When energy companies want to raise the rate they charge to their customers they must first argue their case at a public hearing before a regulatory body. How does the free-rider problem explain why energy companies are usually successful in getting permission to raise their rates?

The problem with natural monopolies is that they could charge whatever prices they wanted to because of the absence of competition. The most efficient way to solve this market failure seems to be to allow the companies to exist as monopolies but regulate their prices and/or service areas.

In my home state of Wisconsin, there is one regulatory body for all public utilities throughout the state. However, there are several different companies that deliver energy services. That means there could be a free-rider problem, where the members of the regulatory commission are either not much or not at all affected by the higher rates they approve for my energy companies that are far away from the state capital where they do their work.