Electricity Deregulation And The Consumer

8 Pages 2088 Words

lectricity per individually demanded. Whereas the consumption that industrial or large commercial customers would require are on the larger end of the scale. Hence, a fairness issue of “purchasing power” arises in a deregulated industry.
In analyzing the two differing customers, for residential customers’ lifestyle has a large impact on utility usage, and overall in comparison to the other customer, usage is on a limited basis, hence this product would be categorized as inelastic. In addition there are no substitutes either and the customer is focused on the short-term need.
On the other hand, when reviewing the demand and usage of large industrial customers, the utility is much more elastic in nature. Because of their size and need, they look at the long-term and are very sensitive to price.
In regards to the industry as a whole, elasticity on the supply and demand side are low. On the supply side the challenge of storing electricity brings a unique problem. There is no true efficient technology to store electricity, therefore making it very difficult to retain adequate supplies for customers in both segments. The trend is to not keep a very large supply, however when the demand rises, to recover or obtain the supply there are very slow lead times; therefore the greater the demand on the supply, the slowness of providing it, therefore spikes prices. But if one considers a change or difference in the type of generator technology, an increase in supply may require more investment.
In addition due to lack of competition among deregulated utilities, there is an unwillingness for potential competitors to make the large investment of building power plants. This in turn has created very highly concentrated local markets with large generators who can withhold the supply and drive up prices. “In these tight markets, collusion is not necessary to drive prices up, parallel actions by a small number of generators is sufficient�...