Sunday, March 06, 2005

About the Utility Industry

Hello this is Carl publishing while Dan is away...

My background is in the utility industry, specifically gas, electric, water and telephone utilities. Even though everyone works with these companies on a daily basis and receives critical services from them, they are poorly understood. Over the next few days while Dan is away I want to use this space to give some food for thought about how we manage these critical services in our country and how we might do a better job in the future. Sorry if this is boring to a few of you...

The basic concept in utilities is that of a natural monopoly. For electrical service, as an example, you don't want to have 2 companies both stringing overhead wire and putting meters in people's home. This would be a massive duplication of infrastructure. Thus companies are generally given a monopoly franchise by a city or state where they won't have competition, in return for having their profits regulated AND committing to serving all of the customer in that region.

There are a lot of things wrong with our utility industry but I need to start by praising the people out in the field that provide key services. If you are a lineman in North Dakota, the lines typically go down in the worst weather conditions, and you are expected to climb a pole and restring the lines in the dead of winter with the wind howling and the temperature far below zero. We take this effort for granted, all nice and warm inside our houses, but they do provide a high level of service in most cases.

These items are key to remember:
  • A natural monopoly (no competition allowed)
  • Universal service requirement (must serve all constituents)
  • Profits are capped and the company is regulated
In later posts I will talk more about what this all means, but it is important that you understand the basics even though this may be obvious. The threads will go all over the place but by the time this week is done I will (hopefully) be able to tie them all back together again.

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