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Competition, Not Outdated Monopoly Models, Key to Meeting Tomorrow’s Challenges

The past year and a half has been, to put it mildly, a weird time. Americans have grappled with the COVID-19 crisis, as well as with the associated economic fallout that revealed cracks in a number of our nation’s workforce and social systems. But recent years have also exposed the significant flaws in parts of our nation’s system of delivering electricity to homes and businesses, a system built largely on an outdated model of monopoly providers.

Electricity runs America in every sense of the word. Families rely on electrical power for the most basic of needs, including heating and cooling. From small tech startups to large manufacturers, businesses of all sizes depend heavily on reliable, low-cost electricity to produce the goods and services we all use. That’s why many were appalled at the situation that unfolded in February in Texas, when grid failures brought on by extreme weather left many without power for days.

In the aftermath of the Texas disaster, some critics blamed the state’s retail power market, a system built on choice with only a handful of monopoly providers. Instead of identifying the real culprit—unprecedented extreme weather—some opted to advance the agenda of monopoly power providers by claiming power outages were the product of market failures. Nothing could be further from the truth.

Chief among the voices decrying the flaws of customer choice was Power for Tomorrow, a monopoly utility supported group that opposes a competitive energy market. Using Texas as an example, the group has advocated against market competition in Virginia, spreading the false narrative that customer choice in Virginia will result in Texas-like grid failures. This is the same Power for Tomorrow, of course, whose expert, Ray Gifford, former commissioner at the Colorado Public Utilities Commission, argued for a $1.4 billion bailout of uncompetitive nuclear and coal plants owned by FirstEnergy Solutions in Ohio. The same bailout attempt later ended in the Ohio Speaker of the House, along with several lobbyists, being indicted in an alleged racketeering scheme involving $60 million in FirstEnergy funds.

Despite their attempts to distort reality, Power for Tomorrow and others like them are simply wrong, espousing false information rather than admitting the facts. What’s more, the ironically named Power for Tomorrow continues to argue for a model of electricity generation that has no viable place in America’s future. Monopoly power is yesterday’s model, not tomorrow’s solution.

Overall, competitive power markets provide advantages in affordability, reliability, and emission reductions that monopoly models can’t match. In competitive markets, competition among power generators creates pressure to keep prices low. Instead of consumers absorbing the cost of bad investments or strategies, investors do. That’s one reason why wholesale power prices in many regions of the U.S. are at historic lows, saving families and businesses money.

Federal data shows that from 1997 to 2017, competitive markets not only caught up to monopoly models in terms of affordability, but actually saw smaller rate increases for consumers. Those in the PJM Interconnection region, for example, are now saving as much as $4 billion each year because of market competition. Wholesale energy prices in the competitive New York Independent System Operator (NYISO) market reached record lows in 2019.

Competition helps reliability and emissions reductions, too, as competition fosters innovation and drives investment to where it’s needed most. After all, the monopoly model didn’t save the Southwest Power Pool or Midcontinent Independent System Operator (MISO) from blackouts during the Texas disaster. On the other hand, carbon emissions are falling nationwide as competition has catalyzed a switch from coal to natural gas for power generation; this move has caused emissions in the power sector to fall by 33% since their peak in 2007 per recent U.S. Energy Information Administration data. The PJM Interconnection region alone has seen carbon dioxide emissions drop 39% since 2005 in large part due to a competitive market.

As federal and state officials address policy questions facing power generation, we need every tool in our arsenal to ensure we pursue climate change goals, keep costs low for customers, and build a robust power grid. A crucial tool in that effort is competition, the same tool that has helped shape the U.S. into the world’s most successful economy and will pave the way for an electric grid in transition. If we really want to meet the future head on, we should abandon outdated monopoly models of electricity and turn instead to competitive marketplaces capable of driving innovation and creating solutions, not just enriching shareholders.

Competitive electricity markets, not yesterday’s monopoly utility models, are the answer to meeting the challenges of tomorrow. Policymakers would do well to look past the rhetoric and see the many benefits of electricity competition. 

Guy Caruso is a former administrator of the U.S. Energy Information Administration.