The Homeowner’s Guide to Electricity’s Natural Monopoly and Game Changing Third Party Energy Suppliers
It used to be that buying your power from the local utility company was like being trapped in a game of Monopoly somebody else had already won. A chance roll of the dice determined what resources you can buy—and how much they cost. And you could never stop rolling the dice because you need these resources, like you need electricity. Without options, you had no choice but to make roll after roll, paying different prices again and again.
Good news, power consumers! It’s not like that anymore. The government restructured the energy industry, allowing third party energy suppliers to join the game—and shake up the rulebook. Energy suppliers purchase electricity from a third party wholesaler at the current market price, allowing them to sell to customers at a fixed, locked-in rate. Before, you rolled the dice each month, not knowing if you’d land on budget-friendly Baltic Avenue or savings-busting Boardwalk. There was no way to be certain how much you would be asked to pay for your electric rate.
Now, thanks to the forward-thinking nature of third party power suppliers, customers know ahead of time—no matter how the dice is rolled—what their electricity rate is each month. It marks the end of one of the great natural monopolies in our country, opening up the game to innovation and new industry players. That sounds like a thriving industry to me.
An Antitrust Act Disrupts the Game Board
Where did these monopolies come from? Well, Parker Brothers’ Monopoly was inspired by The Landlord’s Game, developed by Elizabeth Magie in 1902. Originally a game designed to teach children how property owners in control of the entire housing supply could take advantage of tenants, it touched on a hot-button issue of the day. Powerful property owners, like Carnegie and Rockefeller, owned entire industries from real estate to steel, oil to railroads, and, of course, power generation. They even used this leverage to take advantage of the consumer.
Luckily, these so-called “robber barons” were sent to jail, figuratively speaking in Monopoly terms, when U.S. Senator John Sherman (R-OH) proposed what came to be known as the Sherman Antitrust Act, which President Benjamin Harrison signed into law in 1890. In cases where one company controls an entire market, the Sherman Act allows the government to essentially upend the game board by breaking that company up into smaller ones. This prevents companies from artificially controlling prices by restricting supply, preventing unnecessary price spikes.
Some companies were able to “pass go” on the game board, meaning they were excluded from these new laws, becoming known as natural monopolies by the government. Electric utilities are a prime example.
All Monopolies Are Not Equal
Wait a minute. How’s that fair? Why are some monopolies allowed and not others? For public utilities, it’s because of the immense cost and space required to build the infrastructure. After all, the intent of the Sherman Act was to protect consumers from unfair prices. In the case of public utilities, the government decided that competition would do more harm than good.
Creating duplicate infrastructure to support multiple utilities in any one city would waste millions, or even billions, of dollars and vast areas of land would be clogged up. These costs and inefficiencies would unquestionably be passed on to the general public.
So, utilities were allowed monopolies within their geographic territories. The feds were wise though, and kept a close eye on the utilities to ensure they didn’t overcharge their customers or fail to provide adequate service. Still, customers suffered from a lack of choice in their markets. They began to speak up, and the government listened.
A Power Play by the People
As a response to changing fuel costs, or as a result of new investments, utilities can adjust their rates and force customers to unexpectedly adjust their budgets as well. The uncertainty this creates for consumers can be impactful enough to scale back a vacation, delay a mortgage payment, or hold off on their child’s braces. If that happened to me, I know I’d speak up.
And people did. By the early 90s, enough energy customers had petitioned their government officials that many states—primarily in the Northeast—like New York, New Jersey, Connecticut, and Pennsylvania, restructured their utility rules and regulations to allow for a healthy competition.
Third party energy suppliers, like Liberty Power, came up with a new way to play the game. They saw a better way of running the energy industry, instead of trying to duplicate the infrastructure needed to create and distribute major amounts of electricity across the grid.
Here’s how it works. Third party energy companies buy up large amounts of generated electricity at a fixed price from traditional power plants, as well as from diverse resources like renewable wind and solar energy. Then, they’re able to offer customers electricity products at a dependable rate for an agreed-upon period of time. It benefits the utility companies by ensuring they get paid for the delivery of the electricity while effectively eliminating price per unit volatility for consumers, giving them the stable pricing they need to plan their monthly and yearly household budgets. Pretty smart, right?
For the first time since the beginning of the electric age in the U.S., customers can directly control their electricity bills by controlling their consumption. Instead of rolling the dice every month and risking paying for electricity that costs as much as Park Place, families can prepare their budgets with precision, knowing that the price of power stays the same, even if their usage changes.
Liberty Power, a major player in the third party energy industry, also works hard to distinguish itself with friendly, responsive, and reliable customer service. Contact us today to learn more about how we’re changing the rules of the energy industry so the only Monopoly you have to win against is the board game you play on family night.
Photo Credit: Mark Strozier