Electricity Deregulation

The desired result of deregulation of the electricity production industry is to create lower prices by increasing competition among established companies and entrepreneurs. It is the anti-thesis of regulation, which was a response to the growth of monopolies in the nineteenth and first third of the twentieth century. Both regulation and deregulation have taken place at the federal and state levels.

The early days of electricity production

When it first became clear the electricity generation could be a lucrative enterprise, regulation did not exist; generating plants were small as were their distribution areas. As it was a new enterprise, there was no infrastructure for long-range delivery. When Westinghouse, at the end of the nineteenth century, discovered that alternating current (a/c) could be used to deliver electricity over long distances efficiently, it (a/c) quickly became not only the standard for consumer use, but Westinghouse got a head start on delivery systems. Regional companies evolved and these larger companies gained control of electricity production and delivery in those regions.

Electricity price regulation

Electricity generation was soon controlled by only a few regional companies. While a few independents were able to operate and sell their electricity to the larger companies, a monopoly essentially was in place. At the time it seemed logical, because of the need for power lines. One set seemed plenty, like telegraph lines or railroad tracks. Over time, larger companies began buying out smaller companies and expanding their reach, and it quickly became apparent that electric companies were monopolies, Public Utility Commissions were created to regulate what companies could charge consumers. Rates had to be approved by the commissions, and requests for rate increases had to be justified based on operating costs, expenses, and a fair profit.

Despite regulation, electrical utilities companies coalesced into fewer and fewer companies, and suspicion and accusations of anti-trust activities were leveled at the industry. Regulations tightened, and the dominant companies were restricted to regional delivery.

Deregulation of the electricity industry

In the late nineteen seventies, legislation was passed that required the purchase of electricity generated by companies using renewable resources of cogenerating practices. By the early nineties, further legislation exempted generating companies from regulation in order to freely access distribution systems for fair and reasonable costs. This eroded regulatory guidelines further, and was the impetus for a complete restructuring of the electricity industry to allow for open competition.

Parallels were soon seen between electricity generation and delivery and other industries, sucha as telecommunications, and the airlines. Because those industries had been successfully deregulated, it was believed that the same process would drive down prices in the electric industry, especially as technology was improving the efficiency of its electricity generation and delivery. Based on principles of free market economics, deregulation made sense.

To this point, deregulation has met with mixed results. What was not considered was the rising costs of fossil fuels, and the slow rate of development of alternate sources of energy generation. Once these issues are addressed, deregulation should follow its natural course.