On behalf of all the thousands of consumers of publicly owned, government regulated, monopolistic utility companies from Texas to Oklahoma and Missouri to Maine who lost power over the last week during the ice storm and found their service lacking, I would like to open up the bidding process to competitive companies that will fill the needs of their customers 24 hours a day and 7 days a week.
The free market can surely do better than some of the horror stories that have been circulating in the media.
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Feel good that at least you are not in Japan. Here, even half a million dollar homes in the suburbs of Tokyo don’t have central heating. Apparently, energy costs a lot of money due to government monopoly/taxes/environmental regulation.
Banker, I think this post is pointing to the exact same problem you experience only varying in degrees.
An article whose origins escape me pointed out that for many of the same reasons, homes and businesses are increasingly turning to the use of home and commercial generators to supply power in the event of loss or even in times of “shortage,” where power consumption is curtailed or discouraged. Power generation at home is expensive, but it’s certainly better than no power at all.
Urban electricity technology hasn’t improved much over the last 60 years, as you might expect. Socialism can’t run a thriving electric company any more than East Germany could make a decent washing machine.
In every NEW, private construction project in my part of the world, they put the lines underground. Hello? Wind-proof? Ice-proof?
One of my favorite little economic lessons came when we had 4 hurricanes last year. The industrial electrician labor supply was, of course, strained. What did the local monopoly do? Hired out-of-state electricians, by the thousands.
But what about home roof repairs? No, hiring an out-of-state roofing contractor was considered a FELONY!
It’s OK for them, but the plebians get tossed in jail. Or wait for 9 months to get a roofer on the phone.
Why people are so attached to the idea of these monopolies I will never know.
Can you honestly say that the people know any other way?
I don’t want to defend these monopolies, even though I once worked for one for 13 years. I favor deregulation and privatization, which seems to work on the generating side quite well. But on the distribution side, it’s a problem. The original monopolies were given largely because people didn’t want dozens of power lines criss-crossing cities trying to serve the same customers.
As for burying power lines, that’s possible with low-voltage lines going to homes, but too costly for the higher voltage transmission lines.
Can you honestly say that the people know any other way?
They do — with their groceries, their cell phones, their computers, their movies …
What I don’t understand is how they can look but not see.
RogerM:
CATO outlines a possible model for dealing with the distribution side:
http://www.cato.org/pubs/handbook/hb109/hb_109-44.pdf
As for burying power lines, that’s possible with low-voltage lines going to homes, but too costly for the higher voltage transmission lines.
1. When power lines are blown down by hurricanes, in my experience, the out-of-state electricians (whom we are not allowed to hire, but they are), even under the current inefficient arrangements, are able to restore the main transmission lines in less than 3 days. The thousands of residential lines are not restored for a month or more. Each of these smaller lines may be simpler to repair than a single main line, but the time it takes to repair thousands of them obviously adds up quickly. Burying those would be the method chosen by a private electricity company.
2. If freed, the entire system of electric power transmission would radically change, thus changing the current array of projected costs. Also, high costs are not a “problem” for entrepreneurs. They are opportunities for new businesses and new types of deals to be made. For example, if the criss-crossing of lines ever became a genuine problem, the costs of doing so would justify sharing arrangements, much the same way that airlines make deals with other airlines, that freight carriers make deals with other freight carriers, etc.
I believe the early days of electricity systems also posed the possibility of more local use of direct current. If the current AC system is only possible with the massive state subsidies it now enjoys, that is a clear indicator that the present system uses technology that may be superior (in a technical sense) to the engineering geeks, but is inferior as a matter of economics.
The original monopolies were given largely because people didn’t want dozens of power lines criss-crossing cities trying to serve the same customers
Well, that’s up to the owners of the land that the lines would be on, isn’t it? Also, there are other ways of resolving that problem. I don’t know about electrical lines, but early phone companies were working out ways to share phone lines before local phone service was monopolized. I imagine something similar would happen with electricity.
Mark, Thanks for the link. That’s an interesting article and acknowledges the complexity of the situation.
I know the utility I worked for considered burying more lines, but the customers balked at the price hike that would have been required. Ice storms like the current one are rare enough that most customers are willing to live with the outages than pay the cost of burying all lines. Still, utilities encourge new developments to bury lines, and most do, so we’re making progress.
Utility economics teaches that the regulatory system causes utilities to “gold plate” equipment, that is, they build it better than is necessary in order to ensure reliability and lessen maintenance.
I would definately like to see a free market in electricity, but keep in mind that the state doesn’t subsidize utilities at all. They just control the price. But as the Cato article concludes, electricity probably wouldn’t be cheaper, nor would the service be better.
I know the utility I worked for considered burying more lines, but the customers balked at the price hike that would have been required.
That’s an artificially, non-economic way of looking at the situation.
A change in the government exclusions and controlling thuggery would change the entire price structure. To say that doing something as massive as burying all lines would cost X, and that cost would have to be passed on to customers is classic form of simplistic government cost-plus thinking.
Economic changes have multi-dimensional effects. If electricity companies HAD to bury lines to satisfy customer preferences, then the price of doing so would CHANGE. You can’t simply take the price of line-burying as it exists today and multiply that by the number of miles of lines we have now. That’s silly. As new technologies come online and new company methods are implemented to survive in a private market, the price for all of these factors is bound to change radically.
As one of those affected in New England (30 hours without power, small compared to some others, but still very frustrating and cold) I used the opportunity to teach everyone I could about the evils of government created monopolies. Everyone seemed to understand much better when the evil is on top of them in the form of a power outage! They understood then that there is little incentive for the power “company” to look for more robust ways to distribute power. They understood that even though they were willing to pay much more then the standard rate during the storm to get their power back, there was no one to buy from. The one supplier had failed them, and no one else legally can help… except for generator salesman! And of course, during the storm, everyone runs out of generators. (They don’t dare raise prices, that would be “gouging”…aaargh!!!!)
In terms of the scope, magnitude and duration of the hardship that follows events like ice storms and hurricanes, the government is far worse than Mother Nature. Government causes more difficulty, to more people, in a wider variety of ways, which last far longer than the effects of any hurricane or ice storm. No power. No gasoline. No food. No water. No repairmen. No construction materials.
The worst aspects of living through these events are economic, not natural. The weather we can handle. The harm caused by price-fixing, and by inefficient, technologically stagnant electric and gas companies, is worse.
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