public utilities continued

Erik Kain

Erik writes about video games at Forbes and politics at Mother Jones. He's the contributor of The League though he hasn't written much here lately. He can be found occasionally composing 140 character cultural analysis on Twitter.

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49 Responses

  1. North says:

    I’m not opposed, though I’m no ardent supporter either. I’m inclined to think E.D. that utilities like Gas and Water are too low margin to really encourage anyone to want to set up the significant infrastructure (not counting the “commons” of the pipes) necessary to try and compete with each area’s estabilished utility. And if those costs became higher margin, hmm I don’t know …

    One area where I am with you 110% however is water costs. The SW is an utter joke on that subject. Every city on the California coast and every metropolis in the desert SW could be swimming in water if we didn’t maintain our insane government support of desert agriculture. We give away the waters of the SW so corporate farms can grow strawberries in the desert , then worry that with global warming projected to decrease water flow that our cities will turn to dust.Report

    • E.D. Kain in reply to North says:

      Very true, North. The SW is a joke. LA, Phoenix, and Las Vegas are only existent in their current forms because of diverted water. Then that they divert more water to subsidize farms that shouldn’t be there, or waste it on extravagance…. It is frustrating because it simply doesn’t reflect real prices or real scarcity.Report

      • Francis in reply to E.D. Kain says:

        Crap. Complete utter ignorant crap. Do you know anything, but anything at all about (a) the Law of the [Colorado] River, (b) the California State Water Project; (c) the Central Valley Project, (d) the water laws of the States of California, Arizona, Nevada, Colorado, etc.?

        No. You don’t. The very fact that you refer to “subsidization” and “real prices” means that you are utterly ignorant of the laws and policies governing water use in the Southwest.

        Ignorance is curable, though.

        So, let’s start. The senior rights holder on the Colorado River is the Imperial Irrigation District. Imperial County is in the southeast corner of California, due east of San Diego. It grows a mountain of lettuce, alfalfa (leading to cheap beef) and other ag. products. Water there costs about $15 per acre foot, reflecting the fact that (a) the water is untreated and (b) it’s downhill from Lake Mead. If the US hadn’t built Hoover Dam, the other water users on the Colorado River (LA County, Arizona, Colorado, etc.) would have an even less reliable source of water. But dams have been built and interstate compacts negotiated and the current state of affairs reflects a blend of history, state laws and federal policy dating back to the Depression.Report

        • E.D. Kain in reply to Francis says:

          Francis, you’re so cute when you’re angry.

          I wonder if those dams we built are a good thing. Or whether these cities built because of ready access to the water are sustainable. Maybe growth wouldn’t have stampeded out of control without the government’s dam projects.Report

        • North in reply to Francis says:

          You are quite excitable Francis, that’s one hell of an opener. Does make you memorable though, hey maybe I should open my response with “Francis you Ignorant Slut…” 😛 But anyhow on to the meat:

          No, I don’t consider myself an expert on the subject of the southwestern water distribution system. Nor do I know the minutiae of the deals and treaties involved in those water systems but I do know this. When these kind of news stories happen:

          There’s something going awry with the way the southwest manages their water. The dams and aqueducts etc that move water from one place to another were mostly FDR era projects and in the cities in the southwest you pay, and pay handsomely, for the water you use. Farmers, on the other hand, purchase water for massively less than the urban dwellers pay and what do they do with it? Use it to grow strawberries in the desert (and likely being paid handsomely to do it by the government’s agriculture subsidies). Or in some cases they sell it to the cities for a profit. So let’s recap what is going on here:
          -The comparatively water efficient cities are facing water shortages.
          -Corporate farms are wastefully using water to inefficiently produce a product that we could probably import very easily (and probably improve the wellbeing and stability of some second-third world country by doing so).
          -And on top of that, the cut de la cut is we’re subsidizing their water for them and then PAYING THEM TO USE IT!
          -Let’s not forget that they’re importing and exploiting illegal immigrants to run their subsidized farms also.
          -Meanwhile in the creative cores of the southwest the water bills of the rich and poor alike go up and up.

          Now I am no libertarian, hell I’m not even conservative but I know idiocy when I see it. We could be importing produce from Mexico and who knows where and spreading the benefits of our economy to some poorer countries who’d bloody well love to sell us strawberries and have the sun and water just laying around to grow them. Then our southwestern metropolii could thrive with lower water costs and the land in the desert could be allowed to go back to being nature preserves for the needle nosed desert snake or solar thermal plants or what have you. It’s just nonsensical.Report

      • Francis in reply to E.D. Kain says:

        Las Vegas is, of course, almost right on the Colorado, so it doesn’t rely on diverted water. Nevada is the most junior rights holder on the River, making further growth more challenging.

        Los Angeles gets water from (a) local groundwater, (b) the Colorado River, (c) the State Water Project (northern California), (d) Mono Lake (see “Chinatown”). Its existence is again due to a combination of history, luck, brilliant engineering and state and federal governmental actions.

        For what it’s worth, federal infrastructure policy in the mid-20th century completely reshaped the entire country. Water policy was part of it; the much larger part was the interstate highway system. (In the 19th century it was the railway system.) Cities have thrived and died based on those federal policies, not based on whether their occupants were paying the “true” costs of the various utilities coming to their doorstep.

        Finally, your policy choices are utterly incoherent. A utility company paid out its own capital to build the power line to your house. Now you want to force it to buy your electricity? At the same time that you’re condemning government? Feed-in tariffs, mandatory purchasing from small generators and similar policies can only be imposed on utilities by government!Report

        • E.D. Kain in reply to Francis says:

          Cities have thrived and died based on those federal policies, not based on whether their occupants were paying the “true” costs of the various utilities coming to their doorstep.

          I agree. I disagree that this is a good thing, somehow.

          And yes, a utility company did build the power line, largely with taxpayer money. I never said there was a problem with using taxes to build power lines as long as those who then used the power lines to sell their power contributed to the costs of upkeep, maintenance, building new lines, etc. I still fail to see exactly what you’re saying, er, or blustering, or whatever it is you are doing with all this righteous indignation.Report

          • Francis in reply to E.D. Kain says:

            “a utility company did build the power line, largely with taxpayer money” No, RATEPAYER money. The customers, not the taxpayers. That’s why the company owns it.Report

            • E.D. Kain in reply to Francis says:

              Okay, rate-payer money. Payers who were forced to pay those rates by a government-backed monopoly. So yeah, the utility was given a monopoly and as such it can be taken away. That’s the problem with relying on government to prop up your entire business model.Report

        • Travis in reply to Francis says:

          Who holds rights on the river really won’t matter when the whole Compact has to be torn up and rewritten in a few years.

          The Compact assumes the existence of more water in the Colorado River system than actually exists – a historical accident of being written after the 10 wettest years in recorded Colorado River history.


          Colorado reservoirs are now at 59% of capacity and dropping. There’s good reason to believe they’ll never completely refill.

          James Lawrence Powell’s “Dead Pool” is a good recent work on this subject.Report

  2. Amitav says:

    Texas successfully deregulated power utilities years ago, first by separating the power co (retail energy provider–REP) from the wires function (still a regulated natural monopoly), then putting a floor (since phased out) under incumbent pricing in order to create space for new entrants. There have been issues: residential rates are far more spiky, so we are more exposed to fluctuations in nat gas (which fires the fleet in Texas and therefore sets the price of power.). but we get it up and down. Also some reps were fly by night, leaving customers switching to a “provider of last resort” at extortionate rates. That you might not know about until you get a bill. But by and large, dereg has been positive. Anyone can go to and compare plans.

    Water should absolutely be priced better, esp commercial and industrial.Report

  3. Amitav says:

    Also there is one rep in Texas that only provides green energy (ie they buy wholesale green energy,swap it for whatever electrons are near you, and deliver conventional power at higher “green” prices to you). They do allow customers to sell back to the grid at the contract rate, eg if they have solar panels.Report

  4. Freddie says:

    One thing that I think you could definitely stand to do is actually do a little more research into the history of utilities in this country, and how they operated before they were adequately regulated. (You might particularly consider the history of electricity generation and sale.)

    I think the point where you are most obviously wrong is when you say that we are not trying deregulation because of a failure of imagination, that we haven’t considered the possibilities of what utilities without regulation would be like. I think this is precisely backwards; I don’t think you’re adequately considering the history of what unregulated utilities are like, and that we regulate precisely because of that history.Report

    • E.D. Kain in reply to Freddie says:


      As is usually my take, I am not advocating for the complete deregulation of the utilities. Only deregulation up to the point where we can once again have competition. I think with any basic necessity you need to have protections of some sort. Same with health insurance. You can’t have companies pulling dirty tricks or denying coverage when somebody gets sick. With utilities I think you need strong oversight to make sure that there isn’t price-gouging, etc. That said, I think there is still room for more competition, and that this has never been as true as today with the green-energy revolution.Report

    • E.D. Kain in reply to Freddie says:

      That being said, Freddie, if you have some resources on this that you’d like to link to, I’d be happy to do more research….Report

    • Jaybird in reply to Freddie says:

      Yeah, we might have more nuclear power plants.

      We’d end up being like the French! We’d have to put up with politicians calling them “Freedom Plants”.

      Thank goodness that regulations are protecting us from clean energy and from everyone using “Freedom” as a prefix again.Report

      • E.D. Kain in reply to Jaybird says:

        Freedom Plants! 😉

        Did people call French Bread, Freedom Bread? Or was that limited to the Toast and the Fries?Report

        • Freddie in reply to E.D. Kain says:

          Additionally, I should say that the idea of the commons is a type with what we generally regard as the worst kind of corporate capture of government funds. I’m sure that many companies would like vital parts of their infrastructure to be built with tax dollars. I’m just equally sure that doing so for them, and allowing them and their shareholders to reap the benefits, is a terrible idea. And it eliminates any sense in which we might be benefiting from a “free market” system.

          It’s worth noting that even with vast government investment in infrastructure, profitability isn’t assured. Witness the airline industry. The governments of the world subsidize air travel to a breathtaking degree, and help pay for the various costs of running and securing air travel at every step of the process. And yet airline companies are habitually unable to remain consistently profitable, even following massive deregulation. No savings have been passed on to consumers. Service gets worse and worse. Most perversely, public money for necessary infrastructure continues to flow towards this supposedly free market entities while public accountability was cut off at the knees. This is exactly what you are proposing with your idea of the commons wedded to deregulation– use of public funds without public accountability.Report

          • E.D. Kain in reply to Freddie says:

            Depends. There is certainly always that fear – when government and industry begin to team up and the one subsidizes the other. I think requiring utility companies to “lease” or maintain the “commons” of the pipes, etc. would be a way around this, personally, though there is always room for abuse.

            The Airlines are hardly a reasonable example, though. Unlike roads or powerlines, air-travel is a luxury. Subsidizing luxuries is absurd. Similarly, subsidizing the construction of baseball-fields doesn’t seem to keep ticket-prices very reasonable.Report

          • Amitav in reply to Freddie says:

            Freddie says: ” No savings have been passed on to consumers.”

            Prior to deregulation, there was no such thing as a low cost airline (SWA or Ryanair). It is only because of deregulation (in fact because SWA had to sue) that these business models could take off, thereby collapsing the overall pricing structure in the industry. The fact that there is too much capacity and airlines are not profitable actually shows that consumers are capturing all of the value in the industry through cost savings. Good for us, bad for them– thanks to deregulation.Report

          • Mark Thompson in reply to Freddie says:

            “No savings have been passed on to consumers.”

            This is simply untrue. Between 1977 and 1992, airfare prices fell by 1/3, and to this day remain well below their 1977 levels after adjusting for inflation – and this is despite the huge rise in jet fuel prices over the last several years. Moreover, it’s worth noting that the airlines that continue to do poorly are for the most part airlines that benefited from the protection of regulation back in the ’70s.

            See, e.g., here:

            and here:


      • North in reply to Jaybird says:

        Jay, I now *heart* you. Anyone who’ll stick up for nuclear power has a fan in me.Report

  5. greginak says:

    Re: second concern–Enron. that worked out well didn’t it.Report

    • E.D. Kain in reply to greginak says:

      There will always be thieves, greginak.Report

    • Jaybird in reply to greginak says:

      Enron was an emergent property of regulation.

      One of the things that it hoped to make the most money from was, you guessed it, carbon credits. It was a company devoted to the idea of gaming the system.Report

      • Michael Drew in reply to Jaybird says:

        You have to accept that we at least proceed from the status quo. You can’t write off disastrous results of reforms motivated by your philosophy just by saying that if we had started out in Utopia as you conceive it, then there wouldn’t be any problem with your philosophy. At a pure philosophical level, okay that might work. But if you want a seat at the policy table, you have to be able to chart a course from where we are to where you want to get to that doesn’t include too many debacles, and that includes very few outright disasters.

        Enron is fair game in this discussion.Report

        • Jaybird in reply to Michael Drew says:

          Oh, absolutely.

          But I see Enron as something that happened because of gaming the regulatory system, not because it was operating outside of it.

          Saying that Enron happened because of deregulation doesn’t strike me as accurate. Enron was a child of regulation.Report

      • greginak in reply to Jaybird says:

        So when markets F up or private companies are corupt its the governments fault. The point of noting Enron is that some things will need regulation and watch dogs. And that private enterprise can be just as bad or worse then gov sometimes. There is no magic ideological bullet to solve all our problems.Report

        • E.D. Kain in reply to greginak says:

          Nobody is saying that private enterprise can’t be as bad or worse than government. My take from start to finish is that the worst possible thing is government-created monopoly. Private enterprise that is protected by the government. Obviously we need, due to our imperfect nature, oversight, cops to walk the beat, etc. But you have to be careful that the cops are protecting the criminals, and that is the trick. There is no magic bullet, very true. But that’s why we have these little chats.Report

        • Jaybird in reply to greginak says:

          “So when markets F up or private companies are corupt its the governments fault. ”

          No. Not what I said.

          Companies are corrupt. So is the government.

          We ought to do what we can to avoid collusion between the two. I’d posit that making sure that we have the right people in charge of the government works about as making sure that companies are run by the right people.

          If there’s a solution, it’s to be found in transparency, I think.Report

  6. Amitav says:

    Freddie– I don’t understand what you’re talking about. Specifically what history are you referring to?

    Just so’s we’re all operating on a common basis here, some clarifications. The power business has two physical components: generation (power plants) and distribution (transmission wires and distribution lines). In deregulated markets there is also a financial side: the wholesale market and the retail market. (Note that unlike water and natural gas, electricity cannot be stored. Any power that is generated must go to the grid; supply and demand have to balance almost instantaneously or you get blackouts.)

    In most of Texas, the electric utilities have been deregulated and a common market framework has been introduced. T&D companies are not allowed to own generation assets and vice versa. T&D companies continue to be regulated in terms of a rate base. Wires lines, like railroads, cable lines, telephone lines, and water pipes, are a good example of a natural monopoly, so it makes sense for them to continue to be regulated.

    However, the generation, wholesale and retail markets are open. Anyone with sufficient credit to buy wholesale power can turn around and market that power to retail customers at any price they choose. There are three classes of retail customers: industrial (e.g., factories), commercial (e.g., office buildings), and residential. There are now different companies that specialize in marketing power to each of these niches.

    The result has been a proliferation of options for everyone. Texas has the largest installed base of wind generation capacity in the country, for instance, because there are mechanisms for people producing wind power in West Texas (where few people live) to sell that power into major markets like Dallas and Houston– the power is not physically transmitted there, but swapped through financial instruments. The market has also provided a mechanism to sell back user-generated power, e.g., from solar panels or industrial co-gen plants. And all classes of customers but especially the largest commercial and industrial users have experienced falling power prices. However when there is a spike in natural gas prices, it quickly translates into the power market as well, so there is more overall price volatility (most users are in 12 or 24 month contracts of course, not spot prices). I contend that this price signal is beneficial too, just like high gasoline prices, because it provides incentives for energy efficiency in response to a scarce commodity.

    Note that San Antonio and Austin continue to operate under their traditional municipal utilities. Not surprisingly, residents there have less fluctuation in their prices, but in times like this (when natural gas is extremely cheap) they end up paying much more than deregulated customers– sometimes 30-60% more, because regulated rate bases are slower to adjust to changing input prices.

    My main point is this: regulated utilities are a state monopoly on the generation, distribution, and retail (end user terms and pricing) aspects of power. It seems obvious both from economic theory and actual living breathing experience that the phased breakup of such monopolies in areas where multiple power market connect is beneficial to consumers (lower price and better service) and to regulators (disciplined focus on the things that matter such as safety and maintenance of the grid).

    Obviously the deregulation of the natural monopoly aspects would just be foolish; no one wants multiple T&D lines strung up across a state. The real debate should be on allowing merchant generation capacity and deregulated wholesale as well as retail markets. (California did not deregulate wholesale.)

    Re: Enron– a lot of bad stuff went down, but we should note that every market innovation that Enron pioneered with respect to natural gas and power is alive and well today, and enormously beneficial to consumers. The media narrative that Enron was a complete mirage or Ponzi scheme is simplistic in the extreme and unworthy of anyone who wants to seriously understand energy markets.Report

  7. Michael Drew says:

    Was that post really about utilities? It came around to health care, which is a debate that is actually happening. Maybe some municipalities are discussing deregulating their utilities, but I’m not sure it makes sense to be debating it as a general policy everywhere in the country. On the other hans, we are fixing to enact some sweeping federal legislation regarding the health insurance market, and that post made some points about that as well. That’s where I thought it made sense to engage it, in any case.Report

  8. Watts says:

    This is an interesting topic to me, as I used to work, a decade or so ago, for a “competitive local exchange carrier,” a class of phone company that existed due to telecom deregulation — and a class of phone company that pretty much doesn’t exist at all anymore, for much the same reason. I’d argued to friends years ago, just as a thought exercise, that what could have saved the CLECs and generally vastly improved the wired telecom market as a whole would have been nationalizing the “last mile”: the lines that go from your house to the nearest central switching office (COs, in industry lingo). If there was a flat rate any telecom company could pay to hook into a CO (enough to pay for the CO upkeep and the “pipes,” as it were, out to customer endpoints), it would have opened up competition far more efficiently: you’d have been able to choose your local phone service, not just your long-distance carrier, for starters. “Nationalizing” is a scary word that conjures up images of Castro, but I think one could make a very good argument that this is a case where it actually benefits market competition.

    I think today people would argue that this is a moot point, since phone companies no longer have the kind of monopoly they did even 10 years ago on our communications — but I wonder how true that actually is. If we want internet service, most of us have a choice between one cable company and one phone company. (In really big metro areas you’ll often find a handful of DSL providers, but any DSL provider that isn’t your local phone company actually has to go through that local phone company to get service to you — and the only reason that local phone company lets them do it at competitive rates is because of regulation. In a “last mile as utility” scenario, that wouldn’t be the case.) The “competition” to cable TV is generally other technologies, i.e., you can choose between Comcast, Dish Network or DirecTV.

    And cell service — well, that’s a whole different can of worms, but I’m not sure how much of it can be addressed by fiddling with the levers of regulation, regardless of whether you’re trying to tighten or loosen things.Report

  9. Francis says:

    I see. You want competition in the provision of utility services. No unregulated monopolies, no government-protected monopolies.

    Except police, fire, roads, parks? But definitely in electricity, phone, cable, and water.

    But even though you’re ready to put up a water tank(!) and a solar grid, you don’t own any water pipes or transmission lines.

    So you want government to force the people who do own those facilities to become common carriers. And to accept your contributions at a set price (because otherwise they will offer you $0).

    At the same time, you’re b*tching about regulation and pricing.

    Have you figured out yet that you’re being utterly incoherent?Report

    • E.D. Kain in reply to Francis says:

      The only reason those utilities own all of this in the first place is the government. There is nothing incoherent about busting up a monopoly that was created by the government. You can keep saying that it’s incoherent, but that simply does not make it so.Report

      • Francis in reply to E.D. Kain says:

        this is just bizarre. Let’s start with some basics:

        water is heavy and difficult to move. In most places in the US, it needs to be moved substantial distances to meet the needs of large urban areas. (One of the biggest water disputes going on these days is in the southeast; Atlanta is desperately short of water.)

        In most cases, the only entity capable of assembling the financing, energy requirements, eminent domain powers, water rights and other associated requirements for moving large volumes of water long distances is government, ie, we the taxpayers. In some limited cases, large utility companies can do the same.

        At the retail level, water supply is the purest (heh) of natural monopolies. Customers demand that their water be safe, affordable and reliable. The infrastructure costs of meeting the demand for 100% reliability are enormous, so there is no competition — none whatsoever — for retail delivery. No company is going to build a second set of pipes through the street, nor an alternative water treatment plant, nor an alternative set of wholesale water infrastructure.

        In the presence of such a monopoly situation, it’s no wonder that we citizens regulate. And it’s because the regulation exists that utilities can provide service. Since citizens will set prices, utilities need a process to ensure that they can recover their costs.

        Note that the water itself is free; it just falls from the sky. What you pay for is the cost of getting it to your tap. Note also that there’s really no such thing as a “market” for water. How much would you pay for water? If you were dying of thirst, every last penny.

        Ag. water is completely different. Pre-treatment is not required and reliability is much lower. In many places in California, the end user — the farmer himself — owns the water right. The reason he can fallow his land and lease the water for a year or so is that he OWNS the right to do so.

        I thought libertarians were supposed to be protective of personal property rights.Report

        • North in reply to Francis says:

          “Note also that there’s really no such thing as a “market” for water. How much would you pay for water?”
          Perhaps the makers of bottled water are merely pulling money out of thin air? If so they need to share their techniques with the rest of us. I’m not in favor of privatising the utilities but the fact that bottled water is a billion dollar industry is a bit of an indictment on our public monopolies of the water supply.

          As to regulation and pricing: Per:'s_not_just_how_much_water_you_use,_but_what_products_you_buy/?page=entire
          Agriculture makes up 80% of California’s water use. Now why are we, all of us, paying farmers (via subsidies and tariffs) to take water (from expensive government resivors) to grow things in the desert that we could import at half the price from say Brasil (who would need neither subsidies nor expensive dams to produce it)? And how exactly does a farmer OWN the water he’s sucking out of the public reserves?Report

          • Jaybird in reply to North says:

            Vegas, as usual, provides a great example.

            A couple years back, the whole “drought” thing was at its peak (peak drought) and there is at least one casino on the strip that has a water show… OUTSIDE. Like, a man-made, well, not a lake. A man-made creek, outside in the Vegas sun and, of course, this got complaints from the locals. “I can’t believe that we’re in the middle of a drought and the Mirage has its own creek and the Venetian is doing the gondola thing and so on and so forth!”

            The casinos sat down with representatives of the complainers and representatives from the city and said “we agree that these are trying times and so we would like to offer to no longer buy our water from Las Vegas but we would like to bring it in from elsewhere.”

            They were told that that would not be necessary. The water shows continued.

            In the middle of a drought. In the middle of the desert.Report

  10. Francis says:

    Western water law and policy is way too complicated to start explaining here. The simple version is that many farmers have acquired water rights under the relevant state laws over the last 100+ years, and they still exercise them today, including leasing them to someone (like the County of LA) when the lessor is willing to pay enough to justify fallowing the land.

    Returning to the post, my broader point is the ED’s own desired goals are internally inconsistent. He wants less regulation of the utility monopolies, but he also wants more utilities to be forced to become common carriers. He is a libertarian who wants to seize property of corporate entities on the grounds that earlier legislative decisions (granting a monopoly) were a mistake. He fails to recognize that the existence of monopolies is the only reason that many citizens receive the utility service at all.

    For every complex public governance issue, there’s an answer that’s simple, obvious, and wrong. Market forces don’t work very well in health care, because the society is unwilling to let people do without. The same is true for water and electricity; voters/ratepayers expect their service to be safe, affordable and 100% reliable. Safety = govt regulation of water quality. Affordable = govt oversight of rates. Reliable = govt oversight of system design.

    Don’t want to rely on govt for water? Drill your own d*mn well. You can even get into a well-sharing agreement with a neighbor or two. No one will care or stop you, until your neighbor’s kid gets sick because you didn’t treat the water. Then you better have really good insurance.

    Don’t want your community to rely so much on govt for oversight of utilities? Get better voters. How’s that Free State program going, anyway?Report