The Biden administration hates monopolies — until it comes to electricity
Yet there remains one area where the administration’s silence is glaring: electricity.
While 14 states allow customers to choose their retail electric provider, residents in most of the country can only get electricity from their local incumbent electric utility. Most of these utilities also own their own power plants, limiting competition for electric generation. And recently, a number of states have passed laws restricting competitive bidding for electric transmission projects.
The things the Biden administration claims not to like about monopolies are also true of electricity monopolies. Monopolies raise prices for consumers. States that allow retail electric choice tended to see electric rates fall in recent years.
Likewise, monopolies stifle innovation and make it difficult for customers to access renewable energy resources. States with electric competition have been quicker to adopt new cleaner technologies that have a lower emissions profile.
Granted, there is one difference between the so-called monopolies the Biden administration wants to target and electric utilities. Where electric utilities are a monopoly, it’s because the government has prohibited other entities from competing with them. Along with that status comes a heightened level of regulation, with many aspects of the utility’s business (including prices they charge) requiring approval by state regulators.
But this regulatory oversight isn’t so great a protection as one might think. It’s rare for utilities not to have their costs approved by public utility commissions. And beyond recovering their costs, utilities are typically granted an additional percentage of profit, which can be as much as 10% of costs or more.
Unlike most businesses, the more money a utility spends, the more profit it makes. Even though these utilities are regulated, most customers are served by for-profit utilities. This means that the government itself is protecting these for-profit utilities from competition and customer choice.
Despite this, the Biden administration has tried to entrench utility power further. For example, part of the administration’s Build Back Better legislation would have funneled billions to electric utilities to incentivize building more renewable generation. This would have the unintended effect of crowding out private development of renewable energy sources to entities that are already rate-regulated by the government.
If the Biden administration is serious about the importance of competition, further entrenching some of the country’s most powerful monopolies is an odd way to show it. If it wants to pursue a pro-competition agenda for electricity, there are actions it can take.
To start, the administration could require competitive bidding for new transmission projects that are multistate or will be paid for by residents of more than one state. There is no reason residents of a state should pay more for electricity due to the protectionist policies of other states. Further, the Department of Energy could provide technical assistance to states looking to join organized wholesale markets. The Biden administration and Congress should also enact recent proposals to require open competition for new generation projects in interstate electric systems.
Finally, the federal government should crack down on the ability of utilities to charge customers for payments made to trade associations or other groups that try to influence regulators in an anticompetitive direction.
These small steps could prove that the Biden administration’s commitment to competition is more than just rhetoric.