Op-Ed: Consumers Better Off With Competitive Electricity Markets

Darrin Pfannenstiel | July 19, 2017 | Opinion
Prices in states with competition and choice have trended downward while monopoly prices rise

Darrin Pfannenstiel
New Jersey’s electricity consumers and the state’s economy are benefiting from the bold decision 18 years ago to introduce competitive reforms to the monopoly regulated electric utility industry.

New Jersey is among the 14 jurisdictions that a recent study considers successful competitive markets offering a range of competitive product and service offerings by scores of licensed competitive suppliers. These 13 states and the District of Columbia account for one-third of all electricity generation and consumption in the country.

Over the past two decades, these jurisdictions created vibrant retail competition programs that have grown and prospered, benefiting consumers with abundant choices among increasingly innovative, clean, and cost-competitive electricity product and service offerings. This contrasts with the 35 other states in the contiguous United States that chose to persist with the century-old monopoly-utility regulatory system.

So, for roughly 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, “Restructuring Recharged — The Superior Performance of Competitive Electricity Markets 2008-2016,” the verdict is in and consumers with competitive choices are disproportionately benefiting. Using U.S. Energy Information Administration data, the paper authored by Philip R. O’Connor, 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.

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Weighted-average prices in the group of 35 monopoly states have risen nearly 15 percent, while in New Jersey and the 13 other competitive market jurisdictions 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.

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It is no surprise then that relatively sophisticated commercial and industrial electricity customers have widely embraced competition. 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 nonutility 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 nonutility 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.

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, while monopoly utilities 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 policymakers 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, California, Nebraska, Michigan, and elsewhere.

Consumers want and expect choices. This white paper offers an important validation of New Jersey’s pro-consumer and environmental-friendly decision to do away with the monopoly regulatory model for electricity that was a vestige of 19thcentury economic thinking and a barrier to the efficient 21st century clean-energy economy that consumers and policymakers seek to embrace.