Energy Policy Reform Offers Consumers Choice

COMMENTARY Energy Economics

Energy Policy Reform Offers Consumers Choice

May 20th, 2019 3 min read
COMMENTARY BY
Nicolas Loris

Deputy Director, Thomas A. Roe Institute

Nick is an economist who focuses on energy, environmental, and regulatory issues as the Herbert and Joyce Morgan fellow.
When competition takes hold, prices are competitive and quality improves because electricity providers have to work for their customers rather than working the political system. Jim Franco / EyeEm / Getty Images

In today’s era of political divisiveness, it seems as though liberals and conservatives can’t even agree on the color of the sky. So when free market organizations are teaming up with environmental groups on energy policy reform, legislators ought to pay attention.

One such effort is the Virginia Energy Reform Coalition, which officially launched on May 7 in Richmond. The initiative includes a diverse coalition of stakeholders from across the ideological spectrum, including environmental advocacy groups like Clean Virginia and limited government research organizations, such as the Virginia Institute for Public Policy.

Their policy message is rather straightforward. For too long, Virginia’s regulated, monopolistic electricity market has inhibited technological progress and served special interests over the commonwealth’s energy consumers. Instead of settling for subpar results from regulated monopolies, Virginians should champion competitive electricity market policy that promotes technology-neutral competition and is customer-centric.

Introducing competition in electricity markets is a modernization akin to renting a place on Airbnb, where a shopper has price options based on numerous factors like the number of bedrooms, location and whether the place comes with a hot tub.

Similarly, consumer choice in electricity comes in the form of putting customers rather than monopolies in charge. When done right, households can purchase 100% renewable power if they desire or stick with conventional fuels or some combination. Families and businesses have financial choices available as well. For example, they can choose fixed or indexed rates or short- or long-term contracts.

The key here is choice. Whether it’s a major investment like buying a pickup or a Prius, or something smaller like deciding between Coke or Pepsi, Americans benefit more when companies have to compete for their dollars. If they don’t provide what consumers want, they go out of business. It’s that simple. This creates the strong incentive for businesses to provide us with the products we want at the prices we’re willing to pay.

When competition takes hold, prices are competitive and quality improves because electricity providers have to work for their customers rather than working the political system. States with competitive electricity markets like Texas have proved this the case where customers can choose from more than 90 providers. The Lone Star State also has benefited from more technological innovation, renewable energy penetration and consumer satisfaction.

Sounds simple enough, but electricity markets in Virginia currently don’t work that way. Regulated monopoly power regions like Virginia allow politically connected companies with deep pockets to protect their market share through legislative and regulatory actions. Customer rates, new investments and adoption of new technologies are brokered through political negotiations mandated from the General Assembly, or convoluted approval processes from the State Corporation Commission.

Top-down decisions do not easily adjust to changes in prices or cater to the unique preferences of households and businesses. Further, policy and regulations fail miserably to keep pace with technological innovation.

The losers from energy monopolies are captive ratepayers. That includes everyone from the single-parent household struggling to keep up with the bills to the small-business owner trying to keep the lights on. Major industrial companies that use a lot of energy suffer as well.

Major utilities will spend big bucks to prevent change and silence the opposition. But opposition to the obsolete system is growing. The chorus is getting louder. And the calls for change are coming from the left and the right. Both have a distaste for cronyism and Virginia’s electricity policy reeks of it. Virginia is leaving entrepreneurial activity, economic growth and environmental gains on the table, which is why a diverse coalition on opposite ends of the political spectrum have come together urging reform.

Reform will take political will. Trusting that competition will benefit Virginia electricity ratepayers will take political discipline. As Bill Peacock, vice president of research at the Texas Public Policy Foundation notes, “Unlike Texas’ success, other states couldn’t stop interfering with their supposedly deregulated markets.”

Politicians and big utilities could blame deregulation even though competitive electricity markets in certain states never had a chance to really develop. The predictable result was even more government interference and more market distortions. In other words, less choice and higher prices.

While all electrons are identical, the reality is electricity providers can tailor their product to the unique demands of the consumer. And Americans still want affordable, clean, reliable power. Competitive markets provide those staple energy needs — plus a whole lot more. As the U.S. economy transitions from taxis to Uber, from Blockbuster to Netflix, and from analog to digital, Virginia’s electricity markets shouldn’t be stuck in the past.

This piece originally appeared in The Richmond Times-Dispatch