The following letter appeared in the Providence Journal today. There’s a wide misconception about what deregulation actually did in RI as opposed to what people thought it would do.
Rick Giannni: Why the National Grid monopoly?
01:00 AM EDT on Wednesday, July 16, 2008
Dismayed at the rate increase imposed by both National Grid and the Rhode Island Public Utilities Commission, I have a question to ask.
Why are Rhode Islanders tolerating this company that has a monopoly on electric and gas service? In the past, if you had a home telephone, you were forced to use the local provider. Now you can get home telephone service through various phone companies, your cable company and other companies.
So I ask the PUC this question: When will I ever be able to pick my electric and gas provider?
If we as consumers had a choice to pick the energy delivered to our homes by using alternate providers, it would force National Grid to become more competitive in its pricing. Until the legislature and the PUC step in to rectify this, we all have to get our gas and electricity through the National Grid energy cartel.
Unfortunately National Grid in both it’s electric and gas services is what is called a natural monopoly in economics circles. What it basically means is that it would foolish to setup duplicate systems. In the case of telecommunications, we figured out how to stuff more information down the same pipe so all it took were telephone and CATV lines.
This is why my video and phone services come via a net connection from Cox. Why pay Verizon for phone services when I can control my monthly costs via VoIP providers? Or for that matter why pay Cox for video service when there are a plethora of net based video services that don’t cost anything.
Of course now we’re seeing CATV providers like Time Warner and Comcast trying out metered bandwidth. I think the reason that irks me is because the companies mentioned KNOW their service is being used for the things I describe above. Did they not think that eventually the net would kill video and phone providers?
Back when the RI Legislature bent to the pressure of the electric and gas utility lobbies they deregulated the services, in the case of electric separating the distribution charges from the energy charges. The same theory was applied to natural gas distribution.
There are myriad problems with what the RI legislature did but I’ll discuss just a few.
Rhode Island is too damned small for deregulation to work. In essence the state reduced the role of the PUC and transfered regulation to the federal government.
The system was designed so any generating company could provide power to the consumer, while the consumer paid the distribution costs plus energy. It’s just that in the case of National Grid all the alternative energy providers are far more expensive than the incumbent. That’s just economies of scle kicking in there.
But the game is rigged so that National Grid NEVER absorbs a loss. Under regulation they absorbed the loss on a regular basis. I say this because I know that the burial of overhead power lines at India Point in Providence. National Grid fought tooth and nail to make the taxpayers responsible for paying for the burial. It was quite a spectacle.
I will say thought that National Grid did inherit a system in distress with regard to both electric and gas distribution. They’ve been replacing transformers, high tension lines, etc. over the past couple of years as well as replacing iron gas feeders with PVC. That’s what happens when you don’t perform due diligence.
And remember economies of scale? It’s because national grid is so big that they can offer what is the lowest rate per kWh of all the providers. But as there are economies of scale, there are also dis economies of scale. The bigger you get, the more expensive it gets to deliver your services.
When it was little Narragansett Electric it was a local company, and they did a fair job of keeping everything running. National Grid is feeling the pain and I say that’s a good thing. Maybe they’ll sell off the RI operations to an independent investors group who’ll stop the craziness.