Deregulation, the New Electric Utility Market

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Energy deregulation is started in each state as an opportunity to break up the utility monopolies and provide more efficient markets and competitive pricing for consumers. Everyone knows that monopolies are inefficient and lead to higher prices. They also restrict innovation and technological change. I would like to explain what happened and why energy deregulation leads to lower prices and more opportunities. This was the birth of the new energy mlm and Ambit Energy.

In economics, the utility company is used as a classic example of why a monopoly must exist. The electric utility controls and owns the wires and needs to service them. We could not imagine multiple companies with different wire networks running through neighborhoods. Therefore, a monopoly in this case always seemed practical. After deregulation, it seems quite evident that it was not needed to this extent. The public utility created for electricity sometimes isreferred to as a natural monopoly. After energy deregulation, it is clear that the energy monopoly should be dismantled. I wish to draw a parallel to coolers that we used to carry to a picnic table or field. Two people would get one on each handle and carry it over to the field. Well, somebody one day realized how this could be improved, why not stick two wheels and a handle on it. So, was born the rolling cooler. Now, wheels and handles have been around for hundreds of years, but nobody thought of doing this. After the fact, this is obvious. Well, so is energy deregulation obvious after it was introduced.

There was absolutely no reason to have the necessary monopoly for wires and their maintenance, control energy generation and retail choice. And whoever thought of this, may have thought of the obvious, after the fact. But, that person has brought competition that benefits all of us.

Just think back at the number of times that a utility told you that they needed a rate increase because of some major breakdown in a plant. That rate increase can never happen again. If a company that owns a plant has some plant breakdown, it still must compete with all the other companies generating electricity. It can not just ask for a rate increase. It’s competitors will take its customers. Now, there is competition among electrical generation companies.

However, since the company that owns the wires is still a monopoly, it could control the generation companies. If they wanted to sell electricity in that area, they must go through the wires company. What was the solution? When the generation was split away from the incumbent monopolies who own the wires, the retail side, or consumer choice, must also be removed from the monopoly that owns the wires to provide competition among choices of energy supply. Now, the only service the monopoly provides is delivery and service of wires and meters. They have no influence or decision on where you purchase your electricity.

So, we have three distinct parts of what was previously one monopoly. We have generation of electricity; the delivery, transmission and service of electricity; and retail sale of electricity to consumers. The previous monopoly only does the delivery and servicing of all things related to delivery, for example: wires and meters. This will be great for consumers wherever deregulation occurs. It restricts the monopoly to only that part necessary and as new forms of electricity generation become available, consumers will be able to choose it. The old monopoly, which now only delivers and services the lines and meters, must just pass through the price charged by the retail provider, such as Ambit Energy through network marketing as the sales channel. Remember, there was absolutely no incentive for the old style monopoly that owned all the plants to do anything other than use their existing energy plants. Under the old system, the potential motivation for alternative sources of electricity to be introduced by the old monopoly utilities was essentially zero. Since electricity is its product, and it has no influence on the price (it just passes it through to the consumer), it doesn’t care about the source or whose plant delivers the electricity.

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About Thomas O'Grady, PhD

Comments

  1. Wesley with Ambit says:

    Nice Doc. A good no non-sense explanation. We can always count on your for that! Thanks! Wesley

  2. Thomas O'Grady, PhD says:

    Thank you, it’s comments like yours that keeps me going. See you soon

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Disclaimer: The analysis, views and opinions expressed in this blog are personally my own and do not necessarily reflect nor are meant to imply in any way they are the opinions of Ambit Energy.I am an Executive Consultant with Ambit Energy. Analogies used are to assist with general understanding of the postings and are only to be examples.

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