A South Florida resident and professor has written on an issue that applies to FPUA and is used to continue to force area residents to pay more to keep their lights on.
by Tom DiLorenzo:
According to natural-monopoly theory, competition cannot persist in the electric-utility industry. But the theory is contradicted by the fact that competition has in fact persisted for decades in dozens of US cities. Economist Walter J. Primeaux has studied electric utility competition for more than 20 years. In his 1986 book, Direct Utility Competition: The Natural Monopoly Myth, he concludes that in those cities where there is direct competition in the electric utility industries:
- Direct rivalry between two competing firms has existed for very long periods of time — for over 80 years in some cities;
- The rival electric utilities compete vigorously through prices and services;
- Customers have gained substantial benefits from the competition, compared to cities were there are electric utility monopolies;
- Contrary to natural-monopoly theory, costs are actually lower where there are two firms operating;
- Contrary to natural-monopoly theory, there is no more excess capacity under competition than under monopoly in the electric utility industry;
- The theory of natural monopoly fails on every count: competition exists, price wars are not “serious,” there is better consumer service and lower prices with competition, competition persists for very long periods of time, and consumers themselves prefer competition to regulated monopoly; and
- Any consumer satisfaction problems caused by dual power lines are considered by consumers to be less significant than the benefits from competition.
Primeaux also found that although electric utility executives generally recognized the consumer benefits of competition, they personally preferred monopoly!
Ten years after the publication of Primeaux’s book, at least one state — California — is transforming its electric utility industry “from a monopoly controlled by a handful of publicly held utilities to an open market.” Other states are moving in the same direction, finally abandoning the baseless theory of natural monopoly in favor of natural competition:
- The Ormet Corporation, an aluminum smelter in West Virginia, obtained state permission to solicit competitive bids from 40 electric utilities;
- Alcan Aluminum Corp. in Oswego, New York has taken advantage of technological breakthroughs that allowed it to build a new power generating plant next to its mill, cutting its power costs by two-thirds. Niagara Mohawk, its previous (and higher-priced) power supplier, is suing the state to prohibit Alcan from using its own power;
- Arizona political authorities allowed Cargill, Inc. to buy power from anywhere in the West; the company expects to save $8 million per year;
- New federal laws permit utilities to import lower-priced power, using the power lines of other companies to transport it;
- Wisconsin Public Service commissioner Scott Neitzel recently declared, “free markets are the best mechanism for delivering to the consumer … the best service at the lowest cost”;
- The prospect of future competition is already forcing some electric utility monopolies to cut their costs and prices. When the TVAwas faced with competition from Duke Power in 1988, it managed to hold its rates steady without an increase for the next several years.
The potential benefits to the US economy from demonopolization of the electric utility industry are enormous. Competition will initially save consumers at least $40 billion per year, according to utility economist Robert Michaels. It will also spawn the development of new technologies that will be economical to develop because of lower energy costs. For example, “automakers and other metal benders would make much more intensive use of laser cutting tools and laser welding machines, both of which are electron guzzlers.
Source: Mises Daily | Mises Institute