If, as the previous chapter has argued, a “natural” monopoly is at best accidental and contingent, then how is it that the electric power industry came to be identified as one? There would seem to be two possibilities. First, contingencies at the time the industry was founded made it a natural monopoly, in which one firm truly would have been the outcome of market competition. The second alternative is that political and/or business interests wanted to create the industry as a set of government-regulated monopolies, regardless of whether institutional, technological, and economic circumstances justified such a structure.
Well into the 1970s and 1980s, representatives of the electric power industry argued that it was, and in fact had always been, a real natural monopoly (Lowry, 1973). To explain how the system of regulated monopoly firms came into being, the industry offered two different, and not entirely consistent, “creation myths, ” both of which incorporated aspects of natural monopoly theory.
The first story is one of natural evolution from a competitive industry towards self-regulated monopoly. The industry, according to this story, was heading towards a monopoly structure before the government ever got involved. Subsequent government regulation was intended to prevent the inevitable monopoly providers from exercising too much market power to the detriment of consumers. In this story, the government acted, after the reality of monopoly became both apparent and desirable, strictly to protect the public interest. The utilities at first worked with “unvarying consistency and stubbornness” using “all their political influence to oppose the establishment of regulatory bodies and later the extension of powers of such bodies” (Mosher & Crawford, 1933, p. 551). That is to say, the utilities wanted freedom from government regulation. But once it was clear that regulation was coming because government would not relent in its assault on free enterprise, industry firms and organizations used their influence to minimize its effects, so that the market would rule to the greatest extent possible.
According to the second “creation myth, ” utilities began competitively but, because of the industry's natural monopoly characteristics, competition became