This does the thing rather than describing it. You identify the cost that produced the institution, then ask what happens when the cost changes. The household battery makes it concrete. Same device, useless to the grid in one institutional environment and a grid asset in another, and nothing about the battery changed. Your six categories of transaction cost state the mechanism in a way an engineer and an economist can both use.
Two things I would press.
You name the two paths honestly and then leave the choice open. Platform or bottleneck. The incumbent's incentive is not balanced between them. A utility earning on capital it owns loses money when someone else's battery displaces a substation upgrade. The bottleneck path is not a failure of vision. It is the correct answer to the rate base. You write that regulators should think like institutional designers rather than accountants reviewing prudence. They review prudence because the statute directs it and because that is what sets the return. Pay the utility for something else and it will do something else.
Second, every fix you propose runs through a regulator. Data access, interconnection standards, interoperability, market participation rules. The utility works that process with money at stake. Customers do not. What disciplines a monopoly is a customer who can leave. Your own analysis points at it, because a microgrid is the modular unit you describe. Building your own generation, or running a line to a neighbor, is restricted nearly everywhere. Franchise monopolies, standby charges, prohibitions on selling across a property line. Those restrictions are what made the captive customer captive.
Your best sentence applies here too. The utility has always performed this function is not an economic argument. Neither is the utility must always be the counterparty.
"Neither is the utility must always be the counterparty." That is a great characterization of the kind of transaction cost-grounded change I think would be beneficial.
Curious, Oliver, I posted a Note and a Comment yesterday to Pangram or whatever the AI detector is called and not one person commented back: I ran my own tests. I took some of my writings from 2018 and 2019. Then I generated some AI-assisted writings and then I did a hybrid of some paragraphs AI, some mine. And my pre-2020 writings all came back either AI-written or AI-assisted. I use AI for double-checking facts. Correcting my grammar. I previously used a linguist to correct my grammar and help with sentence structure.
I will also use AI to confirm quotes for me. I seek precision in my writings. Also as a research tool. Again, for accuracy and precision. I will query about flaws in my logic. Again, I used to use human friends to disclose to me their perceived flaws in my writings. Now I no longer bother them. It is a tool. The decision to make is whether you work for it and you become its tool. Or you make it work for you, under your control and under your command and convert it into a smarter search engine.
Furthermore, the AI is pretty stupid. Still lacks general intelligence. Lacks imagination. Lacks wisdom. Poor at pattern recognition. And, despite all the hype, poorly trained. Barely toilet-trained. AI is biased. AI is opaque.
The deeper problem, at least in my opinion, is that most people are seeking an audience. It is called engagement. By most who really have little interest in engagement. People prefer an audience to conversation. How authentic is writing for an audience. How many human-written words lack integrity. Propaganda. Preference falsification. Is “AI-slop” any worse than human slop? How many people truly engage in authentic conversations? Or is it more attention-seeking?
I assume quantity is easier to monetize and achieves greater status than a conversation which does not scale. Quantity over quality. Well, for many, quantity is probably quality.
Maybe the philosophers present can discuss what is authentic?
What a pity then we need to rely upon these imperfect tools, treat them as some fundamental truth, when, if we chose dialogue and conversation and if we are perceptive listeners rather than active talkers, our own human tools would suffice.
"Edison would recognize the ambition. But the system he built is becoming something different—no longer only a machine operated from the center, but a platform on which many actors can build."
It's a conversation worth having that we leave the Edison legacy behind and rethink what he might have built from the ground up if he had the tools and knowledge we have ourselves today!
There is an unspoken assumption here that a broadly market based interaction between actors will result in lower costs and higher efficiency. A single state run or heavily regulated utility might still be able to use the increased coordination and control functions that are enabled to increase efficiency without splitting off the various functions that now *could* be run by different actors. Better information might just give new private actors the ability to find and profit from situations where the network has critical needs for example. If you own a battery and your contribution is needed to prevent a costly blackout, what might you be able to charge to avert it?
You are right to call this out as an assumption I make, which is accurate. I like your question about individual-owned batteries as a system resilience resource. I will incorporate that into something I’m thinking about writing this coming week :-).
The Coasean point is not that the utility should behave differently. It is that the comparison has to include the regulator's own costs. The rate case. The interconnection queue. The tariff proceeding. The standby charge. Digital measurement made the battery cheap to coordinate. It did nothing to the cost of getting permission to use one. The binding constraint moved.
Stigler explained why that will not change from the inside, and he was writing about this industry. Regulation is acquired by the industry and operated for its benefit. Asking the regulator to think like an institutional designer is asking the captured party to stop being captured.
Brozen supplies the rest. The monopolies that last are the ones government creates and enforces. A private firm holds its customers only as long as it keeps earning them. A franchise monopoly keeps them because the law forbids anyone from trying. So the antitrust question here is not whether the utility is dominant. It is why entry is illegal. The exclusive service territory, the certificate of convenience and necessity, the prohibition on selling across a property line. Those are restraints of trade with a government seal.
This does the thing rather than describing it. You identify the cost that produced the institution, then ask what happens when the cost changes. The household battery makes it concrete. Same device, useless to the grid in one institutional environment and a grid asset in another, and nothing about the battery changed. Your six categories of transaction cost state the mechanism in a way an engineer and an economist can both use.
Two things I would press.
You name the two paths honestly and then leave the choice open. Platform or bottleneck. The incumbent's incentive is not balanced between them. A utility earning on capital it owns loses money when someone else's battery displaces a substation upgrade. The bottleneck path is not a failure of vision. It is the correct answer to the rate base. You write that regulators should think like institutional designers rather than accountants reviewing prudence. They review prudence because the statute directs it and because that is what sets the return. Pay the utility for something else and it will do something else.
Second, every fix you propose runs through a regulator. Data access, interconnection standards, interoperability, market participation rules. The utility works that process with money at stake. Customers do not. What disciplines a monopoly is a customer who can leave. Your own analysis points at it, because a microgrid is the modular unit you describe. Building your own generation, or running a line to a neighbor, is restricted nearly everywhere. Franchise monopolies, standby charges, prohibitions on selling across a property line. Those restrictions are what made the captive customer captive.
Your best sentence applies here too. The utility has always performed this function is not an economic argument. Neither is the utility must always be the counterparty.
"Neither is the utility must always be the counterparty." That is a great characterization of the kind of transaction cost-grounded change I think would be beneficial.
AI?
No.
Curious, Oliver, I posted a Note and a Comment yesterday to Pangram or whatever the AI detector is called and not one person commented back: I ran my own tests. I took some of my writings from 2018 and 2019. Then I generated some AI-assisted writings and then I did a hybrid of some paragraphs AI, some mine. And my pre-2020 writings all came back either AI-written or AI-assisted. I use AI for double-checking facts. Correcting my grammar. I previously used a linguist to correct my grammar and help with sentence structure.
I will also use AI to confirm quotes for me. I seek precision in my writings. Also as a research tool. Again, for accuracy and precision. I will query about flaws in my logic. Again, I used to use human friends to disclose to me their perceived flaws in my writings. Now I no longer bother them. It is a tool. The decision to make is whether you work for it and you become its tool. Or you make it work for you, under your control and under your command and convert it into a smarter search engine.
Furthermore, the AI is pretty stupid. Still lacks general intelligence. Lacks imagination. Lacks wisdom. Poor at pattern recognition. And, despite all the hype, poorly trained. Barely toilet-trained. AI is biased. AI is opaque.
The deeper problem, at least in my opinion, is that most people are seeking an audience. It is called engagement. By most who really have little interest in engagement. People prefer an audience to conversation. How authentic is writing for an audience. How many human-written words lack integrity. Propaganda. Preference falsification. Is “AI-slop” any worse than human slop? How many people truly engage in authentic conversations? Or is it more attention-seeking?
I assume quantity is easier to monetize and achieves greater status than a conversation which does not scale. Quantity over quality. Well, for many, quantity is probably quality.
Maybe the philosophers present can discuss what is authentic?
What a pity then we need to rely upon these imperfect tools, treat them as some fundamental truth, when, if we chose dialogue and conversation and if we are perceptive listeners rather than active talkers, our own human tools would suffice.
Excellent work!
I am starting a new newsletter for our company of interesting articles. Congrats, this is the first one that I have selected.
Wow, thanks, that's quite an honor!
The breakdown of the six ways that digital technologies can change things is awesome.
"Edison would recognize the ambition. But the system he built is becoming something different—no longer only a machine operated from the center, but a platform on which many actors can build."
It's a conversation worth having that we leave the Edison legacy behind and rethink what he might have built from the ground up if he had the tools and knowledge we have ourselves today!
There is an unspoken assumption here that a broadly market based interaction between actors will result in lower costs and higher efficiency. A single state run or heavily regulated utility might still be able to use the increased coordination and control functions that are enabled to increase efficiency without splitting off the various functions that now *could* be run by different actors. Better information might just give new private actors the ability to find and profit from situations where the network has critical needs for example. If you own a battery and your contribution is needed to prevent a costly blackout, what might you be able to charge to avert it?
You are right to call this out as an assumption I make, which is accurate. I like your question about individual-owned batteries as a system resilience resource. I will incorporate that into something I’m thinking about writing this coming week :-).
The Coasean point is not that the utility should behave differently. It is that the comparison has to include the regulator's own costs. The rate case. The interconnection queue. The tariff proceeding. The standby charge. Digital measurement made the battery cheap to coordinate. It did nothing to the cost of getting permission to use one. The binding constraint moved.
Stigler explained why that will not change from the inside, and he was writing about this industry. Regulation is acquired by the industry and operated for its benefit. Asking the regulator to think like an institutional designer is asking the captured party to stop being captured.
Brozen supplies the rest. The monopolies that last are the ones government creates and enforces. A private firm holds its customers only as long as it keeps earning them. A franchise monopoly keeps them because the law forbids anyone from trying. So the antitrust question here is not whether the utility is dominant. It is why entry is illegal. The exclusive service territory, the certificate of convenience and necessity, the prohibition on selling across a property line. Those are restraints of trade with a government seal.