Many of us have played Monopoly, the ruthless board game with cute tokens. The goal is to drive all other players out of business by charging usurious rents. If a contestant is unlucky enough to land on hotel-laden Marvin Gardens they’re required to fork over a stack of faux cash. It doesn’t matter that no one wants to stop at Marvin Gardens, nor that a piece could get essentially the same resting experience on Pacific Avenue at a fraction of the price. The game mimics rapacious capitalism, rewarding complete domination, with chance occupying a large role in the outcome.
Included on the board is electric company, an asset that can’t be improved and whose rents don’t change. A low-cost investment that has reliable returns, but whose ownership rarely wins the game. This treatment reflects a 20th Century political and economic understanding of a sanctioned, tamed, monopoly, one in which economies of scale create the ability to produce what’s needed at lower costs per unit, thereby making the entity worth protecting from unfettered competition.
In today’s real-world property prices – including for San Francisco luxury hotels – rise and fall, while electric utility rates exclusively follow an upward trajectory. Since 2020, the average price Pacific Gas and Electric Company (PG&E) charges a household for a kilowatt-hour has jolted skyward by more than 50 percent. A chunk of this increase is due to inflation; the cost of wages and materials have risen, especially as a consequence of a COVID-shredded supply chain. Another portion is caused by massive investments in managing wildfire risks, benefiting a tiny subset of energy users. And a goodly amount is almost certainly the result of cost ineffective overspending on infrastructure, which coincidentally generates excellent profits for PG&E and other suppliers.
Perhaps contrary to popular belief, while power demand is beginning to surge elsewhere in the nation, the amount of electricity consumed in California has declined over the past three years. The state hasn’t yet experienced significant demand increases due to electric vehicles or building electrification. Investments in distribution (D) – poles, wires, and associated undergrounding – and transmission (T) – long conduits freshly built or bolstered principally to convey recently adding renewable power – are what’s driving rate rises.
There are non-utility alternatives to these monopoly-provided services. For instance, the need for both D and T can be displaced or replaced by locally sited renewables supported by batteries or other storage technologies, along with conservation and adoption of more efficient devices.
Less than a year ago the State Auditor found that the California Public Utilities Commission and Public Advocates Office – which’re responsible for regulating for-profit utilities – are performing poorly, with too little scrutiny of monopolies that have strong financial incentives to overinvest. One way to make sure that we’re getting what we need, rather than overpaying for things that aren’t necessary, would be to carefully examine all investments, especially potentially excessive D and T infrastructure, disallowing reimbursement for items determined to be excessive. Similarly, the rate of return regulators authorize for these assets, between seven and 10 percent, should be reduced to reflect actual risks, instead of padding shareholder proceeds. PG&E made $2.24 billion last year, a 24 percent increase from the year before.
As importantly, regulators’ responsibilities to police the monopolies need to shrink, replaced by competition and broader civic-based initiatives. Utility code should be modified to allow electricity sales to contiguous parcels, thereby enabling development of community-based microgrids; localized networks of solar, storage, and energy management devices. Assembly Bill 3107 – which’ll almost certainly be killed by utility lobbyists – would clarify that microgrids that cross public streets to provide collective energy services could be approved by local governments, rather than the CPUC.
The alternative strategy, being pushed by utilities and state regulators, is to further solidify monopoly dominance, by giving them direct control of when appliances and electric vehicles are used and charged. This is an unpleasant prospect, particularly in the hands of investor-owned entities that have an interest in maximizing profits and which already have oversized political pull. If monopoly utilities are influential now, wait until climate-driven electrification enables them to absorb the power of the petroleum companies. Godzilla and Mothra, together at last.
Those of us who’ve played Monopoly against serious, cold-blooded competitors have learned that the best way to win the game is to walk away from it. At its heart it’s a cruel amusement, an educational tool about capitalism gone wrong. There are other pastimes to enjoy, just like there are alternatives to sole reliance on a centrally controlled grid that depends on active policing by topnotch regulators to affordably heat our homes, cook our food, and potentially drive our cars.
Let’s stop playing around with attempting to tame monopolies, which almost certainly do not even possess economies of scale advantages anymore. We control the regulatory board; let’s create one with less chance of ever rising rates.
Steven J. Moss