Utilities are America’s real monopoly problem and need to be controlled

Presidential candidates may float ideas to lower energy costs or control prices, but federal regulators have the tools to lower those costs now and let consumers keep more money in their pockets.

Despite aggressive antitrust enforcement in technology and labor markets, the Federal Trade Commission and the Justice Department have failed to prioritize the nation’s most entrenched monopolies: utilities that control access to the nation’s power grid. Too often, these utilities use their dominant market position to raise prices and lock out competitors with newer and more efficient offerings.

In other words, they engage in classic anticompetitive behavior at the expense of customers, often in violation of federal antitrust laws. The recent Duke Energy case in North Carolina shows that lax antitrust enforcement contributes to higher utility bills.

Duke has been providing power to the Carolinas for over 100 years. It serves internal retail customers (homeowners and businesses that buy electricity directly from utility companies) under a state-granted monopoly, which means consumers have no choice in who supplies them with power. Duke also sells power from its generators on the wholesale market. It supplies energy to both retail and wholesale customers through an integrated transmission system that it also owns.

In the recent Duke case, an independent power generation company without a state-granted monopoly or internal customer base offered cheap and efficient wholesale services. Duke used its ability to pass on losses and costs to captive retail customers to fight back, lowering prices on existing contracts and agreeing to buy power from small municipal power plants at inflated rates to keep its operations afloat.

Unlike companies that participate in competitive markets elsewhere in our economy, in utility markets, companies like Duke can shift investment risk to their own customers and profit if the investment is successful.

This type of abuse of market power has been documented for decades and is not unique to Duke, but this case is a recent and stark reminder of the harm wrought by unchecked incumbent electric monopolies. Utilities that own transmission have been hesitant to invest in large projects that would lower electricity prices, improve reliability and bring clean energy resources to market.

A more interconnected network would expose utility generators to greater competition and reduce the need for future investment, so they use their advantaged position to prevent competitors from entering the market.

The U.S. Court of Appeals for the Fourth Circuit found that Duke may have violated antitrust laws and allowed the case to be heard in district court. However, the case was brought by an independent competitor, not federal regulators tasked with enforcing antitrust laws.

While regulators have long recognized that antitrust laws are an important part of the energy regulatory toolkit, they have not focused on energy companies, especially in the last decade. Antitrust law is intended to protect competition for the ultimate benefit of customers, but when utilities use their market power to protect their own existing resources, antitrust laws can help ensure that more efficient and cheaper resources can be connected to the grid.

Federal regulators should follow the Fourth Circuit’s example and do more to prevent monopolies from maintaining their position through wasteful and anticompetitive conduct. Until this happens, electricity bills across the country will remain unnecessarily high and current monopolists will keep new resources off the market.

States also have options – their policymakers can force utilities to sell their generation assets. This is called “quarantining” the tool. At a minimum, state regulators should require utilities to join independent, organized wholesale markets that provide customers with access to alternative suppliers. Both options reduce utilities’ incentives to lock out competitors in the wholesale market, increase competition, and complicate utilities’ efforts to pass on shortages or losses to their internal customer base.

Electricity is expensive, blackouts are becoming more severe and more frequent, and new, cheaper and cleaner suppliers need to come online to reduce emissions and prices. Although utility regulations allow companies to operate in certain monopoly situations, this does not mean that utilities can operate with impunity and does not exempt them from antitrust laws in markets that should be competitive. The FTC and the Department of Justice must set their priorities and work to lower energy bills.

The case is Duke Energy Carolinas v. NTE Carolinas II, 4th Cir., No. 22-02168, 8/5/24.

This article does not necessarily reflect the opinions of Bloomberg Industry Group, Inc., publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Information about the author

Kent Chandler is a senior fellow at the R Street Institute and former chairman of the Kentucky Public Service Commission.

Joshua Macey is an associate professor at Yale Law School and a fellow at the Roosevelt Institute.

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