Utility Companies Exposed

Alan Cai

June 03, 2022

Flawed is perhaps the most adequate description of the utility industry. A market structure that, at any given time, can only have one supplier is bound to reach impenetrable barriers.

Generations of modern history have easily proven to global audiences that the superior mechanism for which markets ought to operate is with a healthy degree of competition.

Immediately noted is the fact that too much competition, varyingly defined, is not ideal, but undoubtedly more efficient than a monopoly. The latter, however, is the state of the utility industry across the nation at the moment.

Cities with publicly owned utilities or privately owned utility companies often face challenges of inefficient management and wasteful planning due to the pressure, or lack thereof, for coherent processes. The impacts of this dangerous economic combination are threefold.

The first is an unnecessary burden placed on consumers. Water, natural gas, and electricity must be attained by consumers regardless of prices. Without an alternative source of receiving it, consumers must continuously pay utility companies regardless of how high the price is raised. Similarly, the companies have no hurdle, outside of arbitrary government price controls, to set the price exactly as they see fit.

The second is innovation. With regards to utilities, one might immediately jump to the conclusion that the necessity for innovation is kept to a minimum. Such an assumption is egregiously incorrect as said industry desperately needs new ideas and developments. As their profits rely on maintaining, and in the long term, increasing supply, companies inevitably require more corporate developments. The defining boundary between innovation in this industry compared to most other consumer markets is consideration for the consumer. For example, in the retail industry, retailers must understand that without delivering the highest quality product possible, they would not be able to retain customers. On the other hand, an electricity company may blindly construct power plants without a second thought to their users. The same logic applies to other sectors such as customer service, from which utility companies lack the burden to handle the issue.

The third is the situation of emergency. For most markets, emergencies generally pose a looming threat of uncertainty and distrust, leading to unstable fluctuations in revenue and supply. However, threats of emergencies are quickly subject to profiteering by utility companies. For example, in the case of a drought, water companies inevitably increase prices to reflect the low supply and combat the drought. However, financially restricting access to water severely and unfairly strains the burden of consumers who desperately depend on the commodity to survive. Similarly, as costs are accumulated by the water company in a drought, all of the profits earned from the increased prices go directly into the company’s cash reserves. When the drought is over, without the pressure of alternate suppliers, the company has no obligation to, and rarely does, decrease prices. This indefinite loop secures endless profits for utility companies across the board, the sources of which extend directly from every civilian’s profits.

The above-intertwined reasons prove that utility companies are an incurable predicament and will be very difficult to combat in the foreseeable future.