The Paradox of Electricity Deregulation

You might think that deregulation means sweeping away regulations, which ought to make the law much simpler.  But the opposite is true in the electricity sphere.  The regulatory system in states taking the traditional fixed-price approach is actually much easier to understand than the so-called deregulation method. Instead of saying “deregulation” it would be better to use the term “floating-price regulation.” The basic of fixed-price regulation is actually pretty easy to understand. Providing electricity was long considered a natural monopoly because a single company could more efficiently operate the generation and distribution system.  For instance, having two sets of power lines serving the same neighborhoods would clearly be a waste of money. But monopolies have a tendency to price gouge, so the government steps in to set a price ceiling. The ceiling is set to compensate the utility for its reasonable expenses and provide a normal…

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