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Opinion

Why are Georgians subject to hulking monopolies?


  • By The Newnan Times-Herald
  • |
  • Sep. 28, 2020 - 11:30 AM

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Why are Georgians subject to hulking monopolies?

Marc Hyden is the Director of State Government Affairs at the R Street Institute, and he is a long-time Georgia resident. You can follow him on Twitter at @marc_hyden.

While America mostly fixated on the seemingly indefatigable COVID-19 pandemic, Congress affixed its ire on another target: tech companies.

Over the summer, elected officials in Washington D.C. held hearings in which they grilled tech CEOs on many issues, including whether these corporations were actually monopolies and whether the government should break them up.

While I am not an antitrust lawyer, it seems evident that companies like Amazon, Google and Facebook do not meet the definition of a monopoly. Yes, they’re large companies, but they compete with numerous other brick-and-mortar and online sales markets, search engines and social media platforms. What’s more, customers don’t have to use their services.

Of course, nothing came from the Congressional hearings. Rather, officials wasted time and taxpayer money with these dog and pony shows, while state and federal lawmakers continue to ignore the veritable monopolies that need to face competition—electric companies.

As it stands, Georgia and dozens of other states do not permit residential customers to choose their electricity provider.

Indeed, competition within electricity markets is largely prohibited. Instead, governments have awarded companies the privilege of operating as a monopoly within predetermined regions and barred competitors from entering those markets.

The only catch for electric companies is that in return for the government’s protection, they must submit to heavy state regulation. Under this system, if you don’t like your electric provider, their prices or their products, then too bad. You’re practically stuck with them so long as you want electricity.

The reason for this anti-choice, anti-free market approach stems from an antiquated theory. Many policymakers in the early 1900s felt that electric utility monopolies were natural and beneficial.

Since few entities could initially afford the up-front costs of providing electricity in a given region, it was thought that only one would venture into each district—resulting in natural regional monopolies—and their prices would gradually drop as they became better established.

Unfortunately, this theory doesn’t apply very well to the 21st century and has had negative impacts.

Some of the problems with this outdated paradigm are readily apparent. After all, in a healthy competitive market, companies strive to obtain customers’ business.

They do so by providing exemplary customer service, lower prices, innovative products and generally by eschewing bone-headed business decisions. However, in Georgia’s monopoly system, customers are captive to their electric providers who face no competition. Thus, these utilities aren’t held accountable like most normal businesses.

This has been clear around the country where several states have abandoned the monopoly model starting in the 1990s and restructured their electric markets—with Texas’ model being a great example. The results of these decisions have been promising, and the competition has driven prices down.

In fact, according to a 2016 report from the Retail Energy Supply Association, “In the 14 customer choice jurisdictions, all-sector weighted average prices have fallen by 8% since 2008 (…) Meanwhile, prices in the 35 monopoly states (…) have risen nearly 15%.” A difference of roughly a 23 percent spread is striking, and given that Georgians in 2018 spent nearly $1,600 annually on their power bills, any relief would benefit customers.

The costs threaten to continually rise further too because without market accountability, utilities can act without fear of losing customers. Indeed, they are largely insulated from such risks. This encourages providers to take greater business gambles, and there’s a recent example of this in the Peach State.

Not terribly long ago, electric monopolies decided to begin building two nuclear reactors at Plant Vogtle, and already, they are years behind schedule and many billions of dollars over budget—a debt that captive ratepayers will ultimately pay.

But this was easily foreseeable. Constructing nuclear reactors—especially in today’s regulatory environment—is fraught with pitfalls. They are massively expensive, almost always go over budget and over 20 nuclear sites in the South have been mothballed for numerous reasons.

The truth is that in a highly competitive market, risky endeavors with a high probability of failure wouldn’t be pursued with such zeal. However, in a monopoly system, customers are at the mercy of providers, and they often force them to pay for these blunders.

If this wasn’t bad enough, the monopoly system also means that electric companies do not need to strive to win customers’ loyalties through innovation, the creation of tailored products or even by providing adequate customer service.

In the end, Georgians are trapped in this outmoded system that simply rewards providers’ bad ideas and harms consumers. Perhaps it is time to change that.

Marc Hyden is the Director of State Government Affairs at the R Street Institute, and he is a long-time Georgia resident. You can follow him on Twitter at @marc_hyden.