Customers win when companies compete. It just makes sense – if there is only one business in town, that business has no incentive to respond to customer demand, keep prices low, or improve service. The same is true for cars, cell phone service or grocery stores.
At one time, the electricity that powers our homes, businesses, and industries was entirely controlled by utilities that held a monopoly over established service areas. That means the utility owned and controlled power from the point of generation at the plant, to delivery through transmission wires, to the distribution wires that deliver it to your electric outlets and appliances—also known as a vertically integrated business model.
Unfortunately, under this monopoly scenario, which still exists in many parts of the country, utilities still largely have monopoly control over the generation, transmission, and distribution in their service areas. Because they were guaranteed a return on their operational costs and overhead, utilities often did not have any incentive to manage costs, and customers had little say in or understanding of what costs showed up on their monthly bills. Utilities also had little incentive to be more efficient or adopt new technology or cleaner resources such as renewables even as the price of those resources became more affordable.
In the 1990s, many states passed legislation to move power generation to a competitive market system. Since then, consumers and the grid have experienced significant benefits including greater efficiency, cost savings, innovation, and even emissions reductions.
Customers in states with vertically integrated utilities remain on the hook for utility commitments to capital projects even if they turn out to have significant cost overruns or questionable economics.
And in restructured markets the investors and owners assume the cost risks of those investments. That means there are no obligations for customers.
