The Republic of T.

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Meet the New Utility Monopoly, Same as the Old Utility Monopoly

Well, this is discouraging. Matt Yglesias writes that municipal utilities are about as good (or Bad) as the other options:

Several decades ago, jurisdictions across America got fed up with the waste and mismanagement of publicly owned utilities and there was a big fad for turning them into regulated private monopolies. More recently, jurisdictions across America have gotten fed up with the waste and mismanagement of private utility monopolies and there’s a bit of momentum around returning to the public ownership model with Boulder, Co. perhaps leading the way.

Unfortunately, the problem here is that electrical utilities are simply one of these things for which there’s no good solution.

What you would want is for private utilities to throw themselves a gigantic overinvestment party and build 10 redundant electrical systems and then everyone would have fun and competition. But nobody’s going to do that. It’s what the textbooks call a “natural monopoly” with very large up-front costs to construct but relatively low marginal costs to operate. So there are essentially two options available to you. One is that you can operate the monopoly as a publicly owned monopoly so that instead of some private owner extracting monopoly rents from customers it’s all in the public’s hands. The other is that you can operate the monopoly as a regulated utility where you allow for enough profits to make it worthwhile to make capital investments but don’t let the public get ripped off.

Well, there goes what I thought would be a worthwhile fix for our third world electrical infrastructure.

If you’ve been reading this blog lately, you know I’ve complained time and time and time again about the abysmal service provided by Pepco, our local corporate utility monopoly.

I’ve written about Pepco a few times, because it’s one of the most poorly rated utilities in the country. It’s been rated in the bottom 25% for service interruptions, and in the bottom 50% for customer satisfaction. A Washington Post article about why Pepco can’t keep the lights on debunked several myths about Pepco, and laid the blame for outages on Pepco’s failure to invest in its infrastructure. Meanwhile the company demanded rate increases, and expected its poorly-served customer to pay up for improvements.

The commission that’s supposed to regulate the utility has owned up to its part.

Local regulators bear some responsibility. “We, as a commission, can fairly be criticized,” Douglas Nazarian, chairman of the Maryland Public Service Commission, told The Washington Post in July. “We didn’t pick up early enough on the need for comprehensive reliability regulations. You can call us on that one.” Last year the regulators hit Pepco with an unprecedented $1 million fine.

If the commission failed to “pick up early enough on the need for comprehensive reliability regulation,” it’s because the previous Republican governor’s administration “lobotomized” the commission.

You see, about six years ago our previous Republican governor appointed a man with close ties to the industry to the Maryland Public Services Commission who lobotomized the commission, which is supposed to regulate utilities. MPSC has never really recovered from that “lobotomy”.

Maryland Public Service Commission Chairman Kenneth D. Schisler discussed with a power company official how to get Republicans into the leadership of a national utility regulators association and how to draft legislation that would boost energy competition in Maryland, a new batch of recently released e-mail shows.

The November 2004 discussion took place when the official, Loyd “Aldie” Warnock, was working for Mirant Corp., an Atlanta-based company that owns three Maryland power plants rated by an environmental watchdog group as among the dirtiest in the nation.

…Disclosure of the correspondence comes days after The Sun obtained e-mail between Schisler and utility industry lobbyist Carville B. Collins, revealing discussion of commission appointments and political strategy on utility deregulation.

In the e-mail, Schisler and the lobbyist discussed how to address criticism that the chairman had “lobotomized” the agency by replacing high-level staff members. They also discussed how to keep an energy deregulation plan on track despite expected criticism of rising rates.

Mission accomplished. Pepco is accountable to no one.

In recent years, Pepco has placed near the bottom for daily reliability in surveys that compared power companies around the country. Pepco tends to have more sustained power interruptions, defined as those lasting longer than five minutes. And when the lights go dark, they tend to stay off longer. In one 2008 survey, Pepco finished last among participating utility companies on two of three reliability measurements, records filed with regulators show. Pepco stopped participating in that annual study after its last-place finish.

It’s an example of conservative failure right in my own back yard.

So, to recap, we have have a government-subsidized, untaxed, virtually unregulated, corporate monopoly (rather than a city utility) that has no real incentive to reduce outages or downtime, because (a) there’s nowhere else for its customers to go for electricity, and (b) they get paid whether they’re supplying us with power or not.

I guess that’s business friendly regulation for ya.

I guess that it depends on municipal utilities are only as good as the governance to be found in the municipality in question. I’d like to think in our case we’d end up with better service from our power utility, or at least more responsiveness to citizens. It’s hard to imagine worse.

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