Effects of Deregulation on Safety: Implications Drawn from the Aviation, Rail, and United Kingdom Nuclear Power Industries

247 Pages·2003·11.595 MB·English

by  Vicki Bier, James Joosten, David Glyer, Jennifer Tracey, Michael Welsh (auth.)

EFFECTS OF DEREGULATION
ON SAFETY:
Implications Drawn/rom the Aviation,
Rail, and United Kingdom Nuclear
Power Industries
EFFECTS OF DEREGULATION
ON SAFETY:
lmplications Drawnfrom the Aviation,
Raii, and United Kingdom Nuclear
Power lndustries
Vicki Bier
University of Wisconsin-Madison
US.A.
James Joosten
Connect-USA.com LLC
US.A.
David Glyer
Jennifer Tracey
and
Michael Welsh
Christensen Associates
US.A.
SPRINGER SCIENCE+BUSINESS MEDIA, LLC
Effects of deregulation on safety: implieations from the aviation, raii, and
United Kingdom nuclear power industries / Vieki Bier ... (et al.).
p.em.
Includes bibliographieal referenees and index.
ISBN 978-1-4613-4991-4 ISBN 978-1-4615-0259-3 (eBook)
DOI 410.1007/978-1-4615-0259-3
1. Deregulation--Great Britain--Case studies. 2. Industrial safety--
Great Britain--Case studies. 1. Bier, Vieki
HD3616.G72 E37 2002
363.11 "2"0941--de21 2002040685
Copyright © 2003 by Springer Science+Business Media New York
Originally published by Kluwer Academic Publishers in 2003
Softcover reprint ofthe hardcover Ist edition 2003
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TABLE OF CONTENTS
Page
Table of Contents v
Acknowledgments and Disclaimer vii
1. Introduction 1
2. Aviation Deregulation Literature Review 11
3. A viation Industry Interviews 43
4. Rail Deregulation Literature Review 61
5. Rail Industry Interviews 85
6. United Kingdom Electricity Supply Industry Deregulation
Literature Review 111
7. United Kingdom Electricity Supply Industry Interviews and
Safety Audits 131
8. Relevance of Case Studies to the U.S. Nuclear
Power Industry 173
9. Summary and Conclusions 215
References 227
Index 241
ACKNOWLEDGMENTS
The authors wish to acknowledge the staff of the U.S. Nuclear
Regulatory Commission Human Factors Branch (especially Paul Lewis, the
project monitor) for their support of this research, and for providing timely
assistance in obtaining needed information. We would also like to
acknowledge the contributions of all the interviewees who generously shared
their time and expertise to help us understand the effects of deregulation and
restructuring on their industries. They include: John Baker, Norman
Callaghan, Anne Campbell, Michael Harrison, Peter Haslam, John
McNamara, and Jeremy Western of British Energy; Alan Bleeze, Michael
Jeal, Craig Reiersen, and J. L. Summers of the United Kingdom Health and
Safety Executive; Pearl Marshall (a United Kingdom trade press
correspondent); and numerous anonymous representatives of trade unions,
safety regulators, and the U.S. aviation and rail industries.
The case study of the United Kingdom electricity supply industry
draws heavily from the masters thesis of James Joosten (Department of
Engineering Physics, University of Wisconsin-Madison), titled The Impacts
of Restructuring the Electricity Market on Nuclear Safety: Lessons Learned
from the United Kingdom. Finally, the authors acknowledge Lesley Klein for
her help and patience in typing and formatting this manuscript.
DISCLAIMER
This report was prepared as an account of work sponsored by an
agency of the United States Government. Neither the United States
Government nor any agency thereof, nor any of their employees, makes any
warranty, expressed or implied, or assumes any legal liability or
responsibility for any third party's use or the results of such use, of any
information, apparatus, product, or process disclosed in this report, or
represents that its use by such third party would not infringe privately
owned rights. The views expressed in this report are not necessarily those
of the U.S. Nuclear Regulatory Commission. In particular, the
recommendations presented are those of the authors, not of the U.S. Nuclear
Regulatory Commission.
Chapter 1
INTRODUCTION
1.1 BACKGROUND
Safety is widely recognized to be a paramount concern in the nuclear
power industry. Currently, extensive changes are taking place in the U.S.
nuclear industry due to economic deregulation of electricity. Therefore, it is
important to understand the potential effects ofe lectricity deregulation on safety.
The purpose of this book is to shed light upon this issue.
We begin this chapter with a brief overview of the concept of economic
deregulation, as implemented both in the U.S. electricity industry and in other
industries. We then discuss the approach taken in this book to understanding the
effects of deregulation on nuclear power safety. In particular, our approach rests
on a detailed review of how economic deregulation has affected safety in three
other industries with important similarities to the U.S. nuclear power
industry-namely, the U.S. air and rail industries, and the nuclear power industry
in the United Kingdom (U.K.).
1.2 HISTORY OF DEREGULATION
Many services that we think of as being traditional "utility"
services-such as electricity, natural gas, and telephone-have been subject to
economic regulation. This regulation is primarily on the prices and profits of
private firms, but may also encompass service characteristics, and typically
places restrictions on the entry of firms to the industry. An alternative form of
market control is to supply the service using government-controlled or
government-operated firms. In the U.S., private firms have provided most utility
services, but in other countries (including much of Western Europe), such utility
services have commonly been provided by government-owned organizations.
Other industries-such as trucking, aviation, and rail-have also been subject to
economic regulation, even in "free market" economies such as those of the U.S.
and Western Europe.
Economists have spent considerable effort analyzing the incentives
created by economic regulation, and the economic rationale for regulation. See
for example Kahn (1970) for a definitive treatment of regulation at the beginning
of the deregulation movement, and Joskow and Noll (1981) for an overview of
regulation in theory and practice. One widespread conclusion from this body of
2 Introduction
work has been that economic regulation is associated with substantial costs, in
the form of both inefficient production processes and an inefficient mix of
services. Further, deregulation diminishes the incentives to innovate, which in
the end can impose even greater costs. Many economists have therefore argued
that market provision of services can be significantly more efficient than
economic regulation and/or government ownership.
By the 1960s and 1970s, there was considerable pressure for reform and
deregulation of economically regulated industries, especially in the U.S., based
largely on a growing recognition of the costs of regulation. This led eventually
to deregulation of the rail, trucking, aviation, natural gas, petroleum, and
telecommunications industries. The move to deregulation cut across political
J
lines. As noted by Weiss and Klass (1986, pg. 1), "Three successive
presidents-Nixon, Ford, and Carter-took active roles in the regulatory reform
movement, each sending numerous proposed bills on the topic to Congress.
Reagan also supported it.. . [although] most of the big changes had already been
made when he reached office." The process of deregulation continued under the
administrations of Presidents Bush and Clinton.
The experience in deregulated industries has shown that deregulation
creates both winners and losers. However, the consensus among economists is
that, overall, the various experiments with deregulation have been beneficial. A
number of studies of deregulation (see for example Weiss and Klass, 1986;
Crandall and Ellig, 1997) have estimated the savings to be substantial; Crandall
and Ellig estimate that the savings in the U.S. have amounted to tens of billions
of dollars per year for each of several deregulated industries. Moreover, post
deregulation assessments of the economic benefits have generally been at least
comparable to the ranges of benefits expected beforehand, and in several cases
significantly greater (Crandall and Ellig, 1997).
Deregulation of electricity service in the u.S. has come somewhat later
than deregulation of the other industries discussed above; several factors helped
to pave the way for the eventual deregulation of U.S. electricity markets (see for
example a summary by U.S. Department of Energy, 2002a). First, although
slower than technological changes in the airline and telecommunications
industries, changes in generation technology (especially the development ofless
expensive and more efficient gas turbines) reversed the trend towards increasing
economies of scale at the level of individual generators.2 This allowed for
increased competition in wholesale electric power markets. Second, deregulation
and privatization of electricity markets elsewhere in the world (including the
u'K., Norway, Australia, and New Zealand) demonstrated the feasibility of
restructuring and deregulation. This was important, since economic regulation
of electricity markets in the U.S. is more complex than regulation of most other
industries. In particular, electricity regulation in the U.S. is split between state
public utility commissions and the federal government. The states have been
Effects of Deregulation on Safety 3
reticent to cede their regulatory powers, so the federal government has been
unable to act independently and unilaterally to restructure electricity markets.
Several institutional and legal changes were important building blocks
towards electricity deregulation in the U.S. First, passage of the Public Utilities
Regulatory Policies Act (PURP A) in 1978 allowed non-utility generators to
construct "qualified" cogeneration facilities that could sell power to the electric
utilities. PURP A provided a mechanism for independent power producers to
enter the wholesale electricity market, facilitating the development of the sorts
of non-regulated generating companies that would eventually become the
cornerstone of a competitive market (although the criteria for becoming a
qualified facility were quite restrictive). In addition, many states implemented
PURP A in ways that increased electricity prices for customers (in some cases
substantially), increasing the incentives for deregulation. In fact, the states that
had artificially high prices due to such problems (for example, California, New
York, and most of New England) were among the first to move toward
deregulation.
Subsequently, the Energy Policy Act of 1992 gave the Federal Energy
Regulatory Commission (FERC) expanded authority over wholesale power
markets, contributing to deregulation of the wholesale markets.3 The FERC has
utilized its authority to gradually "un-bundle" the more competitive market
functions (especially electricity generation) from the transmission and
distribution functions, which retain more of the characteristics of a natural
monopoly.4 In particular, the FERC issued a sequence of important regulations
that further opened the wholesale power markets. In 1996, FERC Orders 888
and 889 improved the access ofi ndependent power producers to the transmission
network, and helped put them on a more even footing with the electric utilities.
Several years later, Order 2000 provided for the establishment of "regional
transmission organizations" (RTO's) to operate the regional transmission
networks independently ofthe electric utilities, even when the utilities actually
own the networks. (Prior to Order 2000, many utilities had been operating their
transmission networks in ways that favored their own customers and generating
facilities at the expense of other generating companies, circumventing the intent
of previous FERC actions.) Most recently, in July 2002, FERC issued a notice
of proposed rulemaking on standard market design to restructure the wholesale
electricity market in the U.S., simultaneously ensuring fairer access to the
transmission grid and reducing the ability of generating companies to exercise
monopoly power (Burkhart, 2002).
In combination, the various FERC orders provided the impetus for
deregulation in the U.S. wholesale electricity market, and aided in deregulation
of state-regulated retail markets. Note that the FERC cannot actually require
retail competition, since the retail markets are the purview of state public utility
commissions. However, in many states, utility commissions or legislatures have
introduced retail competition, in which individual consumers or firms can choose
4 Introduction
their own electricity suppliers rather than purchasing all electricity from local
(regulated monopoly) utility companies. Typically, these state actions have also
resulted in divestiture of some or all of the generation facilities owned by the
existing utilities.
Thus, by now, deregulation of both wholesale and retail electricity
markets in the U.S. has been evolving for the past decade, with wholesale
deregulation generally preceding retail deregulation. National legislation and
FERC orders implemented many aspects of wholesale competition and
deregulation in the mid 1990's; many states (including California, New York,
most of New England, Pennsylvania, Ohio, Illinois, and Texas) have since
implemented at least partial retail competition, beginning with California in 1998
(U.S. Department of Energy, 2002b).
Most recently, problems with the restructured electricity markets in
California (see for example Brennan, 2001) have halted progress towards
deregulation of retail electricity markets in many states that had not already
adopted or fully implemented relevant legislation. However, many economists
believe that the fundamental arguments for deregulation are still sound.
Therefore, FERC restructuring of wholesale electricity markets is continuing.
Retail markets will likely also see additional deregulation after state legislators
and regulators have assimilated the lessons from the California experience, and
have confidence that they can design deregulated electricity markets to avoid
problems similar to those that occurred in California.
1.3 RATIONALE FOR THIS STUDY
It is reasonable to believe that the effects of economic deregulation of
electricity generation will be seen across a broad spectrum of safety-related areas
in the U.S. nuclear power industry. The objective of this book is to provide a
comprehensive overview of those consequences of electricity deregulation in the
U.S. that have the potential to affect the risk of nuclear power plants. In
particular, we were interested in the effects of deregulation on:
1) Equipment failure rates, and the quantity and quality of maintenance
(e.g., the level of expenditures on preventive maintenance);
2) Equipment aging;
3) Financial pressures;
4) Factors affecting human error rates and experience levels (e.g.,
downsizing, use of overtime and contractors, loss of institutional
memory, employee morale, and training);
5) Labor relations;
6) Mergers, acquisitions, and other major management changes; and
Effects of Deregulation on Safety 5
7) Levels of investment in support functions (such as engineering and
industry bench-marking).
For example, while deregulation can increase a company's motivation
to avoid costly safety problems, it can also result in reduced spending that may
increase safety problems (such as equipment failures and human error).
Economic deregulation also reduces the ability of nuclear power plant owners
and operators to pass along costs to ratepayers for safety-related activities,
thereby potentially influencing decisions on plant upgrades and safety
improvements. The impacts of economic deregulation on government safety
regulation were also reviewed.
Some of the variables of interest (e.g., reorganization of plant
responsibilities after a merger or acquisition) may have only temporary effects
on safety. Although temporary, such changes could nonetheless have significant
safety implications in the short term. Other effects of deregulation on variables
relevant to safety (e.g., reduced staffing levels) are likely to be permanent
features of a restructured and more competitive power generation industry.
We recognize that changes in the areas listed above will not necessarily
cause increases in safety problems (such as equipment failures or human errors)
if managed effectively. For example, increased use of risk analysis might help
nuclear power plants cut costs while maintaining or enhancing safety, by
focusing attention and resources on the most safety-critical systems, structures,
and components. Similarly, consolidation of existing nuclear power plants into
the hands of specialized nuclear operating companies could increase the levels
of expertise available to deal with difficult issues at each plant. However, in our
discussion, we emphasize those issues with the potential for negative effects on
safety, due to the importance of maintaining safety in this industry.
1.4 APPROACH
A historical case study approach was adopted, focusing on the effects
of economic deregulation in other deregulated and/or restructured industries that
are chronologically ahead of the U.S. nuclear power industry with regard to
deregulation. Thus, we collected and evaluated evidence regarding the effects
of deregulation in several case study industries, using both literature reviews and
selected interviews with industry representatives. We then assessed the safety
implications of those observed effects for the U.S. nuclear power industry.
This approach makes it possible us to move beyond speculation about
the possible adverse safety consequences of deregulation, to identify situations
in which particular adverse safety consequences actually occurred. We hope that
the findings and recommendations in this book will allow nuclear power plant
owners, operators, and safety regulators to anticipate any adverse effects of