Natural Monopolies: Principles and Application

Last week I wrote about a dispute between the city of Houston and CenterPoint Energy. One of the comments to that post defended the concept of regulated monopolies, arguing that the infrastructure costs would prevent competitors from entering the market. In addition, a new entrant into the industry would have to run power lines to each customer. What if property owners did not permit the new company to do this? What, it was wondered, would be my plan for addressing this issue.

There are several premises packed into this question, all of which are mistaken.

First, the assumption is that a new power company would attempt to service the entire city. This may or may not be true. There are many examples of companies entering a market in stages. As infrastructure is developed the company expands the area it services. As an example, Comcast has done this with service to businesses.

Second, the question implies that if one advocates a particular principle, one must also provide details of its practical implementation. The failure to do so, it is further implied, invalidates the principle.

This is a common error founded on the false alternative of skepticism or omniscience. If we do not know everything, then we cannot know anything. If I cannot provide specific, concrete details as to how a free market in electricity would operate then the entire principle of freedom is discarded.

The implementation of any principle can be highly complex. Many factors must be considered. In the case of electricity, factors such as the cost to generate power, the cost of running wires, projected market capture, and much more would need to be considered by a new power company. The new company would need to consider these factors in the context of its goals to determine how to act. Which brings me to my fourth point.

It is impossible to predict exactly what actions men will take when they are free. Unrestricted by arbitrary government regulations, innovation increases and previously unknown solutions are developed. In a regulated environment, electric providers are shielded from competition, and those who develop innovative solutions are prohibited from entering the market.

As one example, it has been suggested on HBL that small nuclear plants could be used to provide power for a neighborhood or community. By placing power generation close to the end user, many costs would be reduced. Such innovations are impossible in our current environment.

Finally, the question drops the context. Existing utilities have easements in which they can erect poles and run power lines. This fact would have to be considered in any transition to a free market in electricity. The rights of existing companies, property owners, and new companies would have to be identified, recognized, and protected.

The transition from regulation to freedom will not be as easy as throwing a switch. The process would likely need to be gradual, with some less than ideal steps along the way. As one example, and this is only an example, it might be necessary to require existing companies to share their poles with new companies, with compensation paid to the existing company.

The fact that I cannot provide specific details regarding a free market in electricity does not invalidate the principle that each individual has a moral right to his own life. Freedom allows individuals to act according to their own judgment, and I would not be so presumptuous as to claim that I know how others will act. But it sure would be fun to find out.