, the scope of the literature search
was not confined to finding research on restructuring
of the energy sector. As many other industries have
been through similar restructuring processes, we also
reviewed research related to other industries, as this
research provides an insight to the general aspects of
deregulation and restructuring. In particular, the deregulation of the British and American transport sectors
has spawned some research on the consequences for
reliability. Some contributions are delineated in the
following section.
2.1. Experiences from transport deregulation
The transport sector stands out as the sector in which
most studies have been conducted to analyse the
relationship between deregulation and safety/reliability,
particularly in the United Kingdom and United States. In
the United Kingdom, the railway transport has received
the most attention, after experiencing several serious
accidents, such as the Hatfield crash in 2000. Although
the number of casualties at Hatfield was not extremely
high (four killed and 70 injured), the subsequent
restrictions on the rail system led to severe problems
for train operators in Britain in the time after the
accident. The accident exposed flaws in the systems for
control of the railway infrastructure:
The underlying causes identified by the HSE investigation were that the maintenance contractor at the
time, Balfour Beatty Rail Maintenance Ltd (BBRML)
failed to manage effectively the inspection and maintenance of the rail at the site of the accident. [. . .]
The investigation also found that Railtrack PLC, the
infrastructure controller at the time, failed to manage effectively the work of BBRML
(Office of Rail Regulation, 2006, p. 4).
The systematic failures exposed led to speed reductions on the rails (as one could not guarantee
their condition), which in turn crippled much of
the British railway system. While it may be overly
harsh to blame all the problems of the British railway system on privatization alone, several observers
have argued that the separation of infrastructure from
operation contributed significantly to the deterioration of safety standards and service quality (Wolmar,
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Reliability Consequences of Liberalization in the Electricity Sector
2001; Mathieu, 2003; Smith, 2003; see also Maidment,
1998).
Also commenting on the privatization and subsequent restructuring of the UK railways in the 1990s,
Jeffcott et al. (2006) suggest that the process had
involved a deterioration of safety culture and trust
relationships within the industry. Based on focus groups
and interviews with a sample of more than 500
informants, they argue that the restructuring had
(among other things) led to organizational fragmentation, proceduralization and bureaucratization of work
and loss of expertise. These factors were in turn
related to a loss of flexibility, employee commitment
and learning abilities.
As a part of the Norwegian research programme Risk
and safety in the transport sector (RISIT), Johnsen,
Lindstad, and Nicolaisen (2002) produced a knowledge
survey on the safety consequences of deregulation. The
authors emphasized the need for scientific knowledge
on the topic and identified several negative issues
related to deregulation:
Increased competition coupled with decreasing
profitability could lead to reduced maintenance
and quality, which in turn could lead to lower safety
levels.
The entrance of new and inexperienced market
actors could involve increased risk.
Outsourcing can lead to a fragmentation of responsibility.
Despite identifying these negative factors, much of
the research concludes that deregulation has not
adversely affected transport safety. Many of the studies
reviewed come from the American aviation industry
(e.g., Oster & Zorn, 1989; Rose, 1992). However, these
studies have been criticized for relying on too limited
post-deregulation data. When extending the analysis to
include more recent accident data, the results show a
reversal of the declining trends in accident rates
(Raghavan & Rhoades, 2005). This suggests that there
might be differences between long- and short-term
effects of deregulation.
There are of course differences between transport
and the production and distribution of electrical energy.
Nevertheless, the issues emphasized in relation to
transport deregulation are general challenges related
to deregulation and restructuring. As such, there is little
reason to believe that these challenges will not be
relevant in the energy sector.
2.2. Public reports after major blackouts
Typically, much research on reliability and safety is
event-driven, following at the heels of major accidents
and events. Several countries have experienced major
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211
electrical blackouts in the past years, and these have
highlighted the society’s vulnerability and contributed to
rising further questions about the regulation and organization of the electricity sector. As a consequence of
this, many extensive studies are performed by public
organizations and regulating bodies in such contexts.
One event raising some fundamental questions regarding the security of electricity supply was the
California crisis in 1999. The rolling black-outs, skyrocketing electricity prices and lasting under-supply of
electrical power exposed how vulnerable the society
had become. Simultaneously, the analyses of the causes
tend to point to flaws in the deregulation of the energy
sector as a key condition in making the breakdown
possible. The crisis has later been regarded as a
consequence of flawed deregulation, rather than as a
result of deregulation as such (De Bruijne, 2006). The
regulator’s Federal Energy Regulatory Commission
(FERC) report states that ‘supply-demand imbalance,
flawed market design and inconsistent rules made possible significant market manipulation’. Hence, the market for taking care of the critical infrastructural function
of providing energy to California was rendered vulnerable to manipulation. When a situation with a supply–
demand imbalance occurred, the design of the market
was such that manipulation (both legal and illegal) was
possible (FERC, 2003; Borenstein, 2002).
While the California blackouts certainly brought
much attention to restructuring as a possible contributor, the publications written in the aftermath of most
large blackouts focus more on the technical aspects, i.e.
the ‘physical’ chain of causes and consequences, and not
so much on the organizational and institutional framework of the system.
The Task Force after the blackouts in the United
States and Canada in 2003, which affected 50 million
people, concluded that lack of system understanding,
poor communication and non-compliance with voluntary standards created the ground for the cascading
events. The need for clarifying responsibilities and
accountabilities in the deregulated energy sector was
addressed (IEA, 2005b). It has been stated that the
regulator (FERC) lacked both technical expertise on
reliability issues and the necessary jurisdiction to ensure the security of supply (Young, 2006). The Energy
Policy Act of 2005 made it possible to answer some of
these challenges, introducing mandatory reliability standards and broader jurisdiction regarding enforcement.
The United Kingdom experienced two large loss-ofsupply incidents in 2003, affecting London and Birmingham. In both cases, the supply was restored to all
customers within an hour. However, the incidents
caused significant disruptions of activities, particularly
for the transport systems, e.g. the London Underground. Both incidents were triggered by the malfunctioning of protection equipment in combination with
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Stian Antonsen, Petter G. Almklov, Jrn Fenstad and Agnes Nyb
ongoing maintenance work, causing the system to have
less redundancy than normal. The incident reports
focus on the protection systems, but also address issues
such as communication, competence and recruitment
as well as the need for more rigid and formalized
procedures (OFGEM, 2004). After the incidents, the
regulator (OFGEM) decided to introduce an incentive
scheme to promote a high level over reliability.
As in other countries, the electricity sector in Norway has experienced an increased focus on profitability
stemming from the deregulation in 1991. The blackout
in Steigen in 2007, where a small municipality was
affected for 6 days, and other loss-of-supply incidents
acted as wake-up calls for the government and the
power network companies. Maintenance practice, investment level, the organization of activities and the
interface between governmental bodies are among the
discussion topics in Norway today. It has been questioned whether restructuring and outsourcing have led
to deterioration of the network companies’ competence to maintain a reliable system. It is regarded as
vital that network companies have the competence
necessary to fulfil their roles as service buyers, including high-quality specifications and control routines, and
not least to be able to coordinate efforts during major
breakdowns. Reduced local knowledge and man power,
in combination with an ageing infrastructure, have been
identified as areas of concerns (Kjlle, Uhlen, Rolfseng,
& Stene, 2006; DSB, 2006; JPD, 2006).
After the hurricane Gudrun, which caused severe
damage to electricity lines in southern Sweden in 2005,
organization and access to man power, and materials as
well as information to the citizens were recognized as
areas in need of improvement. Centralized information
centres and lack of local knowledge were identified as
sources of misunderstandings and misinformation (SE,
2005). Gudrun also caused massive forest destruction
and severe damage to other infrastructure in southern
Sweden. The blackout was caused by extreme weather,
which the electrical distributions lines in general are not
expected to withstand. Important lessons were, however, learned from the restoration process, especially in
terms of communication, coordination and the dependency of other infrastructures such as telecommunication and transport.
The reports on major blackout events all underline
the integrated nature of power supply: in the causal
chain (e.g., in the case of cascading effects) leading up to
the events, or in the restoration of supply as in the
Gudrun event. Not surprisingly, organizational factors,
although they are not always discussed explicitly as
such, play a role in all the events. And although it is clear
that institutional restructuring has had some influence
both in the situation leading up to the crises and in the
management of these crises, one would be hard
pressed to make general conclusions from these re-
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Volume 18 Number 4 December 2010
ports regarding whether institutional restructuring is
‘good or bad’. In fact, such reports usually raise more
questions than they provide answers regarding the
effects of institutional restructuring.
2.3. Empirical research on the consequences of
restructuring in the electricity sector
The literature search revealed that there very little
empirical research has been carried out on the way in
which institutional restructuring affects the reliability
and capacity for crisis management in the electricity
sector. We have identified four main strands of research, each focusing on different aspects of the consequences of institutional restructuring of the sector.
The first approach is primarily oriented towards the
economic aspects of deregulation. The second approach is primarily a technical approach, analysing the
technical robustness or vulnerability of electricity systems. The third approach emphasizes the growing
degree of interconnectedness between various critical
infrastructures. The fourth approach may be labelled an
organizational approach, aiming to describe how institutional restructuring might influence reliability. In what
follows, we will provide a description of each of these
lines of research.
2.3.1. Economic perspectives on the consequences of
deregulation
In the years after the British (and other) electricity
sector was deregulated, much of the research efforts
were directed towards evaluating the functioning of the
competitive electricity markets (e.g., Trebing & Wilsey,
1993, 1994; Moody, 2004; Green, 2006).
The earlier literature in this field did not discuss the
potential effects for reliability. The more recent economic literature, while still predominantly occupied
with economic aspects of the deregulation, has started
to pay attention to issues of reliability of the industry’s
service provision. An example of this line of research is
a study by Xin (2005). Xin examined several blackout
events in order to identify structural problems that
contributed to the occurrence of the blackouts. Among
the structural problems discussed are the tendencies
towards minimizing capacity margins (and thus putting
more pressure on the existing infrastructure), the
trading of large amounts of power over long distances
(increasing demands for coordination and communication between the interconnected systems), increasing
conflict between the goal of short-term efficiency and
long-term investments and the lack of crisis response
capabilities. The author discusses the role of regulation in
the electricity supply business and the importance of a
clear institutional framework. Xin views the fragmentation of responsibility as a major challenge for regulators:
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Reliability Consequences of Liberalization in the Electricity Sector
No one can be given the entire responsibility for
security in the new environment. How to rebuild the
responsibility chain for security of supply is now a
main concern both for US and Europe governments
(Xin, 2005, p. 4).
The author thus draws a link between large loss-ofsupply incidents and institutional shortcomings, arguing
that deregulation and insufficient investment incentives
have resulted in a leaner system. Similar concerns have
been voiced by Outhred (1998), Meshkati et al. (2001),
De Vries (2003) and De Vries et al. (2006); see also
Farrell et al. (2004).
The arguments related to the lack of incentives for
long-term investments find empirical support in Kinnunen’s (2006) study of investment behaviour in the Finish
electricity industry. Based on statistical analysis, Kinnunen found that the net investments were at a lower
level after deregulation, even though the consumption of electricity had risen, concluding that ‘the liberalized markets have clearly influenced the investment
behavior of the utilities’ (Kinnunen, 2006, p. 861). In a
similar vein, Palm’s (2008) discussion of emergency
management strategies of municipal authorities highlights the lack of investment incentives, and points to
the dangers of ‘responsibility gaps’ arising between
public and private actors, when it comes to taking
responsibility for long-term planning and emergency
management.4
Gönenc et al. (2000) discuss the implementation and
effects of regulatory reforms and privatization on a
more positive note. They suggest that electricity has
had slower progress and less success in terms of
increased efficiency and customer welfare than many
other sectors. They attribute this largely to problems
with the regulatory frameworks. The authors note that
it is possible to introduce competition without jeopardizing safety and reliability, but do not go further into
how this should be done. The importance of governmental involvement is also stressed by the IEA, who
states that even if the governments’ and regulators’
roles have changed, they are still vital in order to ensure
a competitive marked and a reliable system (IEA,
2005a).
The discussions by economists regarding the regulation of electricity systems are mostly concerned with
its effect on the market. In these analyses, reliability is a
key constraint that is sometimes discussed explicitly, as
some market designs may have adverse effects on
reliability, typically via investment levels (see, e.g.,
Tenenbaum, Lock, & Barker, 1992). In a similar vein,
several researchers have emphasized the role of
regulators in ‘reforming the reforms’, flaws in the
initial market design are often only visible after some
time (Sioshansi, 2006). This underlines the profoundly
sequential nature of such reforms, and how the govern-
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213
ance structures must be adapted along the process of
implementation, not only to address market imperfections but arguably also to ensure reliability (Glachant
& Perez, 2007). Similar arguments have been voiced
by Lave, Apt, and Blumsack (2004) and Anderson
(2009).
2.3.2. Technical perspectives
In addition to, and in close relation to, there is also a
great deal of research on the technical robustness or
the vulnerability of energy systems, thus placing the
emphasis on the physical infrastructures. Within this
line of research, there some concern has been voiced
over the way in which deregulation may affect the
redundancy of the system, both with regard to having
reserve transmission capacity and available spare parts:
Deregulation has encouraged efficiency, investedcost utilization and return on investment rather
than redundancy, reliability and security. For the
same reasons, power companies keep fewer spares
at hand. Utilities have also reduced their support for
research and development
(NRC, 2002, p. 183).
There is also some more recent literature within this
strand, such as the special issue on critical electricity
infrastructures in the International Journal of Critical
Infrastructures (volume 3, issue 1/2, 2007). While this
research analyses the security of electrical power
systems, its main emphasis remains on the technological
properties of the system. The institutional restructuring
of the organizational context of the system is not
explicitly discussed. This literature will therefore not
be further discussed here.
2.3.3. Interdependencies between infrastructures
The third line of research is mainly concerned with the
vulnerabilities introduced by the interdependencies between different critical infrastructures, including electricity (e.g., Rinaldi et al., 2001; Little, 2002; Amin, 2002;
Auerswald, 2006). While studies within this strand do
not usually deal directly with the consequences of
restructuring, they nevertheless discuss some issues of
high relevance for the topic of this article. In particular,
there are several important discussions of the challenges
involved when reliability can no longer be ensured by one
autonomous organization, but is rather the outcome of
many organizations working together in a concerted way
(e.g., Auerswald, 2006; Heal, Kearns, Kleindorfer, &
Kunreuther, 2006). The danger is that each of the
organizations involved focus on their internal reliability
issues, while not necessarily paying attention to the
effects their internal failures may have on others (Auerswald, 2006). This requires a high degree of interorganizational communication and coordination, something that
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Stian Antonsen, Petter G. Almklov, Jrn Fenstad and Agnes Nyb
is inherently difficult to maintain through reliance on
market mechanisms alone (Auerswald, 2006).
2.3.4. Organizational perspectives on the consequences of
deregulation
A fourth line of research revolves around the concepts
of ‘networked reliability’ and ‘reliability professionals’,
which denotes the keys to organizational reliability in a
fragmented industry (e.g., De Bruijne, 2006; De Bruijne
et al., 2006; De Bruijne & van Eeten, 2007; Roe, Van
Eeten, Schulman, & De Bruijne, 2002; Schulman, Roe,
Eeten, & Bruijne, 2004; Schulman & Roe, 2008). Studies
within this strand address the consequences of institutional restructuring quite directly.
The works of these authors depart from a paradox
identified in the two main theoretical frameworks of
safety research: Normal Accident Theory (NAT) and
High Reliability Theory (HRT) (cf. Schulman et al., 2004;
De Bruijne et al., 2006; De Bruijne & van Eeten, 2007).
Although these two frameworks have several points of
tangency (Rijpma, 1997), they are thought to be largely
incompatible. While thus being theoretically quite different, the two frameworks provide highly similar predictions regarding the reliability consequences of institutional
restructuring. Both frameworks suggest that the processes of deregulation and reorganization seen in the
electricity sector will lead to decreased reliability.
According to NAT, inextricably connected with the
works of Charles Perrow (1984), institutional restructuring in the energy sector will lead to an increased
complexity in the energy system as a whole. The
unbundling of the large monopolies into independent
organizations increases the number of organizational
interfaces, and makes the technical system less transparent and comprehensible for system operators. In
addition to posing challenges for isolating and controlling technical failures, and for cooperation and coordination between the organizations involved, the
restructuring can also be expected to increase the
emphasis on cost efficiency, something that is also
seen as problematic according to NAT. Together, these
factors would lead NAT theorists to predict that the
institutional restructuring of the energy sector would
lead to increased vulnerability.
The insights of NAT are compared with the findings
of research on High Reliability Organizations (HROs),
which aims at finding the social processes and organizational properties that contribute to preventing failure.
Among these properties are a high degree of structural
flexibility and redundancy, as well as a strong organizational commitment to reliability and organizational
learning (Rochlin, La Porte, & Roberts, 1987; LaPorte
& Consolini, 1991; La Porte, 2006). These properties
are likely to be under attack in processes of institutional
restructuring. Restructuring usually means increasing
efficiency by reducing the number of employees. Such
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Volume 18 Number 4 December 2010
principles of lean organizing aim at reducing the redundancy of the organization, and are therefore problematic according to HRT. Also, the drift towards
market principles may pose challenges for the prioritization of reliability. A greater emphasis on cost efficiency may also come at the expense of continuous
improvement.
Thus, according to the two research traditions on
risk and safety, institutional restructuring in accordance
with the doctrines of NPM is likely to be a very bad idea
in terms of reliability. This is why Hood and Jackson call
NPM a ‘recipe for disaster’ (Hood & Jackson, 1992, p.
109) and De Bruijne and van Eeten (2007, p. 18) label
restructured energy systems as ‘systems that should
have failed’.
The pivotal question for the researchers within this
line of research is therefore: why have we not seen a
widespread collapse in electricity systems? De Bruijne
and van Eeten (2007) provide one answer to this
question, concluding that the institutionally restructured energy systems seem to operate closer to the
edge of failure, but that they nevertheless have maintained reliability by developing so-called ‘networked
reliability’, networks of skilled operators (reliability
professionals) that are able to deal with problems
as they arise. These operators are middle-level professionals who have en exceptional degree of knowledge about the system they operate, and the roles
and tasks of the people and organizations involved in
maintaining and operating the system (Schulman et al.,
2004).
Schulman and Roe (2008) delve further into the
cognitive skills of such reliability professionals. They
see the skills of reliability professionals as the ability to
successfully identify patterns of potential threats, formulate scenarios about the possible consequences of
these threats and take appropriate actions to uphold
the stability of the electricity grid. As has also been
noted by De Bruijne (2006), this form of reliability
depends on real-time management, improvisation, communication and coordination. Hence, networked reliability may be achieved in a situation where operators
and managers with system responsibility are able to
respond flexibly to external perturbations as they
present themselves, rather than to foresee everything
in contingency planning. This is of course partly dependent on the increased availability of real-time data and
increased information handling opportunities provided
by ICT in general.
The studies reviewed here represent significant
advances in our understanding of the consequences of
institutional restructuring, and the measures that can be
taken to maintain reliability in fragmented industries. In
addition to the themes described here, there are
authors aiming to provide more holistic accounts of
the restructuring of electricity infrastructures.
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Reliability Consequences of Liberalization in the Electricity Sector
Gheorghe, Masera, Weijnen, and De Vries (2006), for
instance, discuss challenges to electricity infrastructures, which include aspects related to markets, regulation, technology and topology.
However, as we shall see in the next section, there
are some crucial issues that are rarely explicitly addressed in the mainstream of existing research.
3. Discussion
One of the overall conclusions of the literature review
is that there is little empirical research regarding the
reliability consequences of institutional restructuring in
the electricity sector. Also, the literature provides no
clear answers as to whether deregulation has led to an
increase or a decrease of regularity of the electric
power supply. In this section, we discuss some underlying assumptions about reliability for each of the
strands of research identified in the literature review.
The aim of this discussion is to pinpoint some questions
regarding the effects of restructuring that are left
unaddressed in the existing literature.
The reports reviewed raise issues as to whether
fragmentation of the industry has led to a loss of
governmental control, reduced local knowledge, decreasing levels of investment and maintenance, communication problems, as well as decreasing access to
competence and manpower in crisis situations. Of the
scientific studies reviewed, there seems to be a predominance of studies focusing either on the economic
aspects of the institutional restructuring or the technological vulnerability of energy systems. The economic
literature arguably rests on an assumption that organizational restructuring aimed at improving cost efficiency can be implemented without affecting the
reliability of the service provided, as issues of reliability
are rarely addressed in these publications. While most
of this research is primarily interested in market design,
there are several studies that point to regulatory
challenges, investment incentives and the like, which
may have important effects on reliability. Placing institutional aspects like market design at the centre of the
analyses, while highlighting important aspects of deregulation, nevertheless involves a blind spot towards the
organizational consequences of restructuring, as the
more ‘micro’ consequences lie outside this perspective.
Within the technical literature, reliability is, of
course, viewed as a predominantly technical issue.
This literature pays little attention to organizational
issues. This is neither surprising nor subject to any
criticism, as this line of research is preoccupied with
properties of the physical infrastructure more than the
organizations.
The literature discussing the interdependencies between infrastructures includes both a technical and an
& 2010 Blackwell Publishing Ltd.
215
organizational view on reliability, as already indicated.
However, there are very few empirical studies within
this line of research. This leaves several unanswered
questions. Most importantly, there is a lack of empirical
studies of how reliability can be upheld when it is no
longer the outcome of the processes within one single
organization. When reliability becomes a characteristic
of organizational networks rather than a property of
relatively closed systems, new questions about responsibility, functional and structural redundancy, organizational complexity and system knowledge come to the
surface.
Some of these questions are addressed in the studies
of ‘reliability networks’ and ‘reliability professionals’,
described above as the organizational perspectives on
the consequences of deregulation (De Bruijne, 2006;
De Bruijne et al., 2006; De Bruijne & van Eeten, 2007;
Roe et al., 2002; Schulman et al., 2004; Schulman & Roe,
2008). However, a closer look at the assumptions of
this literature reveal that many questions still remain
unanswered.
Firstly, all of the studies reviewed here focus almost
exclusively on reliability defined as the ability to keep
the grid up and running. Schulman and Roe (2008), for
instance, largely view reliability as the ability to balance
the generation of electricity with the load of energy
that is to be delivered to customers. However, the
ability to balance load and generation presupposes that
the electrical grid is working properly. This may not
always be the case. The electrical grid is among the
most vulnerable of all critical infrastructures, being
highly exposed to the risks of natural disasters, extreme
weather or terrorism (Perrow, 2007). Therefore, one
should certainly not preclude the option that, sooner
or later, situations will arise where parts of an electrical
grid go down.
The cognitive skills of reliability professionals may be
vital in maintaining control over the electrical grid, but in
the instances where this control is actually lost, the
reliability professionals described by De Bruijne and van
Eeten (2007) and Schulman and Roe (2008) are largely
put out of play. In such instances, there will be a shift in
focus from maintaining control to recovering control
over the grid, or rebuilding damaged parts of the grid.
This may require qualities and capabilities very different
from those of the cognitive skills of control room
operators. It will most likely demand the efforts and
cooperation of a number of public and private organizations, and may also demand huge amounts of manpower. Issues of recovery and crisis management in
deregulation processes have been discussed previously
by Srivastava and Samarajiva (2003). On the basis of two
case studies, one of which is of the energy sector in the
Indian state of Orissa, they conclude that disaster
preparation and response tend to be ignored in liberalization processes, both by the companies involved and
Journal of Contingencies and Crisis Management
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216
Stian Antonsen, Petter G. Almklov, Jrn Fenstad and Agnes Nyb
by the regulators. The fact that such issues also tend to
be ignored by researchers indicates that this should be
a prioritized topic for future research.
Secondly, there are some inherent aspects of institutional restructuring that may threaten the future of
‘reliability professionals’ and ‘networked reliability’. The
source of the special skills of reliability professionals is
that have had ‘long careers in many facets of electricity
generation, transmission and distribution’ (Schulman &
Roe, 2007, p. 45). These ‘long careers’ have given the
professionals a view of the big picture of how their
system functions. However, the very logic of restructuring strategies is to create independent organizations
that are, at least in principle, substitutable. This implies
that it will be increasingly difficult to see the big picture
of the electricity sector that covers a number of
different organizations with competing interests. The
future department heads, control room supervisors
and dispatchers and operators will therefore most likely
not have the same general and varied background as the
reliability professionals who reportedly hold the key to
the current reliability of the electricity systems of
Western societies. The potential loss of knowledge
and human capital in the industry has been stressed
previously by Amin (2003). In general, the fact that the
system seems to be able to operate reliably right now is
no guarantee that it will be operated reliably in the
future. The electricity industry is a sector with rapid
technological change and with very long time constants
(the changes introduced today will have effects that
span decades into the future). Therefore, the potential
threats to reliability in the future are just as important
as the factors that make reliability possible in the
present.
How reliability is to be maintained when the competence of reliability professionals might not be available,
or alternatively, how one should ensure the recreation
of this competence, should be an important question
for future research.
Thirdly, how is learning and human resources development upheld in an institutionally fragmented environment? This question is very much related to the
previous two issues. Institutional restructuring usually
implies a specialization in that each of the organizations
created is expected to focus on their respective core
competences. However, the reliability of the energy
system as a whole is reliant on the interfaces between
its different components. This means that the various
parts should have some knowledge of the tasks of the
other constituents of the system. How this can be
accomplished should be a subject for future research.
Fourthly, the relationships between the organizations
involved in the ‘value chain’ of the electricity sector are
governed by formal contracts regulating each actor’s
role and responsibilities. However, it is not altogether
clear how aspects of reliability are to be incorporated
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Volume 18 Number 4 December 2010
into this regime. As noted by Weick (1987), safety (and
reliability) is constituted by dynamic non-events that are
not easily explicated. For instance, social processes and
informal aspects of organization may be vital sources of
reliability, as emphasized by most HRO researchers
(e.g., Rochlin et al., 1987; Weick, 1987). These are
characteristics that are not possible to describe in a
contract or other formal documents. Thus, something
may be ‘lost in translation’ when reliability and the
capacity for crisis management are transformed into a
product that can be bought and sold. This too should be
a topic of future research.
The topics delineated here are not mutually exclusive. In some way, they all relate to two underlying
dimensions: first, the relationship between real-time
reliability, on the one hand, and recovery and crisis
preparedness, on the other, and second, the relationship between short- and long-term effects. Being interconnected in this way implies that they should not be
studied in isolation. Therefore, what is called for is a
broad, multidisciplinary approach to the study of the
effects of institutional restructuring. Also, the questions
raised here are not only of academic interest. As they
are all related to the issue of upholding reliability in
processes of institutional restructuring, the aspects
highlighted here could represent useful input in future
deregulation processes.
4. Conclusion
This article has assessed the current knowledge regarding the effects of organizational restructuring on the
operational reliability and emergency handling capacities in the energy sector, with the aim of identifying gaps
in existing research. The literature review has revealed
that there have been relatively few empirical attempts
to study this relationship. Among the attempts that do
exist, the research on so-called ‘reliability professionals’
is identified as the strand of research addressing this
issue most directly. This research provides key insights
into the understanding of the consequences of organizational restructuring and reliability and emergency
handling capacities. However, there are several gaps in
the existing research that should be addressed by future
research efforts in this field. These are:
How can reliability be upheld when it is no longer
the outcome of the processes within one single
organization?
How do liberalization processes affect disaster
preparation and emergency response capabilities?
How can the competence of reliability professionals
be recreated in fragmented organizational settings?
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Reliability Consequences of Liberalization in the Electricity Sector
How can general system knowledge be upheld
when organizations are increasingly fragmented
and specialized?
How are reliability and emergency preparedness to
be ensured when relationships between the actors/
organizations involved in the operation of critical
infrastructures become increasingly ‘commoditized’
and regulated by formal contracts?
These questions are suggested to be important areas
for future research. Research in these areas can yield
important insights into the strengths and weaknesses
introduced by institutional restructuring. As the organizational trends underlying restructuring processes are
not industry-specific, the findings of this study are highly
likely to be relevant for other infrastructural sectors
such as water supply and ICT infrastructures. The
questions raised here also have practical implications
and should be taken into account in future processes of
institutional restructuring.
Acknowledgements
The article is written as part of the project ‘Critical
Infrastructures, public sector reorganization and societal safety’ funded by the Norwegian Research Council.
We would like to thank Mark de Bruijne, Michel van
Eeten, Paul Schulman, Emery Roe and Matthew Jude
Egan for giving useful tips regarding the relevant literature. The two anonymous reviewers were also helpful
in suggesting the relevant literature. We would also like
to thank Gerd Kjlle at SINTEF Energy Research for
commenting on early drafts of the article.
Notes
1.
2.
3.
The processes of deregulation and restructuring of the
energy sector are part of a general economic trend.
OECD estimates suggest that that the OECD public
enterprise sector in 2000 was less than half the size it
was at the beginning of the 1980s (Gönenc et al., 2000).
Here, commoditization refers to the process towards
regarding a part of the service, as a discrete standardized
product that can be bought in a market. It implies
standardization of the quality requirements and leaving
price as the only significant variable. See Almklov and
Antonsen (2010) for a further description and discussion
of the concept.
Whether the ‘corporatization’ of the public sector actually increases efficiency has been debated; see for instance
Letza, Smallman, and Sun (2004). The deregulation of the
electricity sector also faces some hurdles related to the
interfaces between competitive activity and monopoly;
see Glachant and Perez (2007).
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4.
217
The role of government regulation in creating incentives
for additional investment in transmission networks has
also been noted by Crandall (2007).
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