Federal and state antitrust laws generally forbid any monopolization of commerce. Yet, ironically, the City of Vero Beach, Florida (where I live) has maintained a State authorized unregulated electric utility monopoly for decades. And like all government protected monopolies, the City's electric utility rates (prices) to its captive customers have proven to be far higher than those charged by its nearest potential competitor.
Florida Power and Light, which serves adjacent geographic areas (and could serve Vero Beach) charges rates that are dramatically lower than Vero Beach Utilities. For example, FPL's current total price including tax is $114.06 per 1,000 kwh while Vero Electric charges County customers $180.69 per 1,000 kwh, an incredible 58% more. Thus someone with an electric bill from the Vero Beach Utility monopoly for, say, $400 per month would pay only $253 to FPL for the very same product.
In antitrust law, that dollar price difference between the monopoly price and the competitive price is termed the monopoly overcharge. And if it is multiplied by the quantity of electricity consumed by the more than 34,000 thousand current customers of Vero Utilities, the total wealth loss to local residents over the years is seen to be truly staggering.
Normally in a private antitrust case involving monopoly, the injured plaintiffs would be able to sue the monopoly and attempt to collect three times the overcharge (treble damages) in a recovery.
Government sanctioned monopolies, however, are usually treated differently. Most are either exempt from antitrust law or, in the case of a private firm such as FPL, they are rate regulated by a regulatory commission (Public Service Commission) so that their prices reflect the cost of providing the service and allow a reasonable rate of return on investment.
Vero Beach Utilities, however, appears to have the best of all possible worlds...for itself and the City (which rakes off a 7% profit from the revenues). First, potential competitors cannot enter its market territory by law; second, it is apparently exempt from antitrust law and any threat of treble damages; and finally, its rates are NOT regulated by any state regulatory commission to ensure that they are fair and reasonable.
Most of this economic nonsense started back in 1978 when several State and Federal agencies sued to stop a referendum-authorized City of Vero Beach sale of its electric utility to FPL. Then in 1981 a notorious territorial agreement was crafted to divide up the electric grid between the City and FPL. (If this division of market agreement were done by private firms, it would be a per se violation of antitrust law.) Finally, in 1983, the Florida State legislature removed (deregulation!) the bulk of the Public Service Commission's regulation of Vero's electric monopoly, including rates.
Since then, customers of the City's electric utility (61% of whom live outside the city and can't even vote on these matters) have been simply at the mercy of whatever service and price structure the utility determines is appropriate. As one could predict, this has proven to be a recipe for massive inefficiency and price gouging.
There are several ways to reform fundamentally the current situation. One way is to simply require that the City of Vero Beach sell its utility operations to any willing buyer. A second alternative would be to end the territorial monopoly and simply allow customers to switch to a competitor. This latter proposal would create competition between electricity providers and would tend over time to lead to lower rates generally.
In addition, in order to encourage non-traditional suppliers of electric power, any and all supply restrictions on the production and sale of electricity should be removed. With legally open markets and a strong potential for competition, electric rates should decline to more fair and reasonable levels.
|Dominick T. Armentano is a Research Fellow at the Independent Institute, professor emeritus in economics at the University of Hartford (Connecticut), and author of Antitrust and Monopoly: Anatomy of a Policy Failure.|
ANTITRUST AND MONOPOLY: Anatomy of a Policy Failure
Is antitrust law a necessary defense against the predatory business practices of wealthy, entrenched corporations that dominate a market? Or does antitrust law actually work to restrain and restrict the competitive process, injuring the public it is supposed to protect? In this breakthrough study, Professor Armentano thoroughly researches the classic cases in antitrust law and demonstrates a surprising gap between the stated aims of antitrust law and what it actually accomplishes in the real world. Instead of protecting competition, Professor Armentano finds, antitrust law actually protects certain politically-favored competitors. This is an essential work for anyone wishing to understand the limitations and problems of contemporary antitrust actions.