When it comes to natural monopolies like public utilities, it is said that they are a necessary evil. I am prone to disagree. Or at least don’t agree entirely. The problem with our concept of natural monopolies extends from the excess burden that would exist not from the existence of the utility providers, but the means of delivery. None of us want 20 different company’s power lines, 12 sewer and water company pipelines, 14 cable TV lines and 7 different gas lines all running below or above our public roadways or our private property. But why does that mean we must be stuck with just one ‘public’ utility?
My idea? Privatize the whole damn thing! The only part that need be anything akin to a ‘natural monopoly’ are the transmission systems themselves, and those do not need to be a public entity at all.
Imagine for example the electric power industry. My suggestion is to establish a (private) trust in which anyone can invest that will be managed by an independent organization contractually bound to the interests of the holders of the trust. Transfer the ownership of the existing ‘grid’ to this trust by putting up for sale shares of the trust. Do the same with the generation facilities of the existing public utilities, that could be purchased outright by existing corporations or formed into a private corporation with a temporary board until sufficient shares are purchased to hold an appropriate proxy election.
In the case of the grid, include among the trust’s responsibilities the function of overseeing any maintenance or improvements on the grid with any executive authority being a proxy-vote matter of those holding the interests (whether that decision making be directly by proxy vote or by appointing board members duly elected by the shareholders) Make it another duty of this trust to set standards for energy quality for any power to be added to the existing and future electric grids, again per the authority of the proxy holders or their appointed representatives. The only regulations that need be placed on the authority of this trust need be that they must allow anyone capable of meeting the standards of energy quality AND who can demonstrate they have legitimate customer demand to have the ability to add power into the grid system in a manner that will not damage it, at their own expense and in a fashion compliant with standards similar to those governing the ultimate resource quality.
The final responsibility of the trust is to monitor the power put into grid, and the power taken out strictly for accounting purposes, and to report and oversee that accounting to maintain the responsibilities of both providers and consumers. The customers may choose the provider of their choice and the provider may sell as much power as they are capable of providing to the system. The price and billing arrangements to be handled between those companies and their customers, the grid simply providing the means to deliver the power from all the companies to all the customers. The quantities to be the responsibility of the companies selling it.
Right to utilize the grid will depend upon the company’s ability to meet the needs of their customers as per the accounting of their customer’s combined usage as monitored by the grid’s oversight authority. Customer’s right to purchase from any company on the grid will be solely dependent on their ability to pay the cost demanded by their provider. Any costs associated with connecting a customer to the grid should primarily fall on the provider who will also need to adhere to standards for making such a connection. In the event that any customer is so detached from the existing system as to require addition of infrastructure that could constitute an improvement of the grid itself, a company may petition the grid’s authority (members or board) for such an addition, or the authority may allow private ownership of the grid’s extension and transfer authority and responsibility of that extension to whosoever creates it. Any company that continually runs a deficiency will lose their rights as a provider or must tell the necessary share their customers that they are unable to meet their power needs at their own discretion.
This same methodology could be applied to any other public monopoly for utility based servers be they water, gas, oil or even sewers. The only ‘natural monopoly’ need exist in the means of transmission to or from the customers and the providers.
The only brain teaser that hit me was quickly dismissed when I thought about it further. How could such a trust pull a profit? Obviously there would be costs associated with using the grid. These costs would be transferred to the companies providing the power based on their percentage of the business of the grid. But the price per percentage point need not be a fixed sum.
If the goal of the grid trust is to earn a profit, they are going to seek a ‘fair market price’ for their function as the grid operator. Whether or not companies see it as profitable to provide power through that means is going to be hinged directly upon how much it costs to provide it. Such companies are going to negotiate with the private trust on that basis and the profits of the trust will be based on the power consumption by selling those percentage points.
If the cost they choose is too high, companies will not be able to profit and thus will not venture to enter that industry. If companies do so anyway, the cost of power will be too high to the end-user and very little power would be sold.
As long as there is a demand for such power, there will be an interest in selling to that demand. To not seek the ‘best’ price based on supply and demand would not only mean an end to the quality of life of people living in the area of the grid, it would ultimately mean the end of the grid when no providers and no customers could afford the use of their infrastructure.
The nature of the competition of the industry for which the grid was designed and relied upon would be all the ‘enforcement’ you would need to assure that the grid itself remained competitive. And ultimately, if you are already allowing private companies to add, own and control parts of the grid line, those companies of course could lease access of their share of the grid in the same manner as the grid trust. So what is to prevent the trust from ‘selling’ portions of the same grid or even selling all of it and dissolving entirely if they so choose?
(in the case of a selling-off of a previously ‘public’ grid, whether or not any requirement be placed on the terms of sale to include requirements of allowing new companies to have access to the grid could be a matter left up to the local governments. And frankly, even there was a need for some regulation – oversight of the profit margins and maintenance of ‘just the grid’ is far better than a public monopoly over the entire system and could again be managed by local or city governments.
Cities who’s governments got too restrictive on their regulations would soon see their willing providers dropping like flies and their residents seeking to move out taking their tax contributions with them.)
There are other examples similar to this that already exist by the way. How do you think you are reading this entry? The public internet monopoly?