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Deregulation of the Electricity Industry: Success or Failure?
The economics behind deregulation is a complex topic. There have been many regulated industries that have with gone deregulation in the U.S like the airlines, trucking and securities industries etc. Reforms are constantly going on in regards with regulated industries. A very prominent industry recently has gone through various stages of reform. This industry is the electricity industry and it is the main source of debates and issues regarding deregulation. First one has to understand the actual market structure of this industry, second the reasons for deregulation finally successes and failures of recent deregulation reforms in this industry.
The market for electricity is in general monopolistic in nature. Electric power encompasses four primary processes: generation, transmission, distribution, and retail (wholesale and retail energy supply and services) (Viscusi). Generation starts with production through fossil fuels, nuclear fuel, and falling water(Viscusi). After the production processes transmission occurs, which is the high voltage movement of electricity between generating sites and distribution centers by mean of wires, transformers, and substation facilities(Viscusi). The next step is distribution, which is the transportation of electricity to residences and businesses at relatively low voltages using wires and transformers(Viscusi). Finally, the process that goes hand in hand with all these processes is retailing, which is the making of arrangements for supplies of power from generators(Viscusi). Retailing includes metering, billing and demand management services such as marketing (Viscusi). The electricity industry in the U.S is traditionally a vertical integrated monopoly (Viscusi). With a vertically integrated electricity industry the electricity utility controls and undertakes all business functions which include all the processes of generation, transmission,...