There is a “potato / potahhto” energy issue in the Carolinas.
The Carolinas are looking at creating a super-buyer of power to then distribute to citizens. It is called an RTO (regional transmission organization). It is fair to say that some policymakers have their mind pretty much made up because they have been touting the concept in various media outlets.
A contradiction exists in the arguments policymakers and others use. They decry monopolies.
A South Carolina senator penned an op-ed that said, “The state granted them [utilities] a service territory where no other competitor may sell electricity.” He later said, “The incentive problem is obvious.”
The Guilford College newspaper ran an opinion piece that says the utility monopoly “has a power cord wrapped around North Carolina.”
Let’s look closer.
I ran two columns that featured energy expert Ed Hirs from the University of Houston. He made an important point about regulated utility monopolies. I separated that part of the interview to this column because it is economically deep – needs its own space. (The columns were about policymakers and inefficient markets, and blue sky thinking.)
Hirs, someone with exceptional research in comparative economies, said, “An RTO is an industrial purchasing bureau, similar to the Soviet construction.” Sounds harsh. Check why this is true.
“An RTO in its pure form should be someone shunting electrons around efficiently, not a market maker.” Policymakers who want a capitalist approach to energy tap the RTO structure to create a different kind of market.
The word market is used trepidation when it comes to RTOs.
An RTO is far from free enterprise. “There is one buyer of the electricity in the wholesale market,” says Hirs. “This is what economists define as a monopsonist that is every bit as disruptive to producers as monopolists are to consumers.”
An article, Buyer Power: Is Monopsony The New Monopoly? says, “While monopoly is a single (or dominant) seller dealing with multiple buyers, a monopsony is a single (or dominant) buyer dealing with multiple sellers. The DOJ and the FTC have observed that in ‘important respects, monopsony is the mirror image of monopoly.’”
When someone says he or she does not want a monopoly, do they not want a monopsony, either?
A state that fails to manage a regulated monopoly will be just as dismal in its failure to manage a regulated monopsony. The only issue is the added cost and bureaucracy that policymakers create. Remember what the senator said – there is an incentive problem.
Potato / Potahhto?