Florida consumers will pay less when electricity monopoly has to compete
Making matters worse, consumers are captive to these high prices because state policy prohibits Floridians from having a choice in electricity providers. This has hurt residents of the Sunshine State and should be swiftly changed.
Floridians are already signaling that they’ve had enough. In fact, an effort has emerged to collect enough signatures to place a question on the 2020 ballot over whether to create a free and competitive electricity market. Doing so would give consumers the freedom to choose a provider.
Right now, Florida has what’s known as a vertically integrated electricity monopoly. In layman’s terms, the state government only permits one electricity provider in any region. This utility company controls the entire process of creating, transmitting and distributing electricity.
In the early 1900s, the dominant opinion was that regional electricity monopolies were an overwhelmingly positive concept. According to the theory, the startup costs required to form an electricity utility were too high for more than one company to cover any given area. Thus, electricity monopolies were thought to be natural, and it was believed that their prices would diminish as the utility grew. As a result, governments decided to support these monopolies — and to heavily regulate them.
The problems with this outdated model are easy to see. First, it prohibits competition that would lead to innovation and lower consumer prices. While Florida is not the only state that maintains such a system, beginning in the 1990s, several states bucked the status quo and permitted competition. This ushered in a new era of cheaper, more efficient electricity.
Indeed, Ohio and Illinois once had the highest electricity rates in the Midwest, but in the 1990s they opted to permit competition. Now they have the lowest rates in the region. Texas also restructured its model and has experienced the greatest electricity price decrease in the nation. Improvements because of competition aren’t limited to these three states, either. From 2008 to 2016, rates dropped by 8 percent in competitive states, while monopoly states’ rates have increased by almost 15 percent.
The explanation for this is simple: When there is more competition, companies vie to attract customers with competitive rates, which drives consumer costs down. A positive corollary to this rule is that utilities must be more efficient to be competitive, which is why in Texas and the Midwest, non-monopoly states, are retiring outdated, inefficient plants. Meanwhile, costly, aging generators in monopoly states are often kept open too long, and consumers who can’t easily switch to a cheaper electricity utility are forced to subsidize these plants.
The monopoly model also encourages utilities to make irresponsible financial decisions. This can be seen in South Carolina and Georgia, where nuclear plant construction is languishing because of building delays, regulatory hurdles and poor planning. After wasting billions of dollars, two reactors at South Carolina’s VC Summer plant were abandoned, and Georgia’s Plant Vogtle is going to cost many billions of dollars above the original estimate. Captive customers undoubtedly will pay for these blunders.
Since they can simply pass these losses on to consumers, monopolies can continue these ill-conceived actions almost with impunity. If more competition were permitted, instead of being forced to underwrite poor decisions, consumers would have the choice to leave such companies. Had the utility companies in South Carolina and Georgia been under the threat of losing business, they might have pursued more judicious ventures.
When monopoly markets are replaced by competitive markets, consumers are served in many other ways, too. To attract new customers and retain current ones, companies are forced to cater to consumers’ needs and desires. This means that new pricing plans tailored to the consumer are designed; more electricity options became available, including renewables; and cutting-edge technologies are more readily introduced as companies strive to remain competitive — all of which greatly serves the customers’ needs. But this flexibility is far less common in monopoly states.
Unfortunately, high costs and bad decisions occur too frequently in noncompetitive states. Likely because of this, Floridians are primed for a change. In fact, according to a recent poll, 78 percent want choices in electricity. It’s easy to see why.
Image credit: Lumppini
