Unnatural Monopolies: Do power companies have to be crony capitalists?

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A well done article. Utilities are a sticky economic wicket. Making utilities more competitive should be a policy priority across the United States.

(From R Street)

When Lord Acton warned about the corrupting tendency of power, he wasn’t thinking of electricity. The British statesman nonetheless wouldn’t have been surprised by the case of Michael Peevey, former president of the California Public Utilities Commission, which regulates electric utilities in the state.

In 2013, Peevey held secret meetings—in a hotel in Warsaw, Poland, no less—with representatives of Southern California Edison. In their discussions, he allegedly agreed to have ratepayers cover more than $3 billion in costs related to closing one of Edison’s nuclear facilities. The scheme was discovered when a raid on Peevey’s house turned up notes from the meetings written on the hotel’s stationery. Peevey was forced to resign his post and was subject to multiple criminal investigations.

While eye-catching, the Peevey affair is just one extreme example of a broader phenomenon. All across America, incentives for collusion between electric utilities and the agencies set up to oversee them are built into the regulatory system itself, which operates on an assumption that utilities are “natural monopolies.” This is crony capitalism at its most flagrant. But what’s the alternative?

As it happens, Texas and a handful of other states have discovered one, by introducing new regulatory schemes that force utilities to compete with each other. The results so far are encouraging—especially compared with the sordid situation that prevails elsewhere in the country.

Click here for the article.