Jeff Guo

Jeff, to understand this piece of it, we actually have to go back in time a few decades.

Back then, in a lot of places, including in Ohio, utility companies were in charge of the entire process of getting electricity to customers.

So generation, transmission, and distribution, all vertically integrated in one utility.

So some companies would be in charge of distribution.

Other companies would be in charge of transmission.

And still other companies would be in charge of power generation.

The idea was deregulation.

You'd get more competition and hopefully that would make electricity prices come down.

If we were starting a system from scratch today, would we design the one that we have now?

Like on a really hot day in the summer.

If everybody turns on their air conditioners on August 17th and there's not enough power to supply it, what happens?

Now, before deregulation, when it was one utility company's responsibility to handle everything for a particular area, distribution, transmission and generation, it was that company's responsibility to make sure there were no shortages, you know, no rolling blackouts.

They had to forecast how much power they would need in the future and make sure there were enough power plants to meet that future demand.

Yeah, think about what happens in a market when there is a shortage of something.

Prices, they go way, way up.

In theory, that should incentivize companies to start making more power, and eventually everything would be fine.

But A, nobody wants to get an electric bill for $1,000 because they ran their AC on a super hot day.

And B, rolling blackouts are also obviously not a great outcome.

This new market would make sure that enough new power plants were being built today to supply the electricity that would be needed years from now.

They called it the capacity market.