Why are utilities monopolies

Well, what utilities would do is in the fine prints of those rate cases, they would slip in all the money they were paying the lawyers at the Utility Air Regulatory Group, which means that for many electric utility customers around the country, every time they pay their bill every month for the last four decades potentially, a few cents out of that bill was going to pay lawyers to sue the EPA to attack rules that are designed to keep us safe.

You usually need a lawyer to do it. John, it goes back to your original point about the problems with having these monopoly electric utilities. Are you dying to tell Chris Mitchell what he could do better? Wanted to share some love? Email us at podcast ilsr. You can also send your love with a small donation. If you listen to other podcasts, you might hear about a mattress company or a meal delivery service. Instead, please consider making a donation to ILSR.

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We also value your reviews on Stitcher, iTunes, or wherever you get your podcasts. Thank you so much. Okay, were back. How do you find out all this stuff about UARG or whatever these secretive groups that utilities are a part of or the way that they are spending their money or our money to undercut this stuff? How does Energy and Policy Institute understand this? David Pomerantz: Well, John, a lot of the answers are hiding in plain sight.

One of the most, I think, powerful things unfortunately that utilities have done over the years is convinced us all not to pay attention to them. One of the things we do is come through that and try to find examples of where utilities are hurting people, hurting their customers, hurting the environment, and just try to translate that for people. A lot of this stuff is pretty wonky.

It can be pretty technical. We are not technical experts the way that… I think, John, you are a great resource on a lot of this stuff, and there are many others out there. But we have tried to carve out a role for us to explain what utilities are doing and then look for the proof.

That includes looking at how utilities spend money in political campaigns. John Farrell: I want to come back to something you were talking about public utilities commission, public service commissions. I think it was in our Arizona example where unfortunately you were describing how the utility has had a lot of influence over picking the commissioners that are supposed to oversee it. All the states that have monopoly utilities have some sort of public body like this, a public service commission, etc.

For example, a lot of what EPI was covering, I think it was last year, was around Dominion Energy in Virginia, which has been up to any number of high jinks around not refunding money to customers. David Pomerantz: The first thing that people need to understand is in their state how those public utility commissioners are chosen, and there are a few ways.

Then there are about a dozen states where the utility commissioners are elected by the public. Then there are a couple of states that have some different things going on. So in Virginia is one that you named where, and this is relatively unique, the public utility commissioners are actually chosen by the state legislature. To your example, unfortunately over the years Dominion for many years running has been the very top campaign contributor to legislators in Virginia. But, in all these places, once you understand that, it does mean that people have a chance to do something about that.

For these public utility commissions, I think kind of the first thing we need to do is put the public back into the public utility commission. John Farrell: Do you have … I think David, it would be really nice to be able to share one of those examples here, so people get a sense for hey, if I actually do something in this space, there is a precedence that things will improve.

One is in Arizona where they have an elected utility commission, and a commission that has been really the epicenter of a whole lot of scandal over the last four or five years. The company who I mentioned earlier, Arizona Public Service, we recently learned spent over 10 million dollars in dark money. Money basically routed through groups that they tried to keep secret back in to pick the very regulators that made those anti-rooftop solar decisions a couple years later.

Since natural monopolies use an industry's limited resources efficiently to offer the lowest unit price to consumers, it is advantageous in many situations to have a natural monopoly. For example, the utility industry is a natural monopoly. The utility monopolies provide water, sewer services, electricity transmission, and energy distribution such as retail natural gas transmission to cities and towns across the country.

The start-up costs associated with establishing utility plants and the distribution of their products are substantial. As a result, the capital cost is a strong deterrent for potential competitors. Also, society can benefit from having utilities as natural monopolies. Multiple utility companies wouldn't be feasible since there would need to be multiple distribution networks such as sewer lines, electricity poles, and water pipes for each competitor.

Since it's economically sensible to have utilities operate as natural monopolies, governments allow them to exist. However, the industry is heavily regulated to ensure that consumers get fair pricing and proper services. Another example of a natural monopoly is a railroad company. The railroad industry is government-sponsored, meaning their natural monopolies are allowed because it's more efficient and the public's best interest to help it flourish. Further, the industry can't support two or more major players given the unique resources needed, such as land for railroad tracks, train stations, and their high-cost structures.

However, just because a company operates as a natural monopoly does not explicitly mean it is the only company in the industry. The company might have a monopoly in one region of the country. Cable companies, for example, are often regionally-based, although there has been consolidation in the industry creating national players.

More modern examples of natural monopolies include social media platforms, search engines, and online retailing. Companies such as Facebook, Google, and Amazon have built natural monopolies for various online services due in large part to first-mover advantages, network effects, and natural economies of scale involved with handling large quantities of data and information.

Unlike traditional utilities, these types of natural monopolies so far have gone virtually unregulated in most countries. A natural monopoly usually exists when it's efficient to have only one company or service provider in an industry or geographic location. Companies that have a natural monopoly may sometimes exploit the benefits by restricting the supply of a good, inflating prices, or by exerting their power in damaging ways other than though prices.

For example, a utility company might attempt to increase electricity rates to accumulate excessive profits for owners or executives. Or an internet service platform might use its monopoly power over information, online interactions, and commerce to exercise undue influence over what people can see, say, or sell online. Photo courtesy of Duke Energy. Most states allow investor-owned utilities to have monopolies on energy, and the states have extensive power to regulate them.

The choices utilities and regulators make, such as whether to focus on conventional fossil fuel infrastructure or renewable energy, can have massive ramifications on the environment, types of available jobs and monthly electric bills.

High electricity costs hit underprivileged households the hardest. Low-income, rural households spend 9 percent of their annual income on energy, compared to the national average of 3. Nearly one in three American households struggled to meet their energy needs in , according to a September U. Energy Information Administration report. The prices that regulated, investor-owned utilities like Duke Energy can charge customers are set by state agencies.

This incentivizes utilities to spend as much money as possible on new projects, whether or not those projects are of value to the public. This growth-driven model worked in the 19th and 20th centuries as the nation was building the current grid, but times have changed.

Energy demand has fallen, partially due to energy efficiency; residential electricity sales per person in were down 7 percent from their peak in , according to the U. Energy Information Administration. Additionally, the world is becoming more aware of the climate dangers posed by fossil fuels — NASA states that was the second hottest year on record after The price to install solar has fallen by more than 70 percent since , according to the trade group Solar Energy Industries Association.

Smart technology has led consumers to expect more from their phones, homes, televisions and now the grid. For example, demand-response systems allow ratepayers to tell their electric utility to cycle their water heaters off during peak electricity usage hours in exchange for a lower utility bill. These changes point to a more renewable, flexible and consumer-focused energy system. But big industries can be slow to change, especially without prodding from regulators. During that time period, the Duke subsidiaries plan to add 3, megawatts of solar power.

Dominion Energy Virginia — a subsidiary of Dominion Energy, the fourth largest utility in the nation as of April — plans to build at least 4, megawatts of new solar capacity by , and is developing a community solar pilot program in Virginia click here to read more.

However, the utility also plans to build at least eight new gas-fired plants totaling 3, megawatts in the same time period. Jim Warren, executive director of NC WARN , a nonprofit clean energy advocacy organization, states that utility companies are furthering the climate crisis by building more fracked gas infrastructure. Barriers to entry are no longer substantial except regulatory barriers. Transaction costs are no longer high. There is no longer any justification for vertical integration or "bundling" of electricity services, even at the distribution level.

The traditional trade-off — high reliability for low innovation — no longer makes sense. Thanks to ICT, reliability can be maintained by smart coordination of third parties rather than overbuilding by a single party. And what's needed now more than ever, not only for the consumer's benefit but to achieve social goals like decarbonization, is innovation. And the best tool we know of to achieve rapid innovation is a well-structured, well-regulated, competitive market.

In other words, recent technological changes argue for finishing the work of electricity unbundling, not only at the generation level but at the distribution level as well. It's time to open electricity up and get it moving again.

What might the utility of the future look like, if regulators took the imperative to unbundle seriously? We'll grapple with that thorny question in my next post. Our mission has never been more vital than it is in this moment: to empower through understanding. Financial contributions from our readers are a critical part of supporting our resource-intensive work and help us keep our journalism free for all.

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Power utilities are built for the 20th century. Reddit Pocket Flipboard Email. Utilities, basically. Shutterstock For all the recent media attention to power utilities, most coverage has been about symptoms rather than root causes.

This is the wrong idea. Shutterstock Changing that regulatory structure is a daunting prospect, for a whole range of reasons. It's time to tune in. When utilities got started, giant vertical monopolies made sense The earlyth-century history of electricity and electric utilities is fascinating , but we're not going to dwell on it, except to say that it produced two key technologies.

This created two underlying structural conditions for the electricity market: extremely high barriers to entry , because big power plants and long-distance transmission lines were very expensive enormous economies of scale , because the average cost of delivered power got cheaper with every new expansion of demand Those two conditions yield what economists call a "natural monopoly. Thomas Edison National Historic Park This model was designed for one purpose above all: to electrify the country.

Giant vertical monopolies have stopped making sense Let's take a quick detour into economic theory. Kiesling identifies two key factors: economies of scale , which create high barriers to entry, usually in the form of high fixed costs high transaction costs , i.

Put colloquially, getting someone else to do a task or make a part, etc. Shutterstock That is, sadly, still the way utilities find out stuff in many places. The state of utility restructuring, circa Consumers Digest While wholesale competition made it to 20 states, retail-side competition made it to almost none, and only incompletely.

In electricity, the benefits of competition now exceed the benefits of monopoly Utility regulations haven't changed much in the past decade. Shutterstock That's a lot of buzzwords at once — I'll spell them out more fully in future posts — but the upshot is that electricity service is going to evolve from a pure commodity business electrons, dumped into your home with a limited number of participants to a bustling market that involves a wide range of differentiated products and services, offered by a wide range of participants of all sizes.

But here's the important thing, the nut graph, so I'm bolding it: In electricity, economies of scale no longer hold. Delivered Fridays. Thanks for signing up! Check your inbox for a welcome email. Email required.