July 12, 2017
By DARRIN PFANNENSTIEL
Policymakers across the country are
grappling with a stunning transition under way in the United States’ $380
billion electricity sector. Electricity consumption is flat, cleaner energy
sources are dramatically increasing market share while nuclear and fossil fuel
generation plants struggle to maintain economic viability, and new
consumer-empowering technology innovations promise to transform how households
and businesses use energy.
The U.S. electricity sector hasn’t
seen such foment since 20 years ago, when state and federal policymakers began
to introduce competitive reforms to the staid monopoly-regulated electric
utility industry. While the Federal Energy Regulatory Commission acted to
establish the wholesale power markets that now dominate most of the country,
many states acted to open up retail markets so that for the first time in more
than a century electricity consumers could choose from among competing
Indeed, until California’s
well-intentioned but poorly conceived first-in-the-nation experience with
electricity competition, it appeared that a majority of states across the
country would restructure their electricity markets to enable competition. But
after California, some states poised to enact restructuring declined to do so,
and others that had adopted competitive reforms reversed course.
Nevertheless, slightly more than a
dozen states and the District of Columbia, which account for one-third of all
electricity generation and consumption in the country, persisted with the task.
They learned from California’s mistakes and created vibrant retail competition
programs that have grown and prospered over the past 20 years, benefiting
consumers with abundant choices among increasingly innovative, clean and
cost-competitive electricity product and service offerings.
So for two decades we’ve had what
U.S. Supreme Court Justice Louis Brandeis described as laboratories of
democracy at work, with one set of states preserving monopoly utility
regulation while another set pursued competition and customer choice.
And as shown in a new white paper
commissioned by the Retail Energy Supply Association, entitled
"RESTRUCTURING RECHARGED — The Superior Performance of Competitive Electricity
Markets 2008-2016," the verdict is in: Consumers with competitive choice are
disproportionately benefiting. Using U.S. Energy Information Administration
data, the white paper by Philip R. O’Connor, Ph.D., former chairman of the
Illinois Commerce Commission, found that competitive choice jurisdiction
customers fared demonstrably better in terms of price, investment and
efficiency than did those who remained under monopoly regulation.
Weighted average prices in the
group of 35 monopoly states have risen nearly 15 percent while in the 14
competitive markets total weighted average prices have declined 8 percent.
Inflation-adjusted price changes for major customer classes in choice and
monopoly states are starkly different, declining 18 percent for customers in
competitive jurisdictions compared to the experience in monopoly states.
It is no surprise then that
relatively sophisticated commercial and industrial electricity customers have
widely embraced competition, and we’ve a seen a majority of customers in those
classes benefit by purchasing electricity from non-utility suppliers in
competitive choice states, particularly as competition enables access to
cleaner energy supply options. But residential customers are increasingly
benefiting from the competitive marketplace too.
Between 2003 and 2008, the number
of residential accounts served in competitive jurisdictions by non-utility
providers more than tripled from about 2.3 million to 7.1 million, and more
than doubled again since to average more than 16.4 million annually. For
jobs-producing commercial and industrial customers, between 2003 and 2008 those
served by non-utility suppliers grew 240 percent, from 436,000 to nearly 1.6
million. Since then we’ve seen a near doubling again with competitive
commercial and industrial accounts averaging more than 2.9 million and
exceeding 3 million in 2016.
Dr. O’Connor’s analysis also found
a sharp contrast between the two sets of states in terms of innovation.
Competitive choice jurisdictions are enabling innovation in customer-empowering
alternatives such as "green" energy options and smart thermostats that allow
customers to better manage how and when they use electricity. Monopoly
utilities, meanwhile, are inherently inhospitable to innovation, his analysis
found. This is especially important when one considers the many innovative
ideas emerging from Silicon Valley that will power the electricity sector and
consumers into a clean energy future.
It is against this backdrop of
growing evidence that competitive markets are delivering real and tangible
benefits in terms of pricing and innovation that policy makers in several
states are beginning to consider once again taking steps to introduce
competition in electricity to retail customers. Given the demonstrably superior
performance of retail choice markets, a coming second wave of retail
electricity market restructuring has begun, as evidenced by ongoing debates in
Nevada and California.
Consumers want and expect choices.
Given the stunning economic and technological transformation underway in the
electricity industry, it makes little sense to cling to a monopoly regulatory
model for electricity that is a vestige of 19th century economic thinking and a
barrier to the efficient 21st century clean-energy economy that consumers and
policymakers seek to embrace.
Darrin Pfannenstiel, senior vice
president and associate general counsel for Stream, a Dallas-based competitive
retail energy supplier, is president of the Retail Energy Supply Association, a
broad and diverse group of retail energy suppliers who share the common vision
that competitive retail electricity and natural gas markets deliver a more
efficient, customer-oriented outcome than the regulated utility structure.