The outdated, vertically integrated, cost-plus model deprives customers of the benefits of competition and prevents our nation’s electric power supply providers from improving affordability and reliability. This monopoly industry structure also makes it more difficult to address important social policies such as implementing efficient climate solutions. In contrast to the prevailing monopoly model, competition is the best way to ensure power providers meet customer demand at affordable prices.
In short, America needs electricity competition to walk confidently into the future. The regressive monopoly system can’t fully deliver innovation, new solutions, or meet emerging challenges. The competitive model can.
The need for competitive electric markets has come into sharp focus in recent years as customers have been saddled with higher prices and less than optimal results. In some cases, cozy and corrupt relationships between monopoly utilities and power providers and their regulators have resulted in a series of bad outcomes for customers. Consumers shouldn’t be forced to pay for their power provider’s bad investments and poor judgment. Competitive power markets can address these inefficiencies in a way the old model never could.
The Energy Reality Report supports the following core principles:
Americans want reliable, affordable, and clean electricity – Most Americans want electricity that will deliver energy cost savings, innovation, and environmental benefits; competition secures these outcomes more effectively and quickly than monopoly models. Choice and competition among energy providers are important energy policy priorities that will help reduce costs, reduce emissions, increase reliability, and encourage technological innovation. Competitive markets are reliable markets.
Electricity choice delivers lower costs – Monopoly models burden customers with high and seemingly ever-increasing costs. Without choice, customers are forced to pay for the all of the investments of their provider – good and bad – and are hit with higher fuel prices when their providers fail to anticipate and plan for increases. On the other hand, competitive markets place downward pressure on power prices. In the PJM Interconnection system alone – a competitive regional transmission organization (RTO) that coordinates the movement of wholesale electricity in all or parts of 13 east coast states and the District of Columbia – customers are saving more than $3 billion per year by drawing from diverse power generators.
Competition shifts risks from customers to investors – Customers shouldn’t be forced to pay the tab for the poor judgments of utility companies. Their investors should pay those costs. In competitive markets, when companies make poor investment decisions, their investors pay the bill – not customers.
Choice means climate solutions and lower emissions – Competitive markets are the path to more renewable generation, the deployment of technologies such as cleaner-burning gas plants, and, ultimately, lower emissions. That’s because companies in a competitive marketplace have incentives to meet customer demand while pursuing better environmental outcomes through innovation and efficiency. This is just one reason the carbon footprint of the competitive PJM system has dropped 39% since 2005.
A stronger, more innovative grid – Competition means more innovation, as electrical providers seek efficiencies that benefit both customers and the environment. With market-based, transparent price signals, providers can make smart investments in infrastructure, energy conservation, battery storage and demand response.
Regulatory capture, and consequently corruption, hurt customers – Regulated systems too often result in corruption that hurts customers. Ohio recently passed what was called the “worst bill in history” that saddled customers with a billion-dollar bailout for power-plant owners. An Illinois provider confessed to bribery charges and agreed to pay a $200 million fine. A North Carolina provider paid the largest criminal fine in state history for damaging a river with toxic coal ash. Competition helps avoid this kind of corruption and misbehavior.
The mission of the Pacific Research Institute (PRI) is to champion freedom, opportunity, and personal responsibility for all individuals by advancing free-market policy solutions. Since its founding in 1979, PRI has remained steadfast to the vision of a free and civil society where individuals can achieve their full potential. Put simply, public policy is too important to be left just to the experts. Individuals are the real decision makers when it comes to their schools, health care, and environment. PRI reinforces this ideal by providing you with the information, inspiration, and opportunity to make decisions about the daily issues that matter most to you.
Wayne Winegarden, Ph.D
Senior Fellow – Business and Economics
Wayne Winegarden, Ph.D., is a Sr. Fellow in Business & Economics, Pacific Research Institute, as well as the Director of PRI’s Center for Medical Economics and Innovation.
Dr. Winegarden’s policy research explores the connection between macroeconomic policies and economic outcomes, with a focus on fiscal policy, the health care industry, and the energy sector. As Director of the Center for Medical Economics and Innovation, Dr. Winegarden spearheads research and advances policies that support the continued viability and vitality of the U.S. biomedical and pharmaceutical industries to the benefit of patients and overall economic growth.
Dr. Winegarden’s columns have been published in the Wall Street Journal, Chicago Tribune, Investor’s Business Daily, Forbes.com, and USA Today. He was previously economics faculty at Marymount University, has testified before the U.S. Congress, has been interviewed and quoted in such media as CNN and Bloomberg Radio, and is asked to present his research findings at policy conferences and meetings.
Dr. Winegarden is also the Principal of an economic advisory firm that advises clients on the economic, business, and investment implications from changes in broader macroeconomic trends and government policies. Clients have included Fortune 500 companies, financial organizations, small businesses, and trade associations. Previously, Dr. Winegarden worked as a business economist in Hong Kong and New York City; and a policy economist for policy and trade associations in Washington D.C. Dr. Winegarden received his B.A., M.A., and Ph.D. in Economics from George Mason Universit