Unbundle Omnibus

My esteemed co-blogger forwards the proposition that the institutional bottleneck in ISP is right-of-way: (regulated) legacy utilities collude with local authorities to protect access rents, and that’s the only way Comcast can get away with extorting Netflix.

This is a manifestly plausible claim. As Mr. Blackstone notes in the Updates section, unbundling has been a boon to consumers in the places it’s been implemented. The organizational design that was optimal in the infancy of many industries, when regulations were first adopted is unlikely to stand the test of time. Regulatory lock-in tends to ossify the organization of firms, as the tale told by American heavy manufacturing can attest.

Elsewhere, I’ve suggested that this phenomenon has started to catch up even with relatively stable utility providers. Smart grid tech and the sharing economy of power generation is confronted with a utility Janus that on the one hand boasts decades of practical experience, but with the other hand keeps a death grip on the political rents it has extracted and will be loath to release.

AB’s proposal just so happens to fit mine pretty well. Consumers benefit from load sharing, particularly as the start-up costs of rooftop solar drop. But the marginal value pricing of the grid itself could be difficult for consumers to easily grasp. Right now, I pay my “electricity” bill to the firm responsible for both power generation and transmission. If I suddenly began to receive a separate bill for the coal I’m burning and for the wires carrying the current I consume, I might chafe a little. However, recall that here at Sweet Talk, we cherish the power of rhetoric, which implies that we’re open to changing the rhetoric of power. I’d probably be more alert to my marginal consumption if I had one check going to the relatively fixed costs of the entire right of way: power distribution, communications, gas, water, whatever; and other checks going piecemeal to the good people who pull natural gas from the ground, churn windmills, maintain protocols, whatever. Recall the purpose of price: to send signals back and forth between producers and consumers. A separated right-of-way goes a long way towards removing the noise from that signal.

Also, from a political economy perspective, we know that one way to overcome a transitional gains trap is to just rip the bandage off all at once. If you’re going to break local right-of-way monopolies, doing it all at once will block incumbents from wasting resources trying to protect their fiefdoms.

One thought on “Unbundle Omnibus

  1. The falling cost of solar is interesting, but I think it’s actually the less-important story that will unfold in the next decade of the power industry. The more important story, in my opinion, is the fall cost of batteries.

    The development of mobile electronics, and soon the mass production of electric cars, is pouring billions of dollars into new battery technology and industrial capacity. Elon Musk is famously building his Gigafactory to meet Tesla’s supply needs. And other teams are working on new chemistries which will lower the price of batteries significantly. Lithium-Sulfur seems promising and near to commercialization.

    This is a big deal, in my opinion, because currently the electric market, from production to distribution to consumption, and built entirely around balancing supply and demand in real time. There’s no inventory. Once batteries become cheap enough, there will be. That should take a lot of the complexity and variation out of the system. Also, the current transmission infrastructure, built to handle the highest spikes, will be way, way overkill for the steady trick-charge needed to keep the batteries topped off.

    I’m not even sure of all the fallout from this.

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