Utilities – Leaving Airline Model Behind

Deck: 

We Need the Grid

Fortnightly Magazine - April 2020
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Several have predicted the fate of the utilities industry by comparing it to other deregulated industries, such as the airline industry. While relevant, that comparison doesn't go far enough. The airline industry is about to be left far behind by the utilities industry on its one-way ticket to the competitive future.

In the early days of deregulation, changes in the airline and utilities industries were similar. First, came new entrants. In the airline industry, Peoples Express, Southwest, and others went head-to-head with the established carriers. In the utilities industry, independent power producers quickly began producing and selling power to utilities. When retail wheeling began, independent power producers, like the new airlines, began selling to consumers.

Price competition in the airline industry drove prices toward marginal cost, driving several carriers into bankruptcy. In the utilities industry, competition has driven energy cost toward marginal cost. Both industries have spent billions of dollars modernizing their fleets and improving their operational systems, so the effects of deregulation at this point seemed similar in each industry.

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