If you think regulated monopolies are bad, try unregulated monopolies.
Some 75 years ago it was decided there were areas of the economy that were natural monopolies, most notably gas, electric and telephone services. It made no sense for competitors to duplicate the stringing of telephone, electric or gas lines. Exclusive territories were carved out to allow one company, without competition, to serve the people.
The price for this monopoly was regulation. The utilities could charge rates guaranteeing a "reasonable rate of return" to cover investments in plant, equipment and operating costs. This arrangement served the country well. Utility profits were guaranteed and utility stocks were the bluest chips on Wall Street.
This policy lasted until some ten years ago when deregulation fever swept the country. Telephone, electric and natural gas bills would be lower if only the heavy hand of regulation were lifted from the backs of the utility companies, officials claimed.
These arguments made sense because incentives to overbuild created unneeded costs. Phone lines were stretched to areas where development was only a dream. The same was true for gas and electric service. Remember the old phones we used to rent. They were indestructible. Why not? The cost to build them plus a reasonable profit could be redeemed from the ratepayers.
Competition, not regulation, is now the rage in the utility industry. In California, competition was supposed to deliver adequate electric generation but something happened on the way to the wall plug. The competitors refused to add more capacity until the price for electricity rose to exorbitant heights. These unnecessary, some would say greedy, shortages created the current crisis there.
So far Indiana has suffered only a glancing blow from deregulation. The recent sky-high prices for natural gas are partially the result of "alternative regulation" laws adopted in 1995. Only when natural gas prices get high enough will suppliers begin to meet the demand. In the meantime, consumers take a serious hit.
"Opportunity Indiana" was a plan adopted by Indiana Bell, now Ameritech, back in the early nineties. The deal was that if the regulators would look the other way regarding profits, rates for customers would be frozen for three years. To sweeten the bargain, the phone company promised to donate millions of dollars for computers in schools and libraries.
Last year newspapers were full of horror stories about poor phone service across the five-state Ameritech service area. People who moved or had other service outages, could not get phone service restored for weeks. In other states, Ameritech was fined millions of dollars for this interruption of service and lack of response to its customers. In Indiana we don't have the authority to levy fines but authorities were outraged.
Now Ameritech has been accused of deliberately under-funding maintenance. It has been alleged that this policy not only resulted in poor service but also has saved the company some $3 to $5 billion in the last ten years. Remember, under deregulation, money saved by not keeping up the equipment and by cutting labor costs increases profits. Surprise. Surprise. Ameritech's profits have increased enormously.
One of my favorite quotations was attributed to the Rev. Theodore Hesburgh, the former president of Notre Dame. He said, "If you think education is expensive, try ignorance."
Today reasonable people might conclude that if you think regulation is expensive, try unregulated monopoly.
