Chapter 3 · Moat

The only company allowed to deliver your power. That's the moat.

A regulated monopoly: no competitors, but no freedom to set its own prices either.

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✦ The bottom line

DTE's moat is a regulated monopoly. Through its subsidiaries DTE Electric and DTE Gas, it's the sole provider of electricity and natural gas to most of southeast Michigan — millions of captive customers who literally cannot choose a competitor. The trade-off: in exchange for the monopoly, regulators control its prices and profits.

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✦ Teach me

The regulated-monopoly bargain

Building competing power lines and gas pipes to every home would be wasteful, so governments grant utilities a legal monopoly over a territory. DTE's customers can't switch providers — the ultimate captive customer base. But it's a bargain: in return, the Michigan Public Service Commission sets the rates DTE can charge and the profit it can earn. So DTE has no competition and no pricing freedom. Its 'moat' is unbreakable, but its upside is capped by regulators. That's why utilities are stable and slow rather than explosive.

A legal monopoly is the most durable moat possible — revenue is extraordinarily predictable. But the same regulation that grants it also limits the rewards. Utilities trade *excitement for certainty*, which is exactly why income investors like them.

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