Effective Regulation of Public Utilities

            Whether it’s 100 degrees or 20 degrees, men and women are outside—digging trenches, laying pipes, flagging traffic, climbing poles, repairing transformers.  It’s difficult, dangerous work.  For years I have driven, biked, walked, and run right by these hard-hatted, orange-vested workers, not thinking twice about their pay and their treatment.  Now, as result of working with the Laborers’ International Union of North America and its D.C-area affiliate, I've learned a few things.

            Every franchised utility has an obligation:  to provide service cost-effectively, reliably, and safely.  Utility service is capital-intensive; so utilities need to get the right equipment and treat it right.  But utility service is also labor-intensive; so utilities need to get the right workers and treat them right.

Utility workers are at risk

            Two trends—outsourcing and multiyear rate plans—are converging to put utility service and utility workers at risk.  With outsourcing, utilities are replacing some of their full-time employees with temporary workers hired by contractors.¹  With multiyear rate plans, utilities can keep savings from cost-cutting for longer periods.  Combined, these practices can mean utilities earn more while workers earn less.  Why?  Because any rate plan that lets a utility keep the excess of projected cost over actual cost rewards the utility for contracting out work to companies that underpay their workers.  And if the contractors can also keep the excess of projected cost over actual cost, the incentive to mistreat is amplified. 

            Worker mistreatment takes multiple forms:  illegal underpayment (such as payments below minimum wage and failure to pay overtime); legal underpayment (paying workers below their value); and insufficient sick leave, vacation time, and training time.  We want utilities to keep costs down.  But a utility's obligation to minimize its customers' costs is always subject to other constraints, both legal and practical.  Just as a cost-minimizing utility may not use child labor, it may not underpay its workers, or tolerate contractors that mistreat their workers.

            Outsourcing to specialty companies, and outsourcing when labor needs temporarily exceed internal staff, can be cost-effective.  But when outsourcing is motivated by earnings rather than cost-effectiveness, we risk mistreating workers.  Mistreating workers leads to productivity losses, errors, and injuries—problems that affect utility service both now and in the future.  Those effects make a utility’s labor practices legally relevant to utility regulation.

            If a utility causes contractors to compete on price, with no standards for worker treatment, contractor competition can lead to contractor mistreatment.  Labor supply is often inelastic.  For a contractor's other needs, like equipment and rent, supply is relatively elastic.  If the contractor doesn’t pay what suppliers want, they’ll sell to someone else.  But for workers—especially non-union workers with limited options (due to ethnicity, race, immigration status, language, childcare or eldercare responsibilities, or transportation costs), their supply is relatively inelastic.  So the contractor can lower its workers’ pay, treat them poorly, and still get the workers it needs.