Give South Carolinians the Choice to Lower Record-High Electric Bills
As it stands, South Carolina residents pay over $1,750 a year on average for electricity – roughly $400 more than the U.S. average. Many states have deregulated their electric utilities and permitted more competition, which has eased the financial burden on consumers. Oddly, South Carolina has opted not to follow this path, and its residents are, quite literally, paying the price.
Part of the reason for high costs in the Palmetto State boils down to poor public policy. For years, Americans across the United States had little, if any, choice over their electric service provider because the federal government supported a monopoly model in the energy industry. The rationale for encouraging monopolies stemmed from outdated and thoroughly-debunked economic theories.
These theories were derived, in part, from the limited technological and financial capabilities of the past. Initially, because electric companies’ startup costs were considerably high, only a limited number of utility companies could afford to emerge in any one geographical market. This created what was called a “natural monopoly.” The prevailing, albeit dubious, opinion was that over time, these electric companies would become more efficient and increase their output, and this in turn would lead to lower electric bills. Thus, according to the theory, if a monopoly is inevitable and largely positive for consumers, then the government ought to protect the monopoly.
Yet in practice, these government-enforced monopolies limited consumers’ choices while blunting electric providers’ incentives to lower prices. That’s the situation that South Carolina finds itself in today.
Fortunately, state officials can lessen the financial burden on consumers by following several states’ examples. For instance, prior to the 1990s, Ohio and Illinois had the ignominious distinction of being home to some of the most expensive energy in the Midwest. Then, beginning that decade, these two states and a dozen others decided to transition toward freer electric markets. Now, post-liberalization, their costs are among the lowest in the region.
The experiences of Ohio and Illinois are not unique. While monopoly states have witnessed their rates surge, states that have restructured their energy models have seen their prices drop. Increased competition, or at least the threat of it, encourages efficient and prudent behavior from providers in order to attract and retain customers. This was the key to Ohio’s and Illinois’ success.
The South Carolinian model, by contrast, rewards poor behavior and insulates energy providers from the repercussions of their ill-advised choices. The V.C. Summer plant project is a perfect example of this principle. The plant has cost over $9 billion, but after delays, regulatory disputes and construction issues, the site’s two unfinished reactors will simply be abandoned. Consumers will then be forced to cover these costs in the form of increased electric bills, from which they will have little recourse given that their electric utility options are severely limited. Had South Carolina permitted more competition, riskier business decisions such as this one might have been discouraged earlier in the process.
The recent developments in Ohio, Illinois and elsewhere have clearly demonstrated that freer, competitive electric markets are simply better than the antiquated government-enforced monopolies found in places like South Carolina. As it stands, South Carolina’s energy model burdens consumers with record-high prices, rewards energy providers’ unwise business practices and inhibits more-efficient energy production. Instead of maintaining this system, South Carolinian officials should consider adopting an approach that gives consumers more choices.