Why aren't utility companies considered monopolies?

[Superdude]

Something occured to me while I was in the shower.

I have only ONE company that I can turn to to have electricity. Only ONE company that I can turn to for my water/sewage needs. I have a few choices for telephone service.

Don't current anti-trust/monopoly laws essentially mean that one company can't corner the market on goods and services? Isn't there supposed to be an alternative?

[asterion]

They are considered "natural monopolies." In any case, having a monopoly is not illegal. Doing illegal things to get a monopoly or abusing monopoly power is.

[OldGuy]

Originally Posted by Superdude

Something occured to me while I was in the shower.

I have only ONE company that I can turn to to have electricity. Only ONE company that I can turn to for my water/sewage needs. I have a few choices for telephone service.

Don't current anti-trust/monopoly laws essentially mean that one company can't corner the market on goods and services? Isn't there supposed to be an alternative?

Utilties are considered monopolies. That's why they're regulated. as to teh prices they can charge. Some electric comanies and many water companies are actually run by a quasi governemnt agencies. The ones that aren't and other things like cable and telephone have regulated prices.

[Oat1957]

Several states have deregulated electricity. So there is no actual monopoly anymore.

Maryland is one.

[jayjay]

It's more or less a necessary situation. Utility companies use infrastructure that is integral to a municipality. If competing water companies were to be allowed to run pipes wherever their customers needed them to be, there'd be nothing but constant excavation and construction going on. Similarly with phone and electric lines, gas pipelines and sewage systems. You really CAN'T have multiple instances of these networks without disrupting daily life and optimum use of space.

[jayjay]

Ah...I forgot about electricity choice. I still don't quite understand how that works, though. All of it has to go through the same lines, no matter what.

[rfgdxm]

Originally Posted by asterion

They are considered "natural monopolies." In any case, having a monopoly is not illegal. Doing illegal things to get a monopoly or abusing monopoly power is.

For those unfamiliar with the term, a "natural monopoly" is one where the nature of the business means it would be inefficient to have competition. Better to have one company handling water and sewer service, than 3 laying down their own pipes and sewers throughout the town. And in rural northern Michigan 2 electric companies would make no sense. Some thing that used to be considered natural monopolies no longer are. Long distance phone service was able to handle competition long ago. Rather than use wires, some companies used microwave towers (MCI), and other used fiber optics along railroad right of ways (Sprint). Today in many areas even local phone service no longer is a monopoly.

[chrisk]

Originally Posted by jayjay

Ah...I forgot about electricity choice. I still don't quite understand how that works, though. All of it has to go through the same lines, no matter what.

From what I understand, they split up the business so that certain parts (the distribution, say,) is still a protected monopoly, and yet the GENERATION of electricity is made as close as can be to a natural free market. Your local utility company gets paid a fee for the use of their lines to deliver electricity from company X to you, and you pay company X's rate plus the surcharge. Or that's the way it goes in theory... it's a little hard in practice to send electricty from certain sources only to certain houses, given a traditional power grid.

Not sure about electricity, but here in Canada we have to deal with deregulated natural gas. (big sigh)

[Polycarp]

Utilities generally were monopolies, and most still are, except in the most deregulated areas. As asterion and OldGuy pointed out, they are considered "natural monopolies" in that the quantity of infrastructure necessary to deliver their stock in trade mitigates against having competing companies. Imagine if there were six competing electric companies, each with their own power lines running down your street!

To prevent abuse, most states have a Public Service Commission (names vary; the PSC is the most common usage) which theoretically regulates rates to permit the company to make a small profit for their stockholders while keeping the cost charged to the consumer as low as possible. The world not being ideal, the desires of the companies for more income tend to outweigh the desires of the consumers for lower rates, in many states.

Deregulation works in a variety of ways, ranging from turning the local utility company loose to charge what the market will bear to enforced competition. In its most extreme state, what happens is that you can choose to buy your electricity, gas, cable-TV, Internet, local phone, long distance phone, and other services from whatever company is willing to sell them to you, and that company will simply pay a fixed, standard rate to the company that owns the infrastructure servicing your home, to bring its service to you. Obviously, this works best with something like long distance telephone service, where the point of being connected to a network is basic and the actual ability to provide good service at low cost is the competitive factor. But I know of instances where the Podunk Power Co. sells power to the Smith home a few miles away, using the lines of Avaricious Edison, who formerly had a monopoly on service to the Smith home, and paying them to use their lines -- but still able to sell its power at lower cost to them, while paying the line charge, than the rates Avaricious Edison was charging. (I didn't coin that name idly!)

The public vs. private issue also plays a part here -- most people get water and sewer service from their municipality, if they don't have wells and/or septic systems of their own or shared with neighbors. But there are private water companies, and even private sewer-line companies (though these are fairly rare). Most people pay a utility company for electric service, but there are a number of areas where electricity is provided by a government-owned corporation, effectively at cost. Where natural gas is pumped to homes along gas lines as a public utility, it may be provided by the "power company" that also provides electricity, by a separate gas company, or again by a public-sector corporation.

Telephone service has become so complex in recent years as to not be worthwhile trying to summarize. Effectively in most areas one gets local service from a company with a franchise, while being able to select among a variety of long-distance companies, which generally include the company providing them local service. But I guarantee that if I said that as a generalization without adding this sentence, I would get up to 30 anecdotal posts telling me how telephone service conditions in Wartsburg, Ohio, or Frostbite Falls, Idaho, are quite different from what I said.

In general, cable TV still operates on the franchise system -- a company agrees to provide certain basic services and opportunity to get others in exchange for the exclusive right to run coaxial cable carrying their services through a given area, that right being given by the municipality or county in the form of an exclusive franchise. And we won't even think of discussing how one can access an ISP and what are available.

[stockton]

Great answer (as usual), PC.

So why the heck is Georgia Power/Southern Co running 'feel good' ads during the Braves games and at random times during the last few years?

Mrs. Stockton is very tired of me screaming: "What am I going to do, switch to the OTHER power company!?!"

I'd rather have my 4 or 5 cents than to sit through the tripe.

[rfgdxm]

Telephone service has become so complex in recent years as to not be worthwhile trying to summarize. Effectively in most areas one gets local service from a company with a franchise, while being able to select among a variety of long-distance companies, which generally include the company providing them local service. But I guarantee that if I said that as a generalization without adding this sentence, I would get up to 30 anecdotal posts telling me how telephone service conditions in Wartsburg, Ohio, or Frostbite Falls, Idaho, are quite different from what I said.

Where I live in the Lansing, MI area, I can choose between multiple local telcos. At this very moment I can't, because I currently have a contract with SBC (the main local telco) for a DSL line. AFAIK you can't have DSL with them without being a local telco customer. Then again, Internet service here is so competitive that not only was I able to negotiate with SBC that they actually paid me to sign up for DSL, this even included a truck run to my townhouse to condition the line for DSL. I had called SBC to see if DSL was available in my area, and was told yes and got a hard sell to sign up. I said no, as I wanted to sign up with SBC DSL at Best Buy to get DSL with a promo offer they were running. SBC wouldn't allow the Best Buy rep to let me have DSL for some unexplainable reason. It occurred to me to call SBC direct and try haggling. It took a supervisor to approve this, but I got DSL.

And we won't even think of discussing how one can access an ISP and what are available.

ISP service is still considered a "luxury" and not regulated. Besides, I can sign up with tons of competing dial up ISPs. I can even get cable modem service here if I want high speed. SBC must know this damn well. I did, and this is why I was able to haggle with them to pay me to get DSL, including a free DSL modem to boot. I cleverly mentioned to the SBC rep that I wanted high speed Internet access, and was checking them out to see if they had a better offer than the local cable company. The salesman (who must get paid commissions) did everything possible to get me DSL, and of couse pointed out how much better DSL was than a cable modem. Fortunately for me DSL service out this way is fantastic. I even ended up with twice the promised upload and download speeds through a "hidden upgrade" that I found out SBC gives customers who live in areas where the lines can handle the higher speeds. Heck, they ought to be considered pushers. I'm so hooked I dunno that I will be able to go back to dial up, and may just keep paying them the full $27 a month for DSL service.

[chrisk]

Originally Posted by stockton

Great answer (as usual), PC.

So why the heck is Georgia Power/Southern Co running 'feel good' ads during the Braves games and at random times during the last few years?

Mrs. Stockton is very tired of me screaming: "What am I going to do, switch to the OTHER power company!?!"

I'd rather have my 4 or 5 cents than to sit through the tripe.

Simplistic answer... they're not worried about you switching to some other power source, they're running the feel good ads to make you feel good about using a lot of electricity.

I would imagine that the more people use (assuming they can meet the demand) the higher their profits are. Not all advertising is about competition -- some of it is just rampant propaganda about consumerism itself