In recent news reports on COVID19 pandemic, I’m glad to hear pundits and politicians refer to the electric utility model for emergency response. Utilities assist each other during major outages, sharing and moving personnel and resources to hard-hit areas, to keep the lights on and save lives. This has been a traditional part of utility operations for decades, and thankfully has survived the deregulation/competitive era which nominally began in the late 1970s. It’s part of utility culture.
At that time, many industries were eventually transformed by what is commonly known as neo-liberal/conservative economic and cultural philosophy which argued, in effect, that everything is better with competition and markets. The list includes trucking, airlines, natural gas, electricity, water, education, and health care. Given today the disparities in wealth, dislocations in resources, and the environmental issue of our time, global climate disruption, it’s easy to blame this philosophy for the ills we seem to be facing as a nation and society.
Maybe the better way to look at it is that this “strain of economic thought” has run its course and it is time to work within a new framework.
In my mind, that framework is the traditional regulated utility. The basic business model is the utility invests to expand and maintain its infrastructure to serve everyone in its “service territory” and a government entity, the public utility commission, sets a regulated rate of return on that investment. Approved operating costs are passed along to the ratepayer. This way, investors earn a fair return, the system is equitable to all, and rates are kept reasonable. While electricity prices vary around the country, there isn’t a person that pays a rate that is excessive to the value of the service.
Most importantly, this approach keeps things predictable enough so that utilities can plan on a multi-decade basis. This is critical for infrastructure businesses.
As I argue in Carbon IRA & YouTility: How to Address Climate Change & Reward Carbon Reduction Before It’s Too late, we could solve at least one half of our carbon discharge problem by quickly returning to the traditional utility business model, this time allowing utilities to own customer infrastructure – such as smart thermostats, efficient AC systems, storage devices and rooftop photovoltaic systems – which help optimize the grid for everyone.
Now, I’m not a health care industry expert but I don’t seen why this business model can’t be applied in the same way. Public and private hospitals compete for resources, segregating care based on who can pay, etc.; insurance companies adversarially fight to keep costs in check, and state government agencies struggle to create standards, fund innovation, and oversee the whole mess. Rather than debate the merits of socialism or capitalism applied to health care, why not a third way?
Consider each large health care organization (i.e., hospitals, doctor network, accepted insurance providers, etc.) a “public utility” and regulate the businesses’ financials and performance using a public government commission. It’s worked well for other “essential services.” Why shouldn’t it work for health care?
I don’t think anyone reflects on a personal health care event with the words, “Gee, that worked well!” And I don’t think anyone witnessing this morass called the COVID19 pandemic response is saying, “Damn: This is working really great!”
Market-based economics work best for new industries and innovation. Markets don’t work well for critical or essential services or commodities (that’s why commodity businesses tend to have three major suppliers and are reduced to an oligopoly). Markets work worst during crises, why you see price-gouging and hoarding.
Anyway, I’m glad the pundits and politicians are invoking utilities and their ability to collaborate for crisis response and perhaps will apply some of their processes over the long haul. Because what we are witnessing during COVID19, the lack of coordinated analyses, communication, response, could very well embarrass this country forever.
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