Electric Utility Industry In The Late 1800s And Early 1900's

The electric utility industry was chaotic in the late 1800’s and early 1900’s. There were people competing to generate and distribute electricity within their own cities, causing a huge excess of wires running through the streets. The competition developed to become quite intense, where people would attempt to cut prices to undersell neighboring utilities, and neighbors would reciprocate price cuts until nobody was making a good profit. Policy makers began to think the industry was a natural monopoly, in which it would be most economically efficient to have one or few entities run the electric industry. At the time, I think it was justified to implement state regulation of electric utilities because of the high overlap in infrastructure, the ruinous competition between firms, and it moved us closer to an economically optimal solution. Electric regulation operates under the rate of return method. A utility is granted natural monopoly status and is given a territory in which no other utilities may enter into the market. That utility is guaranteed a return on

They are not perfect, but studying them in great detail has given us the ability to manipulate them to reach the equilibrium point. The early 1900’s electric industry was not in a equilibrium state, and thus something needed to be done to correct it. The regulated utility structure that was implemented allowed regulators to be able to monitor and correct imperfections in the market. It also has allowed for electricity to become a public good/need, which has greatly helped advance our society. Regulation allows firms to invest safely and directly measure how much power to generate to closely match optimal supply and demand quantities. This is crucial because when supply cannot meet demand, people will experience blackouts, which can cause a wide variety of