Maybe you’ve wondered why Entergy has a monopoly. I have. Why no competitors? Isn’t competition good? Doesn’t it encourage innovation? Doesn’t innovation lead to better things and better ways of doing things? And to higher standards of living and better lives? Can’t and don’t monopolies stifle competition and take advantage of customers and drive up prices?
The answer to all these questions is yes. So why does Entergy have a government-granted monopoly that lets it favor some customers at the expense of others? Why does the government (Mississippi Legislature and Governor) allow and encourage this? The short answer is politics. The long answer is it’s complicated. Let’s look at the long answer.
Entergy is a “natural monopoly” that makes sense in theory. But as Yogi Berra said: “In theory, there’s no difference between theory and practice. In practice, there is.” So what’s the theory? And what’s the practice? Here’s the theory: In some markets, the most efficient way to provide a good or service is to have a single supplier. The market for electricity is such a market. Why?
The generation and distribution of electricity require plants, transmission and distribution lines, substations, and other infrastructure. They cost a lot and need constant monitoring and maintenance. This requires lots of capital. The actual cost of producing electricity is small relative to the cost of the plants, infrastructure, maintenance, and service. Such high fixed cost, low variable cost markets don’t support multiple suppliers. (Imagine the congestion of poles and distribution lines on every street for multiple utilities.)
So a single supplier is better. Hence, government-granted monopolies for electricity, water, sewage, etc. But how to keep those monopolies from taking advantage of customers who have no alternative suppliers? In theory, the answer is government rules and regulations and regulators to enforce them. In practice, do they work?
What happens when the government changes the rules to favor the utilities and tells the regulators to take a hike? We are about to find out. But we already know what happens when politicians pick winners and losers: The big guys win and the little guys lose.
The big guys here are Amazon (really big), Entergy, and its contractors and vendors who get no-bid contracts for the Amazon project. There are just a handful of them. The little guys are residential customers, their families, and small businesses. There are over a million of them dependent on Entergy for electricity.
The legislation that changes the rules says this about the little guys: “While regulation of public utilities is essential to the public interest (little guys), timely electrical infrastructure expansion (for Amazon) in connection with economic expansion or resiliency has greater priority.” Translation: Amazon’s data centers have a higher priority than a million people subject to Entergy’s monopoly.
That language is in the 315-page bill passed by the Legislature in special session last year. It justifies a secret deal for Amazon and a blank check for Entergy to provide power for Amazon and a green light for Entergy to increase the price of electricity for a million people to pay part of the cost of that power for Amazon. It also justifies hand-cuffing the Public Service Commission - which was created and empowered to keep utility monopolies from taking advantage of the little guys.
Presumably, the secret deal with Amazon sets forth the price of its electricity. Is it lower than Entergy’s price for residential customers? Probably because Amazon gets a volume discount. Volume discounts can be reasonable. Are Amazon’s? That would normally be a question for PSC regulators. But the legislation exempts Amazon’s deal from PSC oversight.
Does Amazon pay its fair share of Entergy’s cost to provide its power? If it doesn’t, will the little guys pay more than their fair share and subsidize Amazon? In other states with data centers, that has happened. Little guys subsidize the data centers. Their rates skyrocket. Up 27% in Georgia. Possibly double in Virginia - it has more data centers than any other state. It’s called the data center effect. It may be worse here because of Entergy’s blank check for no-bid contracts that pad its costs and because of our handcuffed regulators.
What does Amazon have to do for its secret deal? Invest $10 billion and create 1,000 permanent jobs. Mississippi’s economic development experts think that’s a good trade for higher residential rates - that will devastate poor customers (40% of Entergy’s households earn $15,000-$ 25,000 a year). What’s the ripple effect on Mississippi’s economy when what little disposable income they have goes to subsidize Amazon and increase profits for Entergy (who get a 10.5% return on its investments)?
The secret part of the deal must be good for Amazon. It is increasing its investment to $16 billion. The legislation gives Amazon the open-ended right to increase data center investments without limit. And it gives Entergy blank checks to provide power for more data centers. It also removes PSC oversight on Amazon’s rates for future data centers and their data center effects on Entergy’s small customers. This looks like the government’s complete abdication of any concern for small customers’ interests and well-being in favor of Amazon and Entergy.
To add insult to injury, the legislation lets Entergy impose and collect higher rates on small customers due to its investments for Amazon pending any challenge. What’s to challenge? Its investments are presumed prudent if reported and recorded - unless “serious doubts” are raised.
Who might raise serious doubts? There’s no consumer advocate to speak for small customers. They don’t have legal staff. The PSC has been handcuffed. The Public Utilities Staff that “balances” the interest of customers and Entergy seems to favor Entergy.
So it looks like a million small customers will pay more for electricity and subsidize Amazon and increase Entergy’s profits - including 400,000 in poverty who struggle just to pay for life’s essentials.
Kelley Williams, a Northsider, is chairman of Bigger Pie, a Jackson-based think tank promoting free markets and government efficiency.
