The first step in regulating the US
electric industry occurred during the 1930s when the large producers lobbied
with state governments to make themselves franchise monopolies based on economies
of scale. The result was elimination of competing firms in the industry. In
return, the state governments received reliable tax revenue effectively sharing
the monopoly profit. Abundant energy resources have kept the price of
electricity low.
The main cost of electricity is fuel.
Coal remains the main fuel. Natural gas burns cleaner and has become more
available. Hydroelectricity is reliable but limited and unable to expand given
environmental concerns over more dams. Nuclear generation will become more
important over the coming decades. Alternative energy sources can eventually
provide a good share of the electricity as technology improves.
Interstate retail competition allows
customers to choose suppliers across state lines. Customers in high priced
states such as California, New York, and Florida want to buy from low priced
exporting states such as West Virginia, Idaho, and Alabama. Interstate retail
competition will raise prices in the exporting states.
The best policy to keep the price of
electricity low is to avoid taxes and subsidies. Consumers facing higher prices
for electricity will economize. The price of electricity ultimately depends on
investment by the industry.