Y’all are so on the ball, I can’t string out any kind of argument, can I? In the comments to yesterday’s post about reputation mechanisms and the “Scarlet Letter” in electric reliability, jdr points out that “customer choice, where it exists, generally applies to the supply side rather than to the operations side, where customers generally have little choice.”
Yes, precisely. In a world where customers receive only service quality information, and where that’s what they are likely to care most about, is it realistic to think that end-use customers are going to provide sufficient enforcement for this reputation mechanism to work well? Probably not. So in a system of transparent operations information provision for the development of a reputation mechanism, the question then becomes: who are the customers? Who are the people who have the best incentives to follow Chairman Wood’s inveighing them to check the NERC reports? Because without a clear set of customers who have a clear incentive to check on the performance and change their behavior accordingly, the reputation mechanism loses its effectiveness.
A policy change that would encourage at least some customers to care more about operations violations would be to enable customers to, as Mike says, have price/reliability options. If I’ve paid for a particular quality of service and your operations don’t enable you to deliver that quality, you’d better bet your bipee that I’d hightail it over to the NERC webpage and check out your performance. Even better, I’d do so before choosing which among several competing retail electricity service providers would get the honor of my business. That good incentive on my part provides a deterrent incentive to the electricity service provider.
One challenge to this vision will be the fragmented supply chain. The retail provider would not necessarily be the entity whose operational performance would be found in the NERC data. If that’s the case, then this could evolve into a system where the actual customer for the NERC data and for whom the reputation mechanism would be the most effective would be the retail provider, not the end customer.