Energy Innovation: Monopoly vs. Competition

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When does a monopoly hinder innovation? I would assert the answer is “always.” The American free enterprise system thrives on competition. The search for a better mousetrap has long been touted as the driver of innovation. Competition sends signals to the marketplace; signals which are read, interpreted, and responded to. Utilities were established as “natural monopolies,” deemed necessary to either prevent “waste” or to overcome large initial start-up costs. In granting utility monopolies there was a regulatory compact: in exchange for the monopoly the utilities agreed to be regulated to ensure market pricing and other market-like terms and conditions of service. But simulating artificial markets cannot substitute for the real thing. The natural gas industry has been partially “deregulated,” and competition has driven innovation and market pricing. The telephone industry has been partially deregulated and competition has driven innovation and lower prices. What can we expect when electric generation (but not distribution) is deregulated? Let’s get to it. If this is Michigan, where is the innovation?

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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