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Op-ed: The natural monopoly business model works

Thinkers of great thoughts like Michael Giberson and Ethan Dursteler (Deseret News Opinion, Aug. 3) can be excused for advocating (once again) for electric utility deregulation because they have never actually operated an electric utility system.

However, they should not be excused for ignoring the lessons of history and the laws of physics, topics for which information is readily available. Their idea has failed spectacularly — twice.

Electric service began more than a century ago as a traditional market enterprise — and it failed almost immediately. The problem was the huge capital requirements of electric systems and the economies of scale that were only available through single providers in defined service areas, strictly regulated by states or municipalities for service quality and a fair price.

Essential public services like electric power are more properly called natural monopolies because their very nature predisposes this business model. Universal service was impossible without it.

The lesson was well-learned. All went well for more than 80 years.

Then, a national movement in the mid-1990s to deregulate electric utilities gained a good deal of support, even among some utility executives and even in Utah. The scheme was driven by a rise in electric prices that occurred after nearly a decade when Utah electric prices declined 30 percent (which most people have conveniently forgotten.)

After a good deal of discussion, Utah policymakers wisely rejected the idea. It is a good thing too, as the experiment burned down with disastrous results for consumers in 2000-2001. A regional crisis ensued, with rolling blackouts, skyrocketing wholesale prices beyond all reason and even bankruptcies of utilities — something that hadn’t happened in more than 80 years.

Look at those states that engaged in that experiment: California, Texas, Montana, the Northeast. In every case, deregulated electric service is still more expensive. And those states have desperately been trying to put the toothpaste back in the tube ever since. Many electric utilities went out of business, including the iconic Enron, and many of their executives now sit in jail because of this failed idea, which resulted in greed and fraud.

The physics of electricity make it unique. Its capital requirements and economies of scale are driven by its instantaneous nature. It is vastly different than our great thinkers’ cable TV and cellphone examples. It is also different than natural gas and petroleum, which are commodities that can be stored, while electricity cannot yet be stored in the amounts we’re accustomed to using.

Read full article at Deseret News