First, competition among firms will force price to equal the average cost of production. Any excess of price over cost represents a profit opportunity that can be exploited by entry of new firms, a process that is short-circuited by the current regime of regulation. Second, high-cost firms cannot survive the pressures of competition. Price will be driven down to the average cost of the efficient producers. While it is true that sources of generation such as hydroelectric power are naturally limited in scale and cannot be expanded, this observation does not hold for the standard coal-fired generation facilities.
Competition clones successes and discards failures.
Successful firms such as Minnesota Power will have the opportunity to expand in the competitive marketplace. In addition, other firms, out of necessity, will copy methods that are successful at delivering power at low-cost. Instead, it is firms with lower-costs in other regions of the country that comprise the relevant competition. The utilities, for example, adjacent to coal mines in Kentucky and West Virginia that currently sell regulated power at prices less than 4 cents per kWh can and will be expanded. Large developments in Wyoming and Montana are in the planning stages that will bring new sources of power to midwestern cities.