By John Farrell

Utility monopoly power has (finally) become a top-tier issue in state politics.

The high costs of the monopoly utility system stem from two fundamental flaws: utility profits are tied to capital investments rather than performance, and utilities have a legal monopoly over electricity distribution. In short, the system gives for-profit companies the incentive and the power to ignore their customers and stifle competitors who might serve them better.

Political leaders have taken notice. New Jersey Gov. Mikie Sherrill declared utility costs a state of emergency and signed executive orders calling on regulators to review utility business models. Pennsylvania Gov. Josh Shapiro says the regulated utility system is “broken” and has outlined reforms to limit profits. California gubernatorial candidate Tom Steyer vows to “stop the utilities from acting like monopolies.”

These are welcome diagnoses, but the proposed treatments will fall short of a cure. Sherrill’s executive orders won’t change how utilities profit, and her charge to “review business models” is more likely to dead end in a shelved report than in systemic change. Shapiro and Steyer show a stronger grasp of what’s broken but still fail to address the fundamental flaws. Shapiro offers multiple proposals to address excessive profits but leaves the distribution monopoly intact. Steyer targets both the profit incentive and monopoly power, but his proposals would leave for-profit utilities as masters of the grid.

Disappointingly, Virginia Gov. Abigail Spanberger hasn’t joined the class of leaders with a similar diagnosis, despite being faced with a major monopoly power threat from the proposed NextEra-Dominion Energy merger. Dominion shareholders have been offered at least a $10 billion premium, and the tie-up offers numerous routes for the giant new utility to extract high rents from its captive customers.

The combined company would be selling to itself, owning both gas-fired power plants and gas pipelines as well as being an electric provider to and developer of data centers. Already, the excessive rates of return allowed Dominion by Virginia state regulators will absorb the proposed customer bill credits within two years and that’s with a naive assumption of no new rate increases.

History suggests the combined utility won’t be shy about recovering the purchase price from captive customers. Baltimore Gas & Electric issued rate increases in three consecutive years after its purchase by Exelon in 2012, and NextEra’s Florida subsidiary has been on a rate-raising tear, with increases totaling over $12 billion in the last five years alone. Spanberger has opportunities to protect Virginia consumers. Among other potential actions, she should push for legislation to tighten merger standards so that Dominion and NextEra must divest assets that would allow for cross-subsidization and provide guarantees of substantial, long-term benefits to customers. But like her peers in other states, Spanberger’s best option would be to pursue legislation to go for the monopoly heart of the problem.

Notably, no politicians or candidates yet have talked about breaking up the monopolies themselves. Handing distribution grid operation and planning over to a nonprofit, public entity — sometimes called an independent distribution grid operator (IDSO) — would remove the myriad conflicts of interest that define the current model of for-profit monopoly ownership. Existing utility companies would become competitive service providers, building new infrastructure only in response to real need and only if they could deliver it at the lowest cost.

We already have a model of successful independent operation within the U.S. high-voltage transmission system. Like their transmission system counterparts, distribution system operators would manage all relevant sources of electricity (power from the bulk grid, customer rooftop solar arrays, networked car chargers or batteries) on the poles and wires running through our neighborhoods. Ownership of distribution poles and wires would similarly transfer from the incumbent monopoly to this independent, ideally public, not-for-profit operating company.

Publicly run or nonprofit grid operators mean improved reliability. Across the country, customers of public or cooperative utilities consistently have fewer and shorter outages than those served by for-profit utilities. Meanwhile, California investigators found that incumbent utility Pacific Gas & Electric’s choice to defer maintenance in favor of higher shareholder dividends led to at least one of several catastrophic wildfires in recent years. Without conflicts over profits, public grid operators will make the grid more reliable.

Independent grid operators would also lead to lower costs. Distribution grid expenditures contribute more to rising electricity rates than almost any other item, and the for-profit, capital-based utility model creates a strong pressure to spend (because money is made when concrete is laid). Independent operators would reduce costs by prioritizing the efficient use of existing infrastructure or by using fast-to-deploy tools like virtual power plants that combine new or existing local resources such as solar and batteries from hundreds or thousands of sites.

Public grid operators would also unlock access to huge amounts of new, lower-cost capital to meet rising electricity demand. U.S. utilities expect returns of 9-10% on low-risk investments. Private equity, now snapping up utility companies, expects even more. Public grid operators could use low-cost public financing. Even not-public, nonprofit independent grid operators could look elsewhere. In Australia, for example, nearly one in three homes has solar power, providing power capacity equal to nearly one-fifth of the grid’s needs. Everyday Australians bought enough small solar panels to generate that huge public benefit — without waiting around for rich investors, private equity, or even their government to take an interest in solar. Just as the federal government’s breakup of AT&T led to fax machines and modems and the modern Internet, we can expect an open access electricity network with fair rules to unleash lower costs and innovation.

It’s exciting to see political leaders correctly diagnose the monopoly utility problem and bring forward substantive proposals. But the moment calls for bolder thinking — systemic fixes that could offer a permanent cure, not just symptom relief.

John Farrell is Co-Director of the Institute for Local Self Reliance (ILSR) and directs its Energy Democracy Initiative, whose work challenges utility monopoly power and promotes local clean energy.