“Truth is, we don’t need utility regulation at all…. Rather than solving problems utility regulation creates competing interest groups that lobby to gain advantage and handicap competitors. The whole monopoly-regulatory system, root and branch, needs to be abolished.”
It was another day of hearings at the Georgia Public Service Commission for Georgia Power’s 2013 rate case. The various representatives for the fifteen or so parties to the case are filing into the hearing room. Usually I just endure. But today I take mental notes; this is worth penning to share.
The Players (and me)
There’s some camaraderie among the familiar but antagonistic players from previous cases. There’s long tall Alan, who will be representing big retail power users. There’s Terri with a smile and a ready joke. Woe be the man that blushes, she will tease him unmercifully.
Kevin, the top utility lawyer, looks old. Good thing he’s training children to take his place.
Here comes Everett, smiling and shaking hands with individuals who contribute to his campaign fund. Doug Everett is the dumbest Commissioner. This is quite a distinction considering the formidable competition he faces for the title. There are five elected Commissioners in Georgia; and they are all power-hungry, deal-making politicians with little concern for electricity customers. The regulated utilities are their friends, and it shows.
This case has attracted a well-funded, hard-left team of Green Lobbyists. They have grim looks on their faces. To them this is serious business. They have a world to change using the power of government. They can forgive all the corruption of the regulatory process as long as they get to advise on policies. In fact the green lobby favors big government dictates. They call it “market failure” when energy users don’t do things these busy-bodies think they should.
The utility has to spend a lot of money on these cases for lawyers and expert witnesses. It would not be so costly if they presented an honest case with reasonable requests – but they won’t do that – hence the extra effort to defend exaggerations, phony numbers and outrageous profit level demands. The other parties will criticize the Company’s assertions and evidence.
The Company will back off from their initial inflated request. The PSC will put out a press release saying “Commission reduces Georgia Power Rate Request.” It’s a big game. The Commission wants a huge number that can be cut and still give Georgia Power profits far beyond what they could obtain in a competitive market.
There are other special interest groups in the case. Some associations are just making a nominal appearance so they can tell their membership how hard they fought for their interests, all the while kissing up to Georgia Power in hopes of some small favor. By far the most powerful group is the industrial customers who are known for the backroom deals they make with the utility.
I’m part of a small energy management outfit, and I try to keep my customers informed of utility and regulatory policies. I get in a few of these regulatory proceedings and advocate reforms that would make electricity service a little more user-friendly. I cannot say the effort has much influence.
In fact, I’ve been watching utility regulation in Georgia since 1968; and it’s getting worse despite my sound and compelling advice.
There is a court-like atmosphere to regulatory hearings. Witnesses take the stand and testify. While the witnesses all swear to tell the truth, there are more lies told on the PSC witness stand than any other one place in Georgia.
Here the myth of natural monopoly is considered the justification for the whole system. Fuzzy concepts of social compact, obligation to serve and balance of interests are given various meanings to suit the argument.
Then there are such non-market terms as construction-work-in-progress, revenue decoupling, cost trackers, rate plan and forward test year. There’s a bunch of diseased sacred cows wandering in the great wasteland of the regulatory psyche.
At least Commissioner Stan “The Bully” Wise is not here today. Sitting up there on a raised judge-like bench with everyone calling each other mister, the Commissioners get more respect than they deserve. Stan loves to berate witnesses and lawyers who can’t fight back.
Why This Circus?
The utility regulatory system is perpetuated by an ignorant electorate, uninformed by the media allowing a corrupt group of politicians to continue to protect and expand the profits of the established monopolies. The politicians are like a couple of children playing a video game where the images are fun, but in this case the guns are real and exploding parts of the economy.
They have no idea how much damage they do to the free enterprise system. Nor do they care. Brokering between lobbying groups and exercising power are what it’s all about to them.
When will the people get fed up enough with the institution of utility regulatory to throw these rascals out? So far, despite how justified, there is little public outrage and the rascals know it. However, it can happen. Whole empires have fallen when the ruling elite lose their legitimacy.
Perhaps the dissatisfaction displayed for some other government institutions will spread. In the meantime we must not only hold out the vision of the free-market alternative, but we must also rain criticism and ridicule on the existing regime. The flaws must be emphasized, the system challenged, and undermined.
Truth is, we don’t need utility regulation at all. Competition can work here just like in other parts of the economy. Political meddling in the economy only reduces our standard of living. Rather than solving problems utility regulation creates competing interest groups that lobby to gain advantage and handicap competitors. The whole monopoly-regulatory system, root and branch, needs to be abolished.
Jim, you do good work. Do not let despair lead to Chief Seattle Syndrome.
A free-market energy czar (at least for a day before declaring his/her job insolvent) would instruct the parties to devise regulatory ‘exit contracts’ as a transition to the free world. These legal agreements would be okayed as the final act of the commission’s involvement with electricity.
In an article entitled, A Regulatory Compact Worthy of the Name, Peter Bradford cites President Cleveland’s Attorney General Richard Olney advice to a group of utility executives in 1892 that regulation “can be of great use…. It satisfies the public clamor for a government supervision,.. [but].. at the same time that supervision is almost entirely nominal. The part of wisdom is not to destroy the Commission but to utilize it.”
What would the truly free-market alternative look like? Is the market-based solution only for electric generation, or would it be able to provide an alternative to regulated electric transmission, also?
Marvin Olasky’s chapter on the early battles over regulated utilities was my first introduction to the topic. I wrote a 1997 article here (when utility regulation was considered for national high school debate topic): http://www.mackinac.org/28?print=yes . And Larry Reed wrote in The Freeman here: http://www.fee.org/the_freeman/detail/deregulation-coming-to-a-utility-near-you#axzz2meksViYO
What a bizarre point of view. How exactly is competition supposed to constrain Georgia Power’s market power? How many other companies have power lines into your house? Zero. Take away the regulators, and Georgia Power could jack up your power bills, carefully calibrating their rape of your bank account to ensure that competitors can’t afford to build parallel lines to woo you away. And even if such entry could happen, do we really want to have two, three, four sets of power lines running along each street? No thanks; one set is ugly enough.
There are times — hold on to your hat — where markets can’t work. Competition depends on the interaction of many willing buyers and sellers. There are some situations where that just isn’t going to happen, and electric transmission & distribution is a good case in point.
Could Georgia do better than its current chummy regulatory scheme? You bet. There’s no reason why *generation* needs to be a monopoly service with regulated prices. In fact, in most of the US it’s not. Should retail supply be a monopoly? It needn’t be; Texas forced all the T&D utilities to divest all their retail accounts a decade ago, and other states at least allow competition, if not require it.
But your thesis that utilities can be completely unregulated is naive. There is no potential competition to constrain the pricing of the wires company. Without competition, markets cannot be relied on to deliver good outcomes.
Robert S.
Actually, there is a way out of the unfair bargaining position as you posit it between the big utility and little homeowner regarding single-provider transmission (if not commodity sales).
First, the Commission should void the exclusive franchise law. This allows potential entry.
Second, the regulatory authority instructs the utility and consumer groups to negotiate a long term ‘exit contract’ where the ‘rule of law’ regulates rather than the Commission.
Then, upon expiration of the exit contract, consumers will be organized to create a ‘monopsony’ situation of Big Buyer and Big Seller.
The private parties get to split the huge waste created by public utility regulation, and incentives are in the right place as negotiated/renegotiated in contracts. No more commission. No more lobbyists. Less politicization.
Not perfect, but better than regulation and coercion…
There are over 90 distributors of electricity in Georgia. Beside the regulated big utility there are 42 cooperatives and about 48 municipal systems. These distributors own and share the high voltage transmission system in common. This similar to the sharing pipeline ownership by retailers of petroleum products. Rational actors in markets would rather share than duplicate infrastructure.
Under this shared transmission system new large customers with a connected load of 900kW get to chose their power supplier. Our company assists in these negotiations and we usually seek three bids; Georgia Power, a coop and a muni. The supplier’s territory can be far from the customers’ location. There is vigorous competition between potential suppliers with marginal-cost pricing being the main tool for winning customers.
The reforms we need are: to drop the threshold of 900 kW to allow all customers choice; to allow this choice to existing customers and to allow continuous choice instead of a one-time choice. This could be done with only a few changes in the existing statutes.
Then we put the regulators on the street looking for honest work. Upon sale of the regulators’ office to the private sector we will have a symbolic bonfire and burn piles of regulations. The high point of the celebration will be the unveiling of an historical marker with a warning to future generations not to repeat the mistake we have endured.
It can be done. Here’s a quick intro on Alberta’s de-regulated power generation market.
http://www.auc.ab.ca/market-oversight/albertas-energy-market/Pages/default.aspx
Alberta companies now export the expertise they have built in large-scale, market driven energy markets that used to be owned by state monopolies.