Shopping around for power: Bill aims to break up electric utilities

Kent Chandler is resident senior fellow at the R Street Institute — an economically center-right think tank — and the former chairman of the Kentucky Public Service Commission, the agency that oversees that state’s utility rates.

As electricity prices rise, so has public frustration over the growing costs. Chandler uses a political metaphor for the position monopoly utilities find themselves in.

“You never want to be the incumbent party at midterms because everybody votes out the incumbents,” he said…

As a former public service commissioner, Chandler said the tools available to most utility regulators across the country are insufficient to protect consumers against the drawbacks of a monopoly system.

“In my best day as a regulator, I still couldn’t hold a candle to the forces for good that competitive markets can create,” he said…

Most businesses in a capitalist economy aim to produce the best product for the lowest price, in hopes consumers will choose their product over those of competitors. Essentially, doing a thorough and efficient job leads to profits.

But R Street’s Chandler said since electric monopolies earn a return on investment, they’re not incentivized to run power plants efficiently and pass savings that could come from that on to customers.

“Electric utilities are only incentivized to just invest, invest, invest,” Chandler said. “They make money the less efficient they are. If they need two power plants instead of one, that’s great, because they make a return on both of them.”

He said that has had a measurable impact on prices.

“States that have restructured and have quality retail competition have seen prices go up far slower than states that stuck with their vertically integrated utilities,” Chandler said.