Author: Ingrid Behrsin    Published: 6/4/2025     ILSR

Monopoly game board

How can we change utility governance to give consumers some control over utility decisions?

For this episode of the Local Energy Rules Podcast, host John Farrell is joined by Josh Macey, an associate professor at Yale Law school who studies energy and environmental law.

Listen to the full episode and explore more resources below — including a transcript and summary of the episode.

Episode Transcript

The Problem with Utility Monopolies

“When you give someone a right to a monopoly, there are many, many ways they can just overcharge you.”

Investor-owned utilities –– utility companies owned by Wall Street shareholders –– are allowed by law to be the only electricity providers in certain regions. For nearly 100 years, government regulations considered every part of electricity production to be a natural monopoly, so state regulators monitored these companies and controlled the prices they could charge.

However, government oversight often falls short of protecting ratepayers from the interest of utility shareholders. Utilities frequently overcharge captive customers, and regulators lack the resources to stop them. Utilities often spend too much on big projects we don’t really need, and hesitate to invest in new technologies that could make their current equipment outdated, because they’re worried about losing money. And unlike competitive markets where businesses also serve shareholder interests, monopoly utilities have little incentive to reduce costs, avoid pollution, or improve reliability for customers.

Leveraging Monopoly for Anti-Competitive Advantage

“Usually the transmission owner blocks access to the grid in order to keep the price of electricity high.”

Even as competition was introduced in areas like power generation starting in the 1970s and 1990s, monopoly utilities have used their control over other business segments, like transmission or distribution, to disadvantage competitors. This creates a vertical integration problem where utilities that own both transmission and generation assets engage in anti-competitive behavior.

A prime example is controlling the interconnection queue, which determines how quickly and expensively competing power generators can connect to the grid. Utilities can “slow-walk” this process for years to prevent competitors from accessing the market and lowering prices.

“The core problem is that transmission owners, when they own generation, don’t want to take steps that will reduce the amount of revenues their generators earn, and they don’t want to take steps that will force some of their generators to retire.”

Obstacles to Enforcement

“Antitrust regulators have long been reluctant to bring enforcement actions against public utilities.”

Using existing antitrust law to challenge utility behavior is difficult, even though Congress intended the law to protect Americans from monopoly power. Utilities can draw on significant financial resources from captive customers to navigate prolonged legal battles. This uneven distribution of financial resources deters both government action and lawsuits from competitors. Additionally, competitors fear retaliation because they rely on the incumbent utility for grid access.

“Competitors rely on utilities to connect to the grid. And so even if you know you could win an antitrust case, you may be reluctant to anger a company that you’re going to be relying on for years and years and years.”

Furthermore, legal doctrines and court precedents –– the state action doctrine and the filed rate doctrine –– have discouraged challenges to utility actions. These doctrines generally protect a utility from legal challenge if its actions are actively supervised by state regulators. However, courts err when they suggest these doctrines should shield utilities from misusing their monopoly power in competitive markets or ignoring regulations designed to ensure fair access.

“The fact that a state approves of a contract doesn’t mean it is actively supervising the monopoly abuse and many public utility commissions simply lack the resources to review all of the details of a utility tariff.”

Tools for Accountability

“The first and easiest thing states could do is order what energy wonks call full corporate unbundling — that if you own transmission, you should not be allowed to own generation… There’s basically no reason to allow transmission owners to own generation.”

In addition to restructuring, antitrust laws and regulatory actions can hold utilities accountable. Courts possess the power to issue injunctions, forcing utilities to cease anti-competitive actions, such as delaying grid interconnection. In egregious cases, the Department of Justice can force a transmission owner to sell its generation assets in order to eliminate conflicts of interest.

States also hold power through their own antitrust laws, which the Supreme Court has confirmed can apply to utility conduct. States or federal regulators can mandate structural separation by ordering utilities to divest generation assets from their transmission and distribution operations.

“State and or federal regulators should take whatever actions they can to structurally separate generation and transmission.”

Reforming Governance for Ratepayers

“Given how it is very, very, very hard, if you are an ordinary customer of a public utility, to intervene in a rate case or an integrated resource plan, we end up relying entirely on regulatory decisions.”

Governance reform could also elevate consumer or ratepayer interests over shareholders’. The current utility governance model focuses on shareholder profit, with the presumption that shareholders are the “residual claimant,” meaning that they get paid last for, but deserve the reward from, risky investments. But unlike non-monopoly companies, state regulators set monopoly utility profits. This means that  ratepayers, not shareholders, are the residual claimants that bear the costs and consequences of utility decisions.

Reforms could elevate the voice of consumers as the responsible parties. This could look like using competitive solicitations for new investments, giving diverse stakeholders board representation, linking executive compensation to ratepayer outcomes (such as clean air or lower bills), and allowing ratepayers to sue managers for utility waste.

“States can and should essentially ban lobbying.”

Other reforms like capping executive compensation, banning utility lobbying, and breaking up multi-state holding companies could realign utility shareholder incentives with public interest. Prioritizing structural separation to avoid conflicts of interest or supporting partial or complete public ownership also offers a path forward.

“Let’s tie things like executive compensation to performance that’s tied not just to shareholder returns, but how the utility performs for its customers.”

Episode Notes

See these resources for more behind the story:

For concrete examples of how towns and cities can take action toward gaining more control over their clean energy future, explore ILSR’s Community Power Toolkit.

Explore local and state policies and programs that help advance clean energy goals across the country using ILSR’s interactive Community Power Map.