Affordability topped the list of voter concerns in this month’s midterms, and energy costs are among the hardest to ignore. Many of us lump gas prices and utility bills together, and both feed the sense of being squeezed by several years of inflation.
There’s little Frankfort can do about the price at the pump. Gov. Andy Beshear lowered the gas tax in May, and I doubt many Kentuckians felt much relief. Prices quickly returned to $4 a gallon, and no governor or General Assembly can overcome the geopolitical uncertainty that’s keeping fuel prices elevated.
Electricity is a different story. How power gets to our homes, and what we pay for it, is a state-level decision. Those calls belong to the Public Service Commission (PSC), a small agency with an outsized job: making sure utilities provide safe, reliable service at fair and reasonable rates.
I’m a free marketer to the core. So it may surprise some people that I believe Kentucky’s regulated utility model is the right approach, and that the case for this policy framework runs straight through classical economics.
Utilities provide essential public services. How society funds them has long been a mix of private and public investment. The plants, poles, wires and pipes that keep the lights on and the water running cost enormous sums and must last for decades. Whether investor-owned, publicly owned or member-owned cooperatives, utilities need to earn a reasonable return to build and maintain these massive investments.
Why shouldn’t they be subject to market competition? The English political economist John Stuart Mill answered that in 1848. He observed that London would be better served by a single gas and water company than by several. Mill, no enemy of free markets, recognized there are rare cases where competition won’t deliver an optimal level of services at a price the wider population can afford. Properly regulated utilities, however, would expand water, sewer and electricity far beyond where the market, if left to itself, would.
Brad Viator of Power for Tomorrow offers a more current take: “The market cannot support decadal investment in long-term assets, but the utility model can — and does.”
I believe that limited-government conservatives should appreciate a state agency that shows up every day to carefully consider the people’s business. In the face of this year’s hysteria about data centers and artificial intelligence, I’ve found the slow, steady and professional work of the PSC reassuring.
Since August, it has opened an investigation into the cost of electricity and natural gas service for residential customers. It approved a contract for a hyperscale data center to move forward at a former industrial site in Hancock County. And, it’s working through multiple rate requests from water companies, using its quasi-judicial authority to balance a business’s need to make a fair profit against the worst excesses of monopolies.
Edmund Burke warned that it’s a common error to assume the loudest complainers are the most concerned about the public’s welfare. In 25 years of observing Frankfort, I’ve seen some politicians demonize power companies to score cheap points with their constituents. So, I expect we’ll keep seeing opportunists push flavor-of-the-month proposals that would radically change the PSC’s purpose.
When they do, their ideas should be run through this gauntlet of facts: According to the Energy Information Administration, Kentucky’s residential electricity rates are 74 percent of the national average; our industrial rates, 76 percent. Over the past year, the state’s overall average price of electricity has grown half a percentage point slower than the rest of the U.S.
That our home energy costs haven’t risen as fast as the nation’s doesn’t take away from the stress people are feeling to make ends meet. But exposing Kentucky utility customers to profiteering from loosely regulated, out-of-state companies isn’t the answer.
The onus is on those who would dismantle Kentucky’s regulated utility model to explain why they’d gamble with something that has worked for nearly 100 years.
Andrew McNeill is the president and senior policy fellow at the Kentucky Forum for Rights, Economics & Education (KYFREE). He served as the deputy state budget and policy director in Gov. Matt Bevin’s administration. His email address is amcneill@kyfree.org.