Utilities Enter Free Market - but Not without Sparks

By Silber, Kenneth | Insight on the News, May 22, 1995 | Go to article overview

Utilities Enter Free Market - but Not without Sparks


Silber, Kenneth, Insight on the News


Tired of paying whopping bills for electricity? Help may be on the way. Technological advances and regulatory changes are chipping away at the monopolies long held by local power companies.

For decades, economists and policymaker believed that electricity was a natural monopoly - a product provided most effectively by public utilities rather than competing private enterprises. Power companies were granted exclusive rights particular geographic areas but were subject to strict regulation concerning prices and services. As the costs of generating and distributing electricity declined, this arrangement worked reasonably well.

Beginning in the 1970s, however, utilities faced rising fuel expenses and huge cost overruns in the construction of nuclear-power plants, resulting in higher electricity rates for businesses and consumers. Environmentalists expressed concern about the industry, and in 1978 Congress passed legislation requiring utilities to make greater use of "renewable" energy sources such as solar and wind power.

Such pressures created a new class of independent power producers - companies that sell electricity to utilities. With the development of more efficient long-distance power lines, a nationwide network of interconnected electric grids emerged, linking utilities and independent producers in a vast "electricity superhighway."

Growing numbers of power companies are buying and selling electricity over this network, a trend that gained momentum in 1992 when Congress passed the Energy Policy Act. The measure, which requires utilities to permit other parties to transmit electricity via the grids in their service areas, opened the way for a competitive wholesale electricity market; it also raised the possibility of competition at the retail level, with businesses and consumers bypassing local utilities.

Such developments normally would reduce prices, but a patchwork of federal and state regulations and the conflicting demands of diverse interest groups have complicated matters. While some power companies push for rapid deregulation, many seek safeguards against what they regard as unfair competition. Unions that have enjoyed job security under the monopoly system are wary of deregulation, as are stockholders who rely on utilities for stable dividends. Environmental groups fear that market forces will undermine programs that promote energy conservation and renewable energy.

Utility companies argue that as regulated monopolies they were required to construct expensive facilities that they would not have built in a competitive market. Since power plants and transmission lines often take years to pay for themselves, sudden changes in the rules may deny utilities and their shareholders a fair return on such investments. "Electricity is the most capital-intensive industry there is," says Peter Jump, a spokesman for the Edison Electric Institute, a trade group representing investor-owned utilities. "A lot of money was invested under the assumption that the customers would always be there." As compensation for such expenses, utilities are requesting permission from regulators to impose fees and restrictions on customers switching to competing power companies.

On the other hand, utilities should be held responsible for their own poor investments, says Jonathan Adler, associate director of environmental studies at the Competitive Enterprise Institute, a Washington think tank. "The reality is that a lot of bad decisions have been made, and consumers who played no part in making these bad decisions should not be forced to bear the costs."

Whether competition will benefit some customers at the expense of others is another much-debated issue. Observers worry that big industrial customers will be able to negotiate lower rates for themselves, resulting in higher bills for small businesses and households. There is little agreement on the problem; some analysts regard it as an argument for a slow phase-in of competition while others believe it provides an additional reason for rapid deregulation - to ensure that competition reaches all customers as quickly as possible. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Utilities Enter Free Market - but Not without Sparks
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.