Energy Choice Fact Check: Assessing the Truth About What’s Been Learned About Competition

The Arizona Energy Policy Group (AEGP) recently published a report entitled “Retail Competition in Electricity: What Have We Learned in 20 Years?” in an attempt to quash momentum in Arizona to allow customers to choose their service provider.

Energy choice, when adopted by states like Arizona, allows for open markets where customers are able to finally have a say in who generates their electricity as well as how that electricity is made. Providing customers with the ability to identify the power provider who most aligns with their priorities, whether that’s the lowest price, the cleanest energy mix or the most innovative program offerings is a popular idea that is both saving consumers money and driving the transition to cleaner generation sources in the electricity sector.

While end users appreciate the ability to break from their monopoly electric utility, the resulting competitive markets have made incumbent utilities quite nervous.

Organizations representing utilities have poured unprecedented amounts of funds into political groups to oppose market reforms. The recent report from the AEGP is just the latest attempt to dissuade consumers from taking flight.

Unfortunately, the facts and the history of energy choice across the United States don’t line up with the claims AEGP makes in its report. We’ve pulled together this handy review of AEGP’s main claims and see what’s what.

Claim: There’s no evidence that energy choice consistently reduces rates for residential customers.

Fact: Markets that have embraced competition and consumer choice have demonstrated consistent energy price reductions compared with comparable markets without energy choice.

Monopolies have little incentive to reduce prices, innovate or improve efficiency because their customer base has nowhere else to go. Even when a traditionally integrated utility makes a bad investment decision it doesn’t pay the price because it is guaranteed a rate of return on investment that is covered by its customers. 

The anecdote to monopolistic behavior is competition. As noted by South Carolina State Sen. Tom Davis in a letter advocating for competitive energy markets in his state:

“The legislature has given the big utilities service-area monopolies and guaranteed them (on average) a 10.2 percent return on invested capital – even when they make poor decisions. Predictably, these big utilities pursue capital-intensive projects in order to maximize their return.  That’s why, despite a steady decrease over the past decade in the wholesale price of power in our country, retail rates charged by the utilities in our state have soared.”

Several studies have shown this to be the case. An Ohio State University study showed that the lack of competition in the state was responsible for increasing power costs. The American Public Power Association tracked electricity data and found that since 1997 electricity rates on average have increased 56 percent overall. In states with energy choice, however, rates increased 47 percent compared with non-reorganized states with incumbent utilities that saw 66 percent increases.

Long-term trends aren’t necessary to see the difference in rates, though, as looking at changes from 2016 to 2017 by the Energy Information Administration found that the only fives states that saw average rates decrease were states that had enacted energy choice. On the flip side, the largest year-over-year increase was in Florida, a state where energy choice advocates are battling to open the market to competition.

Claim: Residential electric rates in competitive states are higher on average than those in traditionally regulated states.

Fact: Comparing electric rates where the only main variable in power markets is the presence of energy choice shows the movement in the right direction for customers.

Opponents of competitive markets tend to cherry pick data from states that have only partially reorganized their electricity markets. These markets can have higher electricity rates for a host of reasons unrelated to competition. In fact, one of the main reasons for higher prices is that partially reorganized markets leave up many of the barriers to competition. When governments don’t trust markets to work and continue to try to direct it through regulation, it adds costs and discourages competition and innovation.

For a more direct comparison of competitive vs noncompetitive markets, it’s useful to look at regions where certain customers have the right to choose their energy service provider and others have not – but where power providers are subject to the same regional factors such as fuel prices, grid infrastructure, demographics and weather patterns. 

The best example in that case is Texas, a state that’s had energy choice for almost two decades. A longitudinal study by the Texas Coalition for Affordable Power found that those with energy choice saw a rate decrease of more than 23 percent over a decade, while those without energy choice saw rates increase. The only real difference between the markets was whether there was a competitive playing field for service providers.

Claim: Energy choice requires an ISO (independent service organization) or RTO (regional transmission organization) and states without such wholesale market mechanisms face prohibitive resource planning and reliability challenges.

Fact: ISOs and RTOs were only created in 2000 to operate the grid and their establishment has made markets where they operate more efficient, effective and reliable.

AEGP is correct that energy choice would require Arizona to establish an ISO or RTO to manage the state’s electricity grid and its connection with the West’s wider transmission system in place of the incumbent utility.

Prior to 2000, ISOs and RTOs didn’t exist and utilities maintained exclusive control over their vertically integrated operations, from generation to transmission and distribution. The Federal Energy Regulatory Commission (FERC) changed that with its Order 2000 after finding that “there were still significant barriers to ensuring that the United States had an abundant supply of electricity at the lowest price possible for reliable service.”

FERC Order 2000 created RTOs and ISOs to ensure “nondiscriminatory access to transmission infrastructure.” An RTO or ISO is responsible for controlling and monitoring the use of the transmission grid in their respective territories and for making sure competitors can get their energy services on the regional delivery network.

It does require some upfront cost to setup an RTO or ISO, the expense is a long-term investment in the electricity grid that will improve service, reduce consumer utility bills, spur innovation and increase deployment of renewable energy sources. The average utility rate in Texas in areas with energy choice was 23 percent lower than parts of the state without energy choice.

All of the benefits that have been achieved by the over one dozen states that have implemented energy choice required the establishment of such ISO or RTO systems and association transitions that are less than 20 years old today. That implementation did not serve as an impediment, and in fact over two-thirds of Americans get their electricity through ISOs or RTOs.

Claim: There is meaningful adoption of innovation in markets without energy choice as well as those with choice.

Fact: The free market is the best engine for innovation as it frees entrepreneurs  

Besides lower electricity bills, another benefit of competitive markets is that they drive innovation and the adoption of technological advances that incumbent market participants often pass over or at least delay.

Monopolies simply don’t have the same incentive to innovate and adapt to customer requests and changing market conditions as private companies in an open market do. Incumbent utilities around the country are investing in utility scale wind and solar projects because they see the threat to their business model from competition.

Look no further than the debacle in Nevada for proof that monopolies will spend and do whatever it takes to defend their guaranteed rate of return. Florida is currently headed down the same dead-end path as Nevada.

There’s an easier, less expensive way to drive clean energy adoption.

If the threat of competition is enough to scare incumbent utilities into building more renewable generating sources, just think what full competition could do. Monopolies are incapable of giving consumers the range of choice in products and services they desire. The only way incumbent utilities can compete is to lobby public officials to erect barriers to competition and keep customers trapped.

Customers who desire the cleanest energy mix possible should have the ability to dictate that through the power of their individual choices.

Claim: The AEGP report is an unbiased and data-backed assessment of competitive energy markets.

Fact: The AEGP report is clearly biased toward incumbent utilities

As noted earlier, incumbent utility companies have immense political capital and they have not been shy in wielding that influence to protect their market position and bottom lines. The Arizona Energy Policy Group was formed in 2018 by the incumbent utility companies. It is not surprising then that AEPG is advocating for policy measures that would directly benefit the utilities rather than Arizona customers.

Fact check: Arguments against competitive markets and energy freedom don't hold water

EIA

The U.S. electricity industry was restructured in the 1990s to increase competition at the wholesale level by breaking up the generation and distribution functions of some vertically integrated utilities. In addition, some states restructured retail sales by unbundling the electricity delivery and electricity generation.

An increasing number of electricity customers now have access to the competitive retail markets, giving them choices in suppliers of electric power. Roughly 14 states and the District of Columbia allow consumers to purchase electricity from third-party providers instead of requiring power to be generated and delivered by one monopolistic utility. 

In these states, customers are afforded the freedom to shop for the energy sources that best match their priorities, whether that’s the provider with the lowest price, the greatest amount of renewable energy, the most attractive program incentives or any other factor they care about.

While true energy choice for end users is not permitted in the majority of states across the country, the debate about whether or not those markets should allow greater competition is heating up.

A ballot initiative to amend the state constitution in Nevada was put to a vote in November 2018 – it failed after the utility spent a record amount of money to fight the popular initiative – while Florida’s State Supreme Court is set to answer soon whether a similar ballot initiative will be allowed in its elections in the fall of 2020.

The predictable political battles over consumer freedom creates a debate about how states can best speed the transition to a lower-carbon emission economy and whether the old regulated utility model has outlived its usefulness. The fights have turned ugly with opposing sides hurling opposing “facts” at consumers.

The mudslinging isn’t surprising given the stakes. The falling cost of dispatchable generation from wind and solar, the development of smart meters and other digital solutions, and the evolution of financing options have empowered electricity consumers like never before – threatening the way electricity has traditionally been generated and sold in the process.

To clear up any confusion about opposing claims, let’s fact check some of the most common arguments used by opponents of energy choice.

Claim: Allowing consumers energy choice would lead to higher utility bills.

In opposition to the Florida energy choice push, a spokesman for Florida Power & Light noted that “Floridians have access to electricity that is both cleaner and more affordable than the national average. This system would be dismantled under the proposed constitutional amendment.”

Fact: Competitive markets result in lower prices for consumers.

A study by Ohio State University found that the lack of energy competition in Ohio is to blame for electricity cost increases. Competitive markets also shift the investment risk away from captive ratepayers and on to competitive power companies.

Taking this point nationally, the Retail Electric Rates in Deregulated and Regulated States report has found that rates across the country are rising across the board for electricity, increasing by 55.9 percent from 1997 to 2018. In states without energy choice, the increase over that same time has been 65.5 percent, while states with energy choice have seen a more meager 47 percent increase. These trends of what has happened after competition is introduced is the critical factor in measuring how much consumers benefit.

Well-designed competitive markets offer a number of other benefits beyond just lower prices, including more efficiency, innovation and supplier options. A lack of competition allows regulated utilities to avoid competitive pressures which makes them slow to adopt new but more efficient technologies and business models that better serve consumers.

Attempts to scare consumers about how opening the market to competition will affect their utility bills is not supported by the facts. Looking at the impact of competitive markets in Texas, the Texas Coalition for Affordable Power found that “average residential electricity prices in deregulated areas have declined more than 23 percent during the 10-year period between 2008 through 2017. During the same time period, average residential prices in regulated markets have slightly increased during the same period.

The absolute cost of energy carries with it many different influences, including fuel costs, weather conditions and local regulations making it difficult to do a direct apples-to-apples comparison. However, looking at the price trend in Texas, the claims of those opposed to competition don’t hold water. In addition to lower electricity rates, the Energy Information Administration (EIA) notes that customers in competitive markets also see less price volatility in their monthly utility bills. This is because electricity prices are less influenced by fluctuations in the wholesale power market.

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EIA data shows that from 2005 to 2016 competitive energy providers went from supplying 11 percent of total U.S. retail electricity to 21 percent, while total customers in retail choice programs has hit nearly 17 million in the past five years. These numbers indicate a high level of success and customer satisfaction.

California does hold important lessons but not the ones opponents of competition want you to learn. The California Public Utilities Commission (CPUC) released a report in 2017 examining what went wrong with reorganizing of the regulated market the last time and how to avoid such pitfalls this time around and ensure consumers have a greater say in the energy they use. California’s answer is to allow for local municipalities around the state to develop their own government-run power providers called community choice aggregators, or CCAs, which can be more responsive to community members on issues such as price and generation sources. 

As the entity responsible for the issues that led to the 2000s energy crisis, the commission has every reason to exercise caution as it encourages greater competition in the state’s electricity market. But rather than stick with the old monopoly institutions, the commission found:

“California’s status as the 5th largest global economy is directly linked to its ability to embrace advanced and innovative energy technologies, maintain safe and reliable grid operations and keep prices relatively stable, while allowing new market entrants to flourish and protecting ratepayer interests.”

The lesson learned appears to be that removing barriers to competition encourages innovation and drives adoption of cleaner energy sources.

Claim: Restructured markets would force customers to rely on unproven energy providers.

A common note of fear that those opposing energy choice tap into is that the existing utilities are the best for the job of generating and delivering energy simply because they’ve been doing it for so long, and thus opening the market will introduce inexperienced service providers.

The president and CEO of Associated Industries in Florida has warned that energy choice in Florida would “force us to rely on new, unknown corporations that have no experience or track record dealing with our state’s unique challenges, such as hurricanes.”

Fact: Competition is good for all players in the market. Under competitive markets, poor performers are driven out by consumers who can vote with their feet. A strong cop on the beat to make sure service providers play by the rules and consumers are protected is an important component of a well designed market.

Claim: Energy choice would decrease investment in renewable energy.

Fact: Competition is driving more efficient and targeted private sector investment into cleaner forms of energy, including wind and solar and storage. The competitive model is also shifting the investment risk off the backs of consumers and back onto the companies and service providers competing for their business - where it belongs.

While the main argument for energy freedom comes in the form of allowing customers to opt for the energy generation from the supplier with the lowest prices, many suppliers set themselves apart by offering renewable energy.

Customers today increasingly want to know that their homes and offices are being powered by wind, solar, and other clean energy sources, and many are willing to pay a premium for that service - though with the falling price of renewables, most providers can compete on price, too. For these customers, energy choice gives them the ability to sign up for the provider best aligned with their values.

The competitive market is responding to consumer demand and delivering cleaner energy in the process. And because consumers can easily switch providers for any reason, service providers have a natural incentive to provide superior customer service and to strive to innovate to maintain their competitive edge. It’s a win-win that does not require government intervention.

Compare that to traditional integrated utilities that don’t make money from selling electricity, but from building generation facilities and infrastructure. An integrated utility has no incentive to reduce the price of electricity or improve its efficiency because the government guarantees it a specific rate of return on its investment. Under such a system, the customer is captive and has little to no say in how electricity is generated.

In Florida, opponents of competition point to recent utility-driven initiatives to invest in solar energy and permit net metering as signs of progress and an indication that the utilities are responsive to consumer demands. The chairman of Citizens for Energy Choices contends, however, that this was a result of the energy choice movement and not something the utility would otherwise have done on its own.

The state’s solar growth, he contends, “didn’t occur until we started pushing competition. Suddenly the utilities react.”
— Florida Sun Sentinel

Giving up on energy choice now would be allowing the monopoly utilities to do just enough to placate clean energy advocates and not actually continue the momentum that energy choice would allow to grow. It would also force consumers to bear the full risk associated with building new generating capacity instead of allowing private companies to take on those risks.

Illinois Fast Becoming National Leader in Modernizing Electricity Infrastructure

Texas is the first state most people think of when the issue of modernizing the nation’s electricity sector is discussed, but there is a good argument to be made that Illinois is worthy of equal consideration.

The land of Lincoln has transformed itself over the past two decades into a leader in the transition to a modern electricity grid. State lawmakers have passed several pieces of legislation aimed at bringing the state’s power system into the 21st century. In doing so, they have put an emphasis on creating a market that can deliver a more dynamic grid that is cleaner, affordable, reliable and more responsive to consumers needs.

As digital technology continues to transition the electricity sector further away from the old vertically integrated utility model, consumers stand to benefit from the efforts of Illinois lawmakers to prepare the ground for a modern grid.

The seeds of Illinois’ reimaging of its power system were first planted back in 1997 with the Electric Customer Choice and Rate Relief Law, which reorganized the state’s two largest electric utilities, Ameren and Commonwealth Edison (ComEd), and created one of the nation’s largest retail electricity choice markets.

While the creation of retail choice markets was a major step forward, the implementation has not been without its challenges. In fact, one cloud over Illinois’ modernization efforts is the ongoing trend of declining participation in its retail residential markets.

Illinois has the third highest number of residential retail choice customers after Texas and Ohio. However, Illinois has seen participation in its retail markets fall to 1.8 million customers as of May 2018, down from more than 2 million in 2016, an annualized decline of more than 7.5 percent each year. As of May 2018, third-party suppliers served only 59 percent of Ameren customers and 32 percent of ComEd’s customers.

The existence in Illinois of default service procurement plans and market pricing failures have caused consumers to switch back to the traditional utilities. Both issues could be resolved through better market design that gives competitive suppliers a greater role and improved consumer protection measures.

A top goal of Illinois’ grid reform has been to make the state a leader in the digitalization of the electricity sector and the adoption of smart grid technology to empower the end user with greater control over their energy use through apps and other smart digital devices. This emphasis on digital communications and the complexity in managing an increasingly distributed grid has led the state’s utilities to invest in private telecommunications infrastructure to keep up with bandwidth demand and to ensure they can maintain data integrity in an emergency.

A joint report from the Smart Electric Power Alliance and ScottMadden, Inc. determined that the reforms so far adopted in Illinois have set the state up to take advantage of the trend toward increasing installation of distributed energy resources (DERs).

DERs are energy assets that are spread out across the grid and are increasingly under control of the end users, including rooftop solar, behind-the-meter battery storage, energy efficiency management tools, and electric vehicle chargers. Managed effectively, distributed generation can make the grid more resilient and increase the integration of clean energy assets. But there are challenges to integrating DERs into the larger grid.

Illinois is ahead of most states in preparing for a more decentralized electricity sector. The state has invested in advanced energy management software and adopted real-time pricing structures to handle issues associated with the growth of distributed generating assets.

In 2011, Illinois lawmakers passed the Energy Infrastructure Modernization Act to ensure that the state’s increasingly clean and advanced grid was also reliable and resilient. The act authorized $3.3 billion to strengthen and modernize the grid, including a sizable investment in smart meters and other advanced metering technologies to help grid managers identify potential problems before they become issues for the wider grid system. Smart meter technologies also offer a number of benefits to the end consumer, including better access to data about and more control over their energy use.

The state has taken steps to ensure software and cloud-based computing solutions keep pace with other advances in the sector. Because utilities in most states are financially rewarded for making capital investments rather than for operational costs like software, smart meters have long been installed in large quantities but investment in the analytics needed to harness the full power of that data has lagged. Illinois is one of the first states to address this issue by reworking the regulatory model to provide an incentive for investing in smart metering software that will ultimately benefit consumers by putting more control in the palm of their hands.

Over the years, Illinois officials have been unwavering in their commitment to grid modernization. The latest efforts include the NextGrid Illinois Utility of the Future Study, a statewide effort to reimagine what the future electricity sector should look like. The study identifies new technologies, business models and policies to further strengthen grid management and the role of consumers. The results of the study were released this past December and provide a roadmap for Illinois to continue to improve the flexibility, efficiency and clean energy integration of its electricity sector.

Reorganization of Illinois’ electricity markets have delivered a wide range of benefits over the years for the state’s retail consumers.

Illinois was ranked second in terms of grid modernization, behind only California, in 2018 by the GridWise Alliance’s Grid Modernization Index, and the state has surpassed its goal for reducing customer power outage frequency and duration.

The vast installation of smart meters and other digital technologies has also positioned Illinois to be a leader in distributed resource installations going forward.  

In June, Illinois Gov. J.B. Pritzker signed legislation to provide $70 million in grants through the state’s environmental protection agency to build electric vehicle charging infrastructure and electrifying public transit and school buses.

While further reforms are needed to improve the design of the retail market, Illinois is ahead of most states. 

Energy Choice

Energy choice by definition is pretty straightforward: The ability of consumers – industrial, commercial, and residential – to decide where they purchase their electricity from and which energy source is used to generate that electricity.

The reality for the residential consumer is a bit more complicated.

While giving consumers the freedom to shop around for their daily power offers a litany of benefits – affordability, environmental performance, improved service, and innovation in the types of services available – determining whether energy choice is really an option in your state and neighborhood can be difficult.

Across the country, the electricity sector is a patchwork of traditional vertically integrated utilities and partially to fully open markets with varying degrees of consumer participation. Many regions with restructured wholesale markets do not have retail market competition. The opposite scenario also exists. And while a handful of states allow residential customers the freedom to pick their energy supplier, many impose a thicket of regulations and restrictions that effectively discourage competitors from entering the market and deny the final consumer the ability to benefit from real-time price changes.

So where does energy freedom ring loudest?  

Restructuring vs Actual Energy Freedom

The right to energy choice is available only in states where laws have been passed to reorganize wholesale and retail power sales, breaking long-held monopolies over the generation and delivery of electricity that legacy utilities were granted more than a century ago.

Reorganization of electricity markets started in the 1990s, but poor market design and inadequate oversight in the early 2000s caused some states to reverse course. Today, a handful of states and the District of Columbia allow consumers to purchase electricity from third-party providers.

California, Connecticut, the District of Columbia, Delaware, Illinois, Massachusetts, Maryland, Maine, New Hampshire, Michigan, New Jersey, New York, Ohio, Pennsylvania, Rhode Island, and Texas have allowed some level of competition.

Market participation in these states depends largely on each market is designed. While Texas provides the best example of energy freedom at the consumer level – thanks to its isolation of utilities to the owning and operating of the poles and wires of the delivery infrastructure only – many states do not allow choice at the retail level or impede competition with strict licensing requirements or by allowing utilities to hold on to generating assets and use their competitive advantage to exclude rival power sellers.

States in dark green allow residential consumers to choose a third-party electricity supplier.

States in dark green allow residential consumers to choose a third-party electricity supplier.

So determining whether retail consumers truly have energy freedom requires some digging. Ohio started down the restructuring path in 1999, but stopped short of separating utilities from generation and retail sales. In Georgia, Virginia, and Oregon, big industrial users have electricity choice, but residential customers do not.

Restrictions on Energy Freedom

In states that do allow third-party suppliers to compete for end-users at the residential level, there are also often further restrictions that make it difficult for competitors to gain a foothold or simply for consumers to switch providers. Some of these restrictions include capping the number of customers that can participate and how the eligibility of customers is defined, including requiring a minimum level of monthly energy usage. Understanding such restrictions are key to answering whether energy choice is available in specific areas. Market barriers to electricity freedom included:

  • Electricity choice for residential and commercial customers is limited to only certain designated utilities and their coverage areas in Connecticut, Delaware, Illinois, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Ohio, Pennsylvania, Rhode Island, and Texas, as well as for just commercial customers in Virginia.

  • Electricity choice for residential customers is offered in Virginia but only for consumers seeking electricity from 100% renewable energy sources and only where the local utility does not provide this option.

  • Electricity choice for commercial customers is offered in California but is limited to customers of specifically designated utilities and is capped at a specific number of participants.

  • Electricity choice for residential and commercial customers is offered in Michigan, but no more than 10% of a utility’s sales can come from alternative suppliers.

  • Electricity choice for commercial customers is offered in Georgia but only to customers who reach peak loads of 900 kW or greater.

  • In many markets, the monopoly utility is treated as the default service provider, giving it a leg up on third-party energy suppliers.

So Does My State Truly Allow Energy Choice?

We’ve pulled together the most up-to-date information by state on energy choice programs, eligibility, and restrictions in the chart below.

As you can see, whether or not your state truly allows energy choice is tricky. Overall, between 13 and 15 states and the District of Columbia offer some form of electricity choice. And there is a growing support for competitive electricity markets among ratepayers across the country. But as the recent ballot initiative defeat in Nevada and the current fight underway in Florida show, energy freedom advocates have a long way to go.

 

Shell's Silicon Ranch Corporation Launches Program Combining Clean Energy, Carbon Sequestration, Economic Revitalization

Silicon Ranch Corporation, the US solar platform for Shell, has launched Regenerative Energy, which combines clean electricity generation with carbon sequestration, ecosystem restoration, and rural economic revitalization.

To develop its Regenerative Energy program, Silicon Ranch has partnered with regenerative ranchers and local farmers to deploy holistic land-use practices on solar farms across the country. Adaptively-managed grazing animals, diverse native plants, pollinator habitat, and wildlife work together to revitalize soil, enhance biodiversity and resilient ecosystems, sequester carbon in the soil, and strengthen rural economies, the company said.

Silicon Ranch has begun implementing regenerative agriculture practices on operating projects in Colorado, Tennessee, Arkansas, and Mississippi, with a plan to transition the balance of its portfolio over time. The company is integrating Regenerative Energy standards into designs for projects in its construction pipeline and is scheduled to bring more than one gigawatt of solar capacity online over the next three years.

Read More at RetailEnergyX.com.

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Nonprofit Relaunches Improved Online Resource Library

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Congratulations to OurEnergyPolicy.org on relaunch of its comprehensive online resource library about US energy policy and research. The library received a makeover and a new name and is now better than ever. The OurEnergyLibrary aggregates nearly 5,000 publicly available reports, white papers, journal articles, and studies on a broad variety of U.S. energy policy topics.

According to the nonprofit organization, the “OurEnergyLibrary provides a more defined focus than a simple Google search by limiting results to curated, professionally tagged publications, while excluding news articles, blog posts, and other extraneous content. It includes studies, reports, papers and other documents, and these resources are all free, publicly available, and produced by reputable organizations.”

Check it out at OurEnergyLibrary.

Reconsidering PURPA

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How relevant is a law enacted 40 years ago in response to the oil shocks of the 1970s? Especially given today’s electricity markets where inexpensive renewable energy resources rapidly supplant the old coal-fired workhorses of the industry. Perhaps it is time to revisit the law and ensure consumers see the best results as rapidly changing economic forces rock the electricity sector.

That’s the argument of U.S. Sen. John Barrasso, R-Wyoming, and others in Congress calling for passage of legislation to modernize the 1978 law known as the Public Utility Regulatory Policies Act, or PURPA. Energy markets were “drastically different” when PURPA was first enacted, the Wyoming Republican argues, calling it critical to modernize the law to reflect a rapidly changing energy market in which clean, renewable resources have become increasingly economical.

But let’s take a step back and look at the environment in which PURPA was passed. PURPA was the first of several laws enacted by Congress to promote competition in the production of electricity for consumers. Yes, electricity markets were dramatically different before PURPA’s enactment since there was no market for electricity produced by entities other than monopoly-protected utilities.

PURPA was intended to promote investment in small, renewable energy facilities by non-utility generators. Amid spiraling inflation, long lines at gasoline stations and massive cost overruns in the construction of nuclear power plants, Congress sought to promote the type of investment that utilities were reluctant to undertake. At the time, PURPA was successful at jump-starting the creation of an independent generation industry and led to more pro-competition legislation enacted in a bipartisan fashion in 1992.

Today, regional electricity markets are determining the price of electricity for two-thirds of U.S. GDP. They’re not perfect, but have proven better than rate regulation at promoting the lowest costs for consumers, and have helped drive the development of ever-cleaner generation resources and cleaner air. 

So perhaps it is time to reconsider PURPA. After all, at the heart of concerns about the law is a regulatory artifice known as “avoided cost” rates. In other words, PURPA directs utility regulators to guess what the utility’s avoided costs would be had the utility – rather than a PURPA qualifying facility – produced the same amount of energy. It’s another form of failed utility ratemaking that competitive markets have made obsolete. 

But addressing PURPA’s rapidly obsolescent avoided-cost ratemaking process in isolation will do little to help consumers or promote development of a 21st electricity system. Congress should instead look at PURPA in a holistic context. The past 20 years have demonstrated that states with competitive markets have seen electricity costs better contained than in states that maintained the monopoly rate-setting method. Monopoly states today are a regulatory battleground as rooftop solar, consumers and other interests seek to break down barriers to competition and innovation.

In a genuinely competitive electric industry that quarantines monopoly utilities from the market, PURPA is unnecessary. Rather than tinker at the margins of the problems confronting today’s electricity consumer, Congress should confront the elephant in the room by completing the stalled transition to competition.

Only with real competition in electricity markets in which utilities can no longer serve as barriers to entry by new, innovative and cost-competitive suppliers, will consumers genuinely benefit. Such a transition to competitive markets will also help address increasing environmental concerns in the process. It’s a win-win.

Barrasso Reintroduces Bill to Modernize PURPA, Protect Electricity Customers

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The Public Utility Regulatory Policies Act of 1978 was passes as part of the National Energy Act in order to combat the energy crisis of the 1970s. It worked, but the energy world has drastically changed in the 40 years since.

The “Updating Purchase Obligations to Deploy Affordable Resources to Energy Markets Under PURPA Act” (or the UPDATE PURPA Act) makes the following commonsense reforms to PURPA:

• Protects electricity customers from having to pay for unnecessary PURPA costs.
• Empowers state public utility commissions and non-regulated utilities to waive PURPA’s mandatory purchase obligation if additional power is not required to meet customers’ electricity needs. 
• Ensures a level playing field for energy resources by requiring more PURPA resources to participate in energy markets. 
• Prevents abuse of the Federal Energy Regulatory Commission's one-mile rule.

Read more at Wyoming Senator Barrasso’s website.

Energy Use on the Rise

The latest chart from Lawrence Livermore National Laboratory shows that US residents used more energy in 2018 than the previous year. Overall energy consumption in 2018 rose to 101.2 quadrillion British Thermal Units (BTU). The prior record was 101.0 quadrillion BTU set in 2007. Energy use increased by 3.6% in 2018 from the previous year, which was also the largest annual increase in usage since 2010. Natural gas, wind, and solar saw the biggest growth in usage in 2018. Solar was up 22%, wind 7.6%, and natural gas 10.7% from the previous year. The latest energy flow chart shows that total renewable energy production doubled, including a five-fold increase in wind and a 48-fold increase in solar in the 10-year period from 2008 to 2018. Read more here.

Ohio’s HB 6 Contradicts Conservative Values

In this well written op-ed, public policy expert Sarah Hunt argues that an Ohio bill said to be about clean energy is actually a government bailout. Instead of boosting the economy while fighting pollution, this bill cost Ohio taxpayers millions with nothing in return. Read the rest at Townhall.

How Cost Competitive Are Renewable Energy Sources

Renewable energy continues to be the future fuel source of choice for power generation. The benefits of renewables – and here we’re speaking primarily of wind, solar – to deliver carbon-free electricity and address climate change and air pollution are well known. If these energy sources can compete on price as well as environmental performance, their adoption will be far quicker.

Data and market analysts suggest that the costs of renewable energy overall is dropping quickly, even as preferential tax treatment for wind and solar are scheduled to be phased out. The outlook for the price competitiveness of renewables looks bright, but is the industry at a point where it can stand on their own?

Current Cost of Wind and Solar

The past decade has seen the cost of renewable energy drop consistently in the United States, as well as in much of the rest of the world. Advances in technology have improved the efficiency of renewable generation, while improvements in the manufacturing process has helped bring down production costs. The result is more affordable renewable energy.

Looking at global electricity costs in 2018, data from the International Renewable Energy Agency (IRENA) shows how costs across different renewable technologies have dropped.

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Breaking these costs down into a single number is difficult as different nations face varying costs. Additionally, soft costs, hardware costs, and installation costs all vary significantly in different countries as the following chart shows.

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Breaking down costs for the United States, IRENA found that U.S. onshore wind energy cost $0.048 per kilowatt hour (kWh) in 2018 – a 66 percent drop from costs in 1984. Utility scale solar cost $0.082/kWh – a 60 percent drop from eight years earlier.

 Comparing Renewable Costs With Other Generation

The reduction in costs achieved by renewables is impressive, but only so far as it makes them competitive with traditional fossil fuels.

 The U.S. Energy Information Administration (EIA) tracks levelized costs and levelized avoided costs to approximate relative values. These metrics are imperfect and do not account for some unique attributes of different energy sources. Fossil fuel plants may be more expensive to operate than nuclear, but nuclear is more expensive to build. Natural gas is dispatchable, meaning these plants can be turned on and off quickly to match demand, while renewables like wind and solar rely on external factors to determine if they can generate. Some of these attributes come with their own advantages to the utility industry.

In the end, though, these levelized costs can provide a suitable starting point for comparing costs of generation sources. The EIA analysis below shows the relative affordability projected in the coming years of renewable energy sources compared with their traditional nonrenewable counterparts.  

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In terms of direct comparisons, the recent IRENA report details how renewable generation is becoming more of an obvious economic decision. Over 75 percent of onshore wind power and 80 percent of utility scale solar expected to be built by 2020 will provide electricity at a lower price than the cheapest generation from new coal, oil or natural gas.

 Factoring in the Tax Subsidies

In the United States, renewable energy currently enjoys government support. The current federal tax credits include production tax credits (PTC) for new wind capacity (as well as geothermal and closed-loop biomass) at $24 per megawatt hour (MWh), adjusted for inflation and applicable for each of the first 10 years of plant operation. Plants that began construction by 2016 received the full PTC, with benefits declining each year construction started after that year. The PTC is scheduled to expire at the end of 2019.

The solar investment tax credit (ITC) allows for 30 percent credit for utility scale and small-scale solar projects that began construction before 2020. The tax credit for solar energy begins to phase out in 2020. The upcoming sunset dates demonstrate that policymakers have confidence that renewables are ready to stand on their own. Furthermore, future projections from EIA, IRENA, and other forecasters predict renewables to be cost competitive even accounting for these credits expiring.

Expected Renewable Price Trends Going Forward

The cost reductions for renewables are expected to continue. IRENA data predicts solar energy can drop to $0.048/kWh in 2021, while wind could drop to $0.045/kWh over the same time period. As technology advances, the cost of renewable energy will likely go even lower. 

The renewable industry has already reached the point where new renewable generation is a good investment compared to new fossil generation. But the next step comes when new-build onshore wind and solar is cheaper than it costs to operate existing coal plants. The United States has already entered this ‘coal cost crossover’ according to research by Energy Innovation. Renewable generation could already replace 74 percent of U.S. coal generation with an immediate cost savings to electricity customers. A figure projected to rise to 86 percent by 2025.

Of course, all predictions are subject to future energy policies, including tax credits but also tariffs on solar technology imports. The overall trend is for renewable energy prices to continue to decline with the outcome of increased renewable energy generation.  

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Watertown Council Approves Electrical Aggregation Program

The Massachusetts community of Watertown on Tuesday approved the creation of a community choice aggregation (CCA) program, which gives municipalities more choice over where their electricity comes from and is used as a tool for towns to increase renewable energy sources in their electricity supply, without raising prices. More than 125 Massachusetts communities have implemented a CCA program. The program gives the town a chance to cut 16,000 tons of C02 annually. Read more.

AEE Rolls Out New Report on Market Barriers in Wholesale Electricity Markets

The Advanced Energy Economy released a new report this week detailing market rules in wholesale markets that are standing in the way of technology neutral competition on price and performance. The report, Wholesale Market Barriers to Advanced Energy – And How to Remove Them, details 21 case studies of instances where market rules are outdated, preventing new technologies from selling their services on the open market, and keeping the electricity system from being modernized for higher performance. Read more at AEE.net.

Fight for Consumer Electricity Choice in Florida Reaches State Supreme Court

The effort to bring competition to electricity markets in Florida has reached the state Supreme Court.

Earlier this year, energy choice advocates in Florida put forward a ballot initiative to overhaul the state’s electric utility industry. The proposal calls for wholesale and retail electricity markets to “be fully competitive so that electricity customers are afforded meaningful choices among a wide variety of competing electricity providers.”

The proposal, which faces fierce opposition from state leaders, business groups, and utilities, is scheduled for an August 28 hearing before the Florida Supreme Court.

The initiative itself would not directly change the structure of the state’s electric-power retail market, according to the website Ballotpedia. Instead, the amendment would declare that the state’s policy is to establish an open and competitive market for electric power; provide consumers of investor-owned utility companies with the rights to choose providers in competitive wholesale and retail markets and to produce electricity for themselves; and require the Florida State Legislature to pass laws to implement the amendment.

Despite the realization of these benefits in more than a dozen states and the District of Columbia, legacy utilities across the Sunshine State have thrown their weight behind an effort to stop the initiative. The battle is now headed to the Florida Supreme Court where comments in the case were due May 23. (The Energy Choice Coalition is a signer of comments in support of the ballot initiative.)

Energy Choice in Florida & The Path to This Point

Despite being the second-largest consumer of electricity in the United States, Florida remains the only state among the nation’s seven largest to not have customer choice in its power sector.

Advocates for energy choice tried last year to advance a constitutional amendment through the Florida Constitution Revision Commission. After the amendment failed to gain traction with the commission, advocates shifted to the public ballot process with the aim of putting the question before voters in the 2020 election.

Initiative backers need to gather 766,200 signatures by February 1. So far, they’ve collected roughly 250,010 signatures. Once on the ballot, the initiative would need to receive 60 percent approval to pass and be added to the state constitution.

The Florida Attorney General has filed a petition to the state Supreme Court arguing the initiative summary is misleading and does not comply with the state's single-subject rule meant to ensure voter initiatives are simple to understand.

Advocates for Energy Choice

Rich Blaser of Infinite Energy has been the driving force behind the ballot initiative through the political action group Citizens for Energy Choice.

The group’s stated goal is to protect customers against deceptive and unfair practices in the utility industry. According to Citizens for Energy Choice, opening Florida’s electricity sector to competition in could save consumers up to $5 billion annually.

On the other side, leaders in the Florida House and Senate have both filed comments opposing the initiative, while several other groups representing the status quo of the power industry in Florida have also sided with those trying to block the initiative with claims that the market changes are complicated and wouldn't save customers money.

House leaders argue that allowing competition in the electricity sector would have a “deleterious effect” and that the ballot initiative represents an abuse of the ballot initiative process by trying to govern through amendment rather than through legislation.

Senate leaders argue the rule would dramatically alter the functions of multiple government agencies and force voters to choose among many different choices on the ballot, violating the single-subject rule that mandates voters must know what an amendment does and how it will affect the Constitution for it to be on the ballot. Also, the Senate’s comment expressed concern about the broad effects of the initiative that would “upend the entire electric utility regulatory framework.”

Alex Patton, chairman of Citizens for Energy Choices, told the Tampa Bay Times in April that his group has “far more respect” for voters in deciding the worthiness of the initiative than the utilities that have lobbied against it.

Patton went on to compare electricity choice to other ballot measures.

“Marijuana, $15 minimum wage are all things that do very well in public opinion. This petition initiative process is the way to break that logjam.

Energy choice advocates want this issue to go before the voters to decide for themselves, but the debate comes at a time of intense partisan clashes over the issue.

The Republican-led Florida Legislature is considering legislation that would make constitutional amendments more difficult to enact, while Democrats are looking to constitutional amendments to enact popular measures because they've been unable to retain consistent control of the capital. 

On the second point, proponents point out that a broad transformation is the goal. It is also worth noting that Florida already allows for customer choice for natural gas, which did not destabilize the marketplace.

The Florida proposal is designed to mirror the successful free market of Texas.

Florida’s investor-owned utilities have poured millions of dollars into candidates and political committees to retain monopoly.

“When you are powerful and entrenched, you fight against change and disruption. The monopoly utilities have proven in other states that they will bankroll almost an unlimited amount of money. We're going to have to do more with less, be smarter and make our case very clear,” Patton told the Times.

Potential Benefits to Allowing Florida Energy Choice

In the states with competitive electricity markets, increased competition has generally led to lower power prices, improved service, and innovative product offerings as the previously uncontested utilities must now do what they can to stand out amongst new rivals in order to keep customers.

Energy choice has also driven efficiency improvements, prompted energy providers to turn to greater renewable energy offerings, and even enabled community aggregation to enhance the benefits of electricity choice by grouping together large numbers of customers to drive down prices, according to the National Renewable Energy Laboratory.

While residential participation rates in states with electricity choice is somewhat low, the commercial and industrial sectors have seen a notable number of customers switch to competitive service options.

A spokesman for the retailer Walmart noted that competitive energy markets could save the company $15 million annually on energy costs in Florida alone. The Florida Restaurant and Lodging Association has been a key advocate in the fight for energy choice, noting that open markets would result in a boon to the state’s prized tourism industry and could lead to new businesses opening up across the state.

In other states that have implemented customer choice, the resulting market has been one filled with increases in efficiency, job growth, innovation, and environmental performance.

Ideally these factors will be considered when the oral arguments begin in front of the Florida Supreme Court, which are currently scheduled for August 28. If Citizens for Energy Choice is successful, Florida residents will be given the first of hopefully many choices: whether or not energy choice should be a right under the state’s constitution.  

Virginia Joins Campaign For Consumer Choice

We’re happy to welcome the Virginia Energy Reform Coalition (VERC) to the campaign for more competitive retail electricity markets by ending utility’s traditional monopolies over both the production and delivery of electricity. Jim Presswood and former Virginia Attorney General Ken Cuccinelli announced the launch of VERC in Richmond on May 7.

Presswood, Executive Director of the Earth Stewardship Alliance, said modernizing reforms the coalition is calling for would “unleash a wave of innovation through Virginia’s electricity system that reduces pollution, lowers energy bills, and gives consumers more choices.”

The nonpartisan coalition will advocate for consumer choice and more competitive markets in the Commonwealth, including advocating for the creation of:

  • Competitive retail electricity market

  • Independent grid operator

  • Streamlined and uniform interconnection standards

  • Performance-based regulation

  • Fully integrated grids, markets, and operations

  • Phase out of wholesale capacity markets

“The coalition’s agenda strikes a fair-minded balance between customer empowerment and customer protection, both of which are things Virginia energy policy has needed more of for years,” said Travis Kavulla, Director of Energy Policy at R Street Institute.

Technology is hastening the transformation of the outdated traditional monopoly model of the utility that owns both the generation and delivery of electricity by giving consumers more choices and greater control over their daily energy use. While monopoly utilities have resisted the shift away from capacity markets and a government-guaranteed rate of return, the transition to more competitive retail markets - what’s known as the “Texas model” is being implemented in states across the country.

“Moving from Virginia’s 100+ year old government-regulated electricity market to a 21st-century free market will finally put families and businesses in control of their electricity buying decisions. Shrinking the control of the government-imposed electricity monopoly means more citizens’ control, more choices, more innovation and lower prices,” said Cuccinelli, Director of the Regulatory Action Center of FreedomWorks Foundation.

Watch this space for more updates about the campaign for competition and consumer choice in Virginia.