Injecting competition into monopoly power markets is great way to lower costs, spur innovation and encourage the use of more renewable energy sources. Unfortunately, only a handful of states currently offer electricity consumers at the residential level a choice in where they get their power.
Our outdated utility system where customers receive electricity from a regulated, vertically-integrated monopoly that handles generation, transmission and local distribution, and where electricity prices are set by government regulators to allow the utility to recover its incurred costs in infrastructure no longer matches our changing menu of available generation sources.
Everyone needs electricity – at work, home and on the go – and demand is increasing as our lives become more digitalized. Giving the end-user consumer the power to choose their service provider encourages companies to compete based on the quality of service and price rather than sit back and collect a guaranteed rate of return on investment.
A 2017 report from the Retail Energy Supply Association found that customers in states that still have monopoly utilities saw their average energy prices increase nearly 19 percent from 2008 to 2017, while prices fell 7 percent in competitive markets over the same period.
Given the benefits of free-market competition, grassroots efforts to introduce competitive energy markets are sprouting up across the nation.
The energy freedom movement has not gone unnoticed by incumbent utilities. The big utilities have built up substantial political influence over decades of working closely with state and federal lawmakers, and they’re not shy about wielding their power to oppose threats to the status quo. Nowhere is this more apparent than in the Southern Atlantic states.
To be fair to the incumbent utilities, the rapid growth of distributed energy sources and the push for greater competition in their markets is a threat to the existing cost-of-service model that has been in place for over a century. But change is inevitable, especially as concerns about climate change drive the transition to lower-carbon energy sources.
The existing market model has also resulted in some high-profile controversial uses of ratepayers’ money. Here’s just a few examples of where monopoly utilities made bad bets with other people’s money:
Georgia’s Vogtle nuclear power plant’s massive cost overruns and delays;
Cancellation of the V.C. Sumner nuclear project in South Carolina;
The flawed design of the Kemper clean coal power plant in Mississippi;
Duke Energy’s coal ash pond dam failure in North Carolina;
Legal setbacks plaguing Dominion Energy’s natural gas Atlantic Coast Pipeline.
The reorganization of energy markets toward open competition has experienced fits and stops since its beginnings in the 1990s, but here are eight states – starting with the aforementioned southern states – where change is in the air.
Florida is arguably the state with the most heated battle surrounding energy choice at the moment. It’s also the state where citizens stand the best chance of winning their energy freedom soon.
In early 2019, advocates in Florida began collecting signatures to place energy choice on the ballot, specifically the question of whether the state should have competitive wholesale and retail electricity markets.
The measure would amend the state’s constitution to declare that it is the policy of the state of Florida that "its wholesale and retail electricity markets be fully competitive so that electricity customers are afforded meaningful choices among a wide variety of competing electricity providers.
The initiative would not directly restructure of the state’s retail electricity market but would make it the state’s policy to provide consumers of investor-owned utility companies with the rights to choose providers on a competitive wholesale and retail electric market and to produce electricity for themselves. The Florida Legislature would still have to pass laws to implement the amendment.
Advocates for the amendment face a steep climb since Florida’s incumbent utilities are well connected politically and within the business community, and are not shy about spending their ratepayers’ money to oppose competition.
While organizers of Florida’s energy choice campaign have raised nearly $4 million and collected nearly half of the signatures needed to get on the ballot, they must still overcome the collective opposition of the state’s incumbent utilities and their combined spending power.
Florida’s attorney general challenged the ballot initiative language in court as being misleading and argued that “voters simply will not be able to understand the true meaning and ramifications of the proposed amendment.”
Florida’s Supreme Court heard arguments in the case at the end of August and, for now, the issue is in the hands of those justices. Since American democracy is based on the concept that the power of the government comes directly from its citizens, courts generally lean toward empowering citizen engagement in the legislative process, which bodes well for Citizens for Energy Choice.
Keep an eye on Florida.
A groundswell of public support for energy choice is happening in North Carolina, where advocates for cleaner sources of energy are pressing officials to open the state’s power market to competition.
Duke Energy has a monopoly on generation and delivery in the Tar Heel state, but it is also saddled with a history of rate increases and environmental violations, including the improper handling and disposal of coal ash at one of its powerplants, that have soured relations with its ratepayers over the years.
Proponents of energy choice formed a coalition of local and regional organizations earlier this year to counter Duke’s close relationships with state lawmakers, launching “follow the money” type reports and a website to track the big utility’s spending against energy choice.
The Energy Justice coalition members have put Gov. Roy Cooper and the state’s other elected officials on notice that “the interests of utility monopolies no longer coincide with those of the state’s electric power customers.”
The coalition is still building grassroots support through public education efforts and is planning on introducing legislation to open North Carolina’s power market to competition. The coalition is currently engaged in opposition to legislation supported by Duke Energy that would give the utility the ability to increase electricity rates to pay for coal ash cleanup and grid modernization.
The coalition recently ran a newspaper ad declaring that “Duke Energy and other electric monopolies are trying to pass a deceptive bill that’s opposed by consumers and businesses. That’s why they gave our politicians $1.6 million over 10 years and ramped up their giving in 2018 while they wrote this bill.”
With so much fire in the belly of advocates, North Carolina is a state worth watching.
In neighboring South Carolina, consumer groups are also driving the push for expanding energy choice as a response to the state’s high prices.
According to the Palmetto Promise Institute, “South Carolinians pay more for electricity than any other state in the union.”
A big reason for those higher prices is the unfinished and now-abandoned $9 billion Santee Cooper nuclear powerplant that the South Carolina Legislature has permitted the incumbent utilities to charge to ratepayers. As long as the existing cost-recovery model allows incumbent utilities to place all the risk on ratepayers, the “if we build it, they have to pay for it” status quo will continue to encourage risky investments.
Public opposition to the current electricity market model even prompted the South Carolina Post and Courier newspaper to publish an editorial in support of competition.
“Part of what led to the multibillion-dollar V.C. Summer boondoggle can be traced to having a system of regulated monopolies and, of course, the Base Load Review Act that allowed SCE&G to charge ratepayers in advance for the now-abandoned nuclear project,” the Post and Courier’s editorial board wrote last December. “Economic incentives push for-profit utilities to make expensive, risky investments rather than, say, try to help customers reduce their energy consumption.”
The Palmetto Promise Institute study mentioned above found that consumers have typically benefited from greater competition in electricity markets.
Republican State Senator Tom Davis similarly declared that “energy competition is the answer” to South Carolina’s high energy prices. Having such powerful voices supporting energy choice bodes well for the chances of success in the Palmetto State.
Another Southern state where change is in the wind is Georgia, which has long offered consumers the ability to buy natural gas in a competitive market. Competition also exists at the wholesale level for large industrial customers of electricity. So far though, residential electricity customers have not enjoyed the same freedom to choose their service provider in the Peach State.
Given the success of competition in the gas and wholesale electricity markets, its unsurprising that residential power customers would want in, too. A statewide poll completed in March found “overwhelming support for an all-of-the-above energy strategy that would encourage increasing the use of renewable energy in Georgia.”
The poll by Public Opinion Strategies found that 75 percent of Georgians would “prefer a new electricity system that opens up markets to competition and gives consumers choices.”
Calls for more competitive markets are not as far along as in the other states we’ve mentioned so far but with public support so high, Georgia should be on everyone’s list.
Nevada was the site of one of the most notable battles regarding energy choice in recent memory. A state constitutional amendment that would have allowed energy choice was on the 2018 ballot but was ultimately defeated after a massive spending campaign by the incumbent utility.
The language was similar to what’s now being proposed in Florida. It was actually the second time the question of whether Nevada should adopt a retail competitive electric market was on the ballot, as it passed with an overwhelming 72 percent of the vote in 2016. However, the state constitution requires citizen-initiated amendments to be passed by the voters twice before being adopted.
After losing at the ballot box in 2016, the incumbent utilities were better prepared the second time around. After spending a collective $63 million against the amendment, with NV Energy spending more than anyone in the history of Nevada politics, the measure failed, but not until NV Energy caved to the demands of its biggest customers to provide more renewable energy options – a move that splintered the environmental movement’s support for energy choice. But while the environmental community claimed victory, residential consumers were left out in cold.
With so much public sentiment on their side, advocates for energy choice in Nevada should be expected to be heard from again soon.
Another Western state that finds itself in the thick of an energy choice battle is Arizona. After failing to get anywhere in talks toward enacting competitive energy markets five years ago, the Arizona Corporation Commission is now looking to vote before the end of the year on rules that would allow independent power producers to compete for customers with the Arizona Public Service Company (APS).
Regulators are currently looking at wholesale customers, but there’s a push to make residential markets competitive as well.
One of the commission’s five members, Justin Olson, has been an outspoken champion for full energy choice based on the Texas model, noting in a recent editorial that “allowing households to choose their energy provider in a competitive marketplace will empower Arizona ratepayers who are tired of being captive customers to a monopoly.”
Public frustration with the incumbent utility due to repeated rate increases and altered rate structures that have been confusing and unpopular have spurred interest in competitive markets.
Arizona still has a ways to go before competition is a reality, but if advocates can educate state regulators on the benefits of competition and mobilize public support, energy choice could very well be in Arizona’s near-term future.
Illinois is the first state to make this list that already offers energy choice to its residents. It’s just a flawed market that could be improved.
Illinois has the third-highest number of residential retail choice customers in the country. But by allowing the incumbent utilities to continue to compete in power sales, state regulators have put up barriers to market entry for independent service providers that have slowed the state’s progress. Participation in retail markets actually fell to 1.8 million in May 2018, down from a high of more than 2 million in 2016.
As we have previously noted: “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.”
Illinois is a good example that simply winning energy freedom does not guarantee its success. Proper market design that isolates the incumbent utility’s monopoly to only cover the poles and wires and leaves the generation and sale of electricity to private-sector companies to encourage maximum competitiveness is crucial to ensure a truly competitive atmosphere. Vertically integrated utilities also have a financial incentive to maximize the amount of electricity they sell which discourages efficiency and disadvantages costumer-generated electricity. Separating a utility’s revenue from the electricity sales removes the motivation to sell as much energy as possible and eliminates any bias against customer-based generation.
As state regulators consider reforms to the current electricity market, Illinois will be an important state to watch.
The final state on our list is Ohio. Like its neighbor, Ohio’s market allows consumers to choose their electricity service provider but also like Illinois, the Buckeye state’s market is flawed.
Ohio was an early adopter of energy choice and is one of the two states with more participants in its competitive market than Illinois. Unfortunately, Ohio officials at the time stopped short of fully separating the incumbent utilities from generation and retail sales.
The failure to isolate the monopoly utility has prevented true competition from taking off and resulted in inflated electricity prices. A 2017 study of the market by Ohio State University found that the flawed design has isolated utilities from competition and allowed them to continue to base rates on capacity investments and a guaranteed rate of return rather than on market rates.
Unfortunately, Ohio lawmakers have recently been moving in the wrong direction. Instead of increasing competition, the Ohio legislature recently approved House Bill 6 to bailout uncompetitive nuclear and coal power plants while cutting support for energy efficiency and renewables. A citizen-led effort to repeal the legislation by ballot initiative is currently before the state’s supreme court.
Proponents of House Bill 6 have flooded Ohio’s airwaves and mailboxes with political ads attacking the repeal effort as an attempt to surrender Ohio’s sovereignty to China. That alone makes Ohio a state to watch.
To say that Ohio remains a work in progress is an understatement, but attempts by Ohio lawmakers to buck the national trend toward the adoption of more renewable energy is instructive. Nuclear and coal are being driven from the electricity market because of competition from natural gas.
The only way noncompetitive resources can stay in the game is if lawmakers interfere in the market. Interference paid for by consumers. We think Ohio’s resistance to the energy transition is inevitably doomed to fail in the face of consumers’ demand for greater control over the energy they use.
Ohio’s reorganization of its electricity market got off to a good start, stalled out and is now backsliding in the face of strong corporate interest. Ohioans are now pushing back. All of this makes Ohio a state to watch.