Utilities Are America’s Real Monopoly Problem and Need Scrutiny

Presidential candidates may pitch ideas to reduce energy costs or control prices, but federal regulators have tools that can reduce those costs now and allow consumers to keep more money in their pockets.

Despite their aggressive antitrust enforcement in tech and labor markets, the Federal Trade Commission and Department of Justice haven’t prioritized the country’s most entrenched monopolies: public utilities that control access to our nation’s electric grid. Too often, these utilities leverage their dominant market position to raise prices and block competitors with newer and more efficient offerings.

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

Duke has provided power in the Carolinas for over 100 years. It serves captive retail customers (homeowners and businesses that buy electricity directly from utilities) under a state-granted monopoly, meaning consumers have no choice in who provides them electricity. Duke also sells power from generators it owns in a wholesale market. And it delivers power to both retail and wholesale customers via an integrated transmission system it also owns.

In the recent Duke case, an independent company that produces power but doesn’t have a state-granted monopoly or a captive customer base offered cheap and efficient wholesale service. Duke used its ability to pass losses and costs onto captive retail customers to fight back—lowering its prices for existing contracts and agreeing to buy power from municipalities’ small power plants at inflated rates to keep their business.

Unlike companies that participate in competitive markets in other parts of our economy, in utility markets, companies like Duke can place investment risk on the backs of captive customers and profit if the investment works out.

This kind of market power abuse has been documented for decades and isn’t unique to Duke, but this case is a recent and stark reminder of the harm posed by unchecked incumbent electric monopolies. Transmission-owning utilities have hesitated to invest in large projects that would reduce electricity prices, improve reliability, and allow clean energy resources to get to market.

A more interconnected grid would expose utilities’ generators to more competition and reduce the need for future investments, so they use their privileged position to prevent competitors from entering the market.

The US Court of Appeals for the Fourth Circuit found that Duke may have violated the antitrust laws and allowed the case to proceed in district court. But the case was brought by an independent competitor, not federal regulators whose job it is to enforce antitrust law.

While regulators have long recognized that antitrust is an important part of the energy regulatory toolkit, they haven’t focused on energy companies, especially in the past decade. Antitrust law seeks to safeguard competition for the ultimate benefit of customers, but when electric utilities use their market power to protect their own existing resources, antitrust laws can help ensure more efficient and cheaper resources can connect to the grid.

Federal regulators should follow the Fourth Circuit’s lead and do more to prevent monopolies from maintaining their position through non-economic, anticompetitive conduct. Until they do, electric bills across the country will be unnecessarily high, and existing monopolists will keep new resources out of the market.

States have options, too—their policymakers could force utilities to sell their generation assets. This is known as “quarantining” the utility. At the very least, state regulators should require utilities to join independent organized wholesale markets that give customers access to alternative suppliers. Both options reduce utilities’ incentives to block competitors from the wholesale market, increase competition, and complicate utilities’ efforts to pass shortfalls or losses onto their captive customer base.

Electricity is expensive, blackouts are increasingly severe and frequent, and new, cheaper, and cleaner suppliers need to access the grid to reduce emissions and prices. While utility regulation allows firms to operate a monopoly in certain situations, it doesn’t mean utilities can act with impunity, and it doesn’t exempt them from the antitrust laws in markets that are supposed to be competitive. The FTC and DOJ need to get their priorities straight and work to lower our power bills.

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