Deregulation of Electricity Markets

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The regional markets for electricity generation and distribution typically resemble monopolistic markets with few suppliers. However, they have been under the variety of controls imposed by the concerned state in which they operated. These controls had more of social objectives than the commercial objectives. Such social objectives included ensuring uninterrupted power supply at the affordable price for the general consumer. Take for instance the case of California. In the state of California he three monopolistic power suppliers was regulated by the State commission.Kunnapallil(Centre) describes this scenario as follows, California’s electricity industry was vertically integrated and organized around three regulated private monopolies or investor-owned Utilities (IOUs): Pacific Gas Electric Company (PGE), Southern California Edison Company (SCE), and San Diego Gas Electric Company (SDGE).These companies owned and operated everything from generation, transmission, and distribution and catered to the electricity needs of consumers in their exclusive franchise areas. California Public Utilities Commission (CPUC), an independent state regulatory agency, heavily regulated the prices, costs, and service obligations of these. These three companies together supplied three-fourths of the total consumption.In the early 1990s, Californian polity came to the realization that its electricity markets were so heavily regulated that the productions process had become inefficient and the producers were passing on merrily the high cost of production to the customers.California cost of electricity was one of the highest in the US at the time. As Beder (2001) states, Before deregulation the Californian government set electricity rates and guaranteed the private utilities a set return on their investment. But it was argued that this provided no incentive for the utilities to cut costs. Prices were high compared to some other states, mainly because of cost overruns of billions of dollars on two nuclear power plants.