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