In today’s world, it is widely understood that capitalism with open competition is the best way of providing high quality goods and improved services that people want in an economy. The core of capitalism is trade—exchange of something of value for something else of value, with one of them usually being money, a convenient store of value. The “invisible hands” (to paraphrase Adam Smith) will guide us to a price that balances supply and demand and will drive the price down near to the cost of production due to competition.
Electricity has traditionally been traded from a single producer to a large number of consumers, known to economists as a monopoly. This was not necessarily a nefarious situation; in many cases it was a natural monopoly due to the high cost of connecting every household and other barriers to entry. Other examples of a natural monopoly might be public transportation and (wired) telephone services. In situations with natural monopolies, government regulation often comes in to prevent excessively high prices or corrupt behavior. Today’s utilities are heavily regulated—a discussion of how these distorted incentives hold back the global energy transition underway is a whole other topic.
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