Commentary: Will Ohio turn its back on the benefits of competition?
Whether to embrace more competition or return to monopolization is the key question recently addressed by the conservative think tank R Street Institute, which finds that even limited deregulation brings economic discipline to power markets. Competitive merchant generators operate their power plants more efficiently, build new natural-gas units to take advantage of lower fuel costs, and retire unprofitable coal and nuclear plants. Traditional utilities, in contrast, double down on the old, buying up more clunky coal units and spending billions of dollars on pollution controls for those dirty plants.
R Street also finds that competition brings benefits to customers. In the mid-1990s, Illinois and Ohio had the highest electricity rates in the Midwest. Now they have the region’s lowest rates. On average, says the think tank, Midwestern monopoly states have rates that are at least 11 percent higher for residential, commercial, and industrial customers than Illinois and Ohio. “The gap has become so prominent that Ohio and Illinois have lower commercial and industrial rates than every other Midwest state, and only Indiana has lower residential rates.”
Several other studies confirm the financial benefits of electric competition. Cleveland State University and Ohio State University found competition enabled $15 billion in consumer savings in Ohio since 2011. A similar analysis by the Illinois Chamber of Commerce and other business associations labeled the Prairie State’s restructuring a “triumph of market-based public policy” that resulted in $37 billion in consumer savings from 1998 to 2013.
The converse also has proven to be true: Monopolized electricity often means higher electricity bills. Having embraced utility monopolies rather than competition, Wisconsin saw its rates rise from the region’s lowest to the highest. Not surprisingly, Wisconsin industrialists are considering a move to lower-priced states.
The benefits of competition are not restricted to customer savings. Noting that Microsoft, Amazon, and other big companies are demanding clean energy, another study found that retail choice helps attract large corporations to invest and create jobs in Ohio. Preserving competition could lead Amazon to select an Ohio city for its second headquarters, bringing some 50,000 new jobs to the state.
Why has electricity competition brought such benefits? According to the R Street economist, Devin Hartman, “The advantages of markets under changing economic and policy conditions illustrate a critical benefit of a market-based system: name, that the private sector incurs investment risk, whereas the monopoly model socializes risk across captive customers.” In other words, when utilities must shoulder the financial risk, they are more likely to invest wisely. Think of competition as “survival of the fittest,” while utilities in a monopoly would be “revival of the fattest.”
