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Energy Innovation: Monopoly vs. Competition

Energy Blog Post
January 25, 2013

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 startup 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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