Deregulation of the Electrical Industry :: essays papers

Deregulation of the Electrical Industry The roots of modern day regulation can be traced all the way back to the late(a) 1800s and found in the form of antitrust. By the beginning of the 20th century, the U.S. government had formed the interstate Commerce Commission to regulate the railroad industry, and shortly thereafter, many a(prenominal) other regulatory commissions were founded in the transportation, communication, and securities fields. The main goal of these regulatory commissions was to create a reasonable rate structure that would be appealing to both producers and consumers. tour this system has worked for many years, it has recently come under heavy criticism, with many people pushing for open competition among electric power producers. Although once believed to be an impossible proposal, competition among electric power producers is finally a reality in a few areas. Massachusetts is just one state where order implemented to create competition among electric po wer producers is not only favored by the people of the state, merely has also impartd significant rate reductions as well. The attempt at regulating price in the electric industry is a troublesome one. The objective is not only to minimize the cost to consumers, exclusively also to create a rate structure that will entice the electric go with to remain in the industry. The regulatory commission wants the electric company to have a reason to innovate so that they will be able to provide cheaper power in the future. However, if the commission captures all gains from innovation in the form of lower prices, then the electric company has no incentive to undertake any type of innovation. Therefore, a compromise must be reached which would provide adequate incentives for firms to undertake cost-reducing actions while at the same time ensuring that the price for consumers is not exorbitant. The term regulation refers to government controlled restrictions on firm decisions over price, quantity, and inlet and exit. Each factor of an industry must be regulated for producers and consumers to truly benefit. The control of price does not mean setting one fixed price, but rather entails the creation of a price structure for purchasing electricity during peak and non-peak times. The control of quantity refers to the governments attempt to control the amount produced or in this case the amount of electricity produced. For example, in the electric industry, it