Free Enterprise and Environmentalists Should Champion Energy Choice

COMMENTARY Energy Economics

Free Enterprise and Environmentalists Should Champion Energy Choice

Jul 27th, 2018 3 min read
COMMENTARY BY
Nicolas Loris

Fellow in Energy and Environmental Policy

Nick is an economist who focuses on energy, environmental, and regulatory issues as the Herbert and Joyce Morgan fellow.
Households, as well as industrial and commercial power users, have all benefited from more competition and choice in the market. zhengzaishuru/Getty Images

Key Takeaways

Consumers can shop smarter when the shopping experience gives them more options, more information and more transparency in the transaction.

Households, as well as industrial and commercial power users, have all benefited from more competition and choice in the market.

A regulated, monopolistic marketplace allows regulators to shift costs from utilities to ratepayers, and from ratepayers with the most clout to smaller consumers.

The cereal aisle of a grocery store offers seemingly endless choices. It’s as if there’s something for everyone.  But that’s not the case with everything we buy.

Take electricity, for instance. In Minnesota and many other states, geographic location significantly constrains choice. Moreover, it’s often hard to predict what your bill will be. Sure, in months when you’re pumping out more heat or air conditioning, you know you’ll be paying more, but it’s not like seeing the shelf price below a box of Cheerios.

Consumers can shop smarter when the shopping experience gives them more options, more information and more transparency in the transaction. That holds true whether you’re shopping for electricity or oatmeal.

They’ve proved it down in Texas, where families and businesses reaped huge savings from a restructured electricity market. For Texans, shopping for electricity is now akin to shopping for lodgings on AirBnB. If Mary in Dallas wants to change providers, she can enter her zip code at PowertoChoose.org and select from nearly 300 different plans.

If she thinks prices will rise over the next few years, she can enter into a long-term contract with a fixed rate. Or, she can choose a variable rate that fluctuates with the market. Specialized non-residential providers cater to the needs of small commercial energy users and large industrial ones, making the state an inviting place to do business.

Maybe Mary sees a good price but she’s never heard of the provider. That’s all right, because consumers can rate the providers based on prices, plans, customer service, account management and other factors.

Households, as well as industrial and commercial power users, have all benefited from more competition and choice in the market. Environmental organizations like it, too, because consumers can choose 100 percent renewables.

Some Midwestern states are shifting toward electricity competition, too. Illinois is one such state, and residential, commercial and industrial consumers there now enjoy electricity prices well below those found in regulated monopoly states like Minnesota, Iowa, Wisconsin, Indiana and Michigan.

Electricity expert Devin Hartman of the R Street Institute notes another benefit of restructuring: clean-energy growth. “Competitive wholesale markets more efficiently and reliably integrate variable renewable sources like wind and solar, and spur innovation in advanced low emissions technologies,” he reports.

Indeed, market forces are the best way to expand renewable energy’s share in America’s electricity market. Subsidies and mandates mask the true costs of integrating alternative energy into the grid — costs borne unwittingly by taxpayers and ratepayers. If renewables are cost competitive with conventional energy sources, they don’t need subsidies and mandates. And if consumers don’t mind paying more for wind and solar, fine! They should be able to do so — they just shouldn’t expect others to help pay their bills.

Operating under a regulated monopoly structure, Minnesota is moving in the opposite direction … and paying the price for it. A year ago, state regulators approved a rate increase of 10.6 percent over four years and a 6.9 percent hike for industrial and commercial customers. State legislators introduced a bill giving a similar discount to the state’s larger energy users.

Dr. Philip O’Connor of the Retail Energy Supply Association remarked, “The residential rate increase to allow for a discount to retain at-risk industrial load is a classic admission that the regulated monopoly rates are above market and that the business risk falls on captive customers.”

More recently, the House Job Growth and Energy Affordability Policy and Finance Committee advanced legislation that would change the way Xcel Energy could recover costs for maintenance and improvements to its nuclear power plants. By permitting Xcel to submit plant improvement proposals to regulators through a special proceeding rather than a traditional rate case, the legislation would exacerbate the major problem that harms families and businesses in monopoly-run utilities: shifting financial risk from the company to the ratepayers.

A regulated, monopolistic marketplace, allows regulators to shift costs — and cost overruns — from utilities to ratepayers, and from the ratepayers with the biggest clout to the smaller consumers. It should come as no surprise that both business and consumer groups oppose the legislation.

Market-driven innovations are transforming the way Americans consume electricity. Minnesotans shouldn’t be left in the dark.

This piece originally appeared in TwinCities.com Pioneer Press