Electric Utility Deregulation

The supply and demand concept is a good indicator of how a consumer is likely to fare in purchasing a good or servce. However, some industries have unique circumstances which make supply and demand an incomplete gauge of pricing. Electric utilities are one such industry. Both the supply of electricity and its consumption are largely inelastic in their variation to economic circumstances. While it is true that consumers will adjust their rates of consumption according to the rise and fall of prices electricity has become a need in modern societies which means useage must remain within a certain range to avoid the possibility of a personal and financial upheavals. In addition the introduction of new power sources is not quickly or easily accomplished. It takes years to plan and construct new power plants.

What then is likely to happen when a regulated industry like electric power becomes deregulated. Based on the experiences of some in states where deregulation has been implemented there can be many unanticipated consequences. The news and advocacy group Common Dreams posted an Associated Press story Power Bills Soar After Electric Deregulation, showing that electric bills can greatly increase following deregulation. Regulated industries tend to keep prices artifically low. When regulation is removed prices naturally go up. The antidote for continuous price increases is increased competition which it encourages. However, as has already been noted it takes some time before increased energy output can become a reality.

Another article, Electric utilities enter the era of deregulation, points out that the electric utility market tends to be regionalized. This makes it impossible for a company in one region to attract customers in another even though the power grid is interconnected. Investors must bear market limitations in mind when choosing their options.

Ohio deregulation fails show that deregulation can have the unintended effect of actually increasing government involvement in the utility business. This is in part due to the previously mentioned regionalization of the industry and the need for companies outside a particular region to meet the demands of established power companies within a region. Expensive obstacles can be put into place to bar competition and government regulators must step in to mitigate their effects.

Deregulation in Texas required action by the Public Utilities Commission to maintain reliability in the generation and transmission of power. Removing some regulation enables actions previously not possible which in turn can lead to a need for further regulation of a different nature.