WEINSTEIN: Competition in electricity has been good for consumers and good for the environment



Electricity was boring. The utilities that provided electricity to homes and businesses were regulated monopolies and, by law, guaranteed a fixed rate of return on their generation, transmission and distribution assets. Prices per kilowatt hour were set by utility boards after lengthy testimony from power companies, who want higher rates, and consumer groups, who want lower rates.

About 25 years ago, the electricity landscape began to change, with economists and others arguing that competition could lead to lower prices and greater grid reliability. Opponents of competition argued that consumers did not know enough about electricity markets to make smart choices in a competitive pricing environment. Nonetheless, today 20 states have full or partial competition for electricity, allowing independent power producers to compete in wholesale markets and retail electricity providers (REP) to compete for end customers. . (Transmission, in all states, remains a regulated natural monopoly).

A recent study by the non-partisan Pacific Research Institute (PRI) provides compelling evidence that competition in electricity markets has been a boon for consumers. Using data from the U.S. Energy Information Administration (EIA), PRI researchers found that wholesale electricity prices in competitive markets have generally fallen or stagnated over the past five years. . For example, compared to 2015, wholesale electricity prices in New England have fallen by more than 44%, those in most of the mid-Atlantic states have fallen by almost 42%, and in New England. York, they are down almost 45%. Wholesale electricity costs have also fallen in monopoly states, but at a considerably slower pace.

For end users, states with competitive retail electricity markets have seen their prices increase less sharply than monopoly states. Again, using data from the EIA, PRI found that in 14 competing jurisdictions, retail prices were essentially flat between 2008 and 2020. In contrast, retail prices jumped an average of 21% in monopoly states. The ten states with the largest retail price increases were all monopoly-based executives. A 2017 report by the Retail Energy Supply Association found that customers in states that still have monopoly utilities saw their average energy prices rise nearly 19% from 2008 to 2017, while prices fell. 7% in competitive markets over the same period.

The PRI study also observed that competition improved network reliability, despite recent power cuts in California and Texas. Looking at two common measures of network resiliency, PRI’s analysis found that power outages were 10.4% lower in competing states, while outage duration was 6.5% lower.

Citing data from the EIA between 2008 and 2018, PRI reports that greenhouse gas emissions in competing states have declined by an average of 12.1% compared to 7.3% in monopoly states. This result is not surprising. In a competitive wholesale market, independent power producers have an incentive to look for lower-cost options, including subsidized renewables like wind and solar. In contrast, producers in monopoly markets do not have such incentives because they can pass higher costs on to end users. Perhaps the most telling case is that of the monopoly state of Georgia, where the cost of building the Vogtle nuclear power plant has doubled from its original estimate of $ 14 billion 12 years ago. The overruns are estimated to cost Georgian taxpayers an average of $ 854, and there is no specific date for the commissioning of this facility. This type of mismanagement does not happen in competitive markets.

Unfortunately, some critics are trying to stop the momentum of electric competition and have pointed to last winter’s “deep freeze” in Texas, which left several million customers without power for a week. But this example is out of place. The power outages in February were the result of unprecedented and severe weather conditions affecting power generation and fuel supplies; the state simply did not have sufficient access to natural gas and wind generation to meet demand. Competitive electricity markets have not been a factor.

The benefits of wholesale and retail competition in electricity markets are indisputable. Evidence shows that households and businesses in competitive states are paying less for electricity as grid reliability has improved. Evidence also suggests that wholesale and retail competition can lead to faster reductions in greenhouse gas emissions. In short, competition in electricity markets is good for consumers and good for the environment.

Bernard L. Weinstein is Emeritus Professor of Applied Economics at the University of North Texas, former Associate Director of the Maguire Energy Institute at Southern Methodist University, and Fellow of Goodenough College, London. He wrote this for InsideSources.com.


Leave A Reply

Your email address will not be published.