R Street Institute

Op-Eds

Open electric markets to competition

by Josiah Neeley
Jan 2, 2019
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issues: Electricity Policy, Energy and Environment
originally published in The Washington Post
Throughout much of the country, consumers have no choice when it comes to buying electricity. Local utilities are given monopoly privileges with oversight from state regulatory bodies. This system wasn’t set up to keep the nation’s electricity system dirty, but it often functions that way. Over the past decade, market-driven declines in the price of renewable energy and natural gas have led to the closure of many coal power plants. But because electric rates in monopoly systems are set based on what’s needed for utilities to recover their costs, the utility companies have less incentive to retire uneconomical plants.

Introducing competition to the electric market changes that. Instead of a centrally planned organization deciding which types of power to use, electricity generators must compete with each other to provide reliable power at the lowest cost. Generators thus have strong incentives to switch to cleaner fuels when they become cheaper. It’s no mere coincidence that the state with the most wind generation — Texas — also has the most free electric market in the nation. Competition can even improve the performance of fossil-fuel plants. Between 1991 and 2005, states with electrical competition saw a 6 percent reduction in carbon-dioxide emissions from existing coal plants, due to improved fuel efficiency.

Electric competition has also made providers more responsive to the growing consumer demand for clean energy. The number of “green choice” customers in states with retail competition increased by 142 percent from 2010 to 2012.

Introducing more competition into the electric system would help speed the transition to cleaner energy. And even where states might not be ready to embrace full restructuring, smaller steps can still help. Some states have considered creating an exemption to the typical monopoly restrictions for customers who want to buy 100 percent renewable electricity on the open market. Reducing emissions from the power sector is a critical part of the response to climate change, and electric competition needs to be a part of that conversation.

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