The coast-to-coast electrification of America in the 20th century delivered dynamic economic growth and rising standards of living. Today, advances in digital technology are transforming the electricity sector, empowering consumers with more choices in energy providers and services while also driving demand growth. But the centralized regulatory framework of the last century is poorly designed to adapt to the rapid pace of innovation happening now. The old monopoly system of vertically integrated utilities controlling both the supply and delivery of electricity has become a barrier to the creation of a modern power system.
Competitive electricity markets at the residential level exist in 13 states and the District of Columbia, but reform has not occurred uniformly in all regions. Most states do not fully participate in competitive markets and many that do still impose regulatory restrictions that unfairly deter competition. Texas has gone the furthest in creating a dynamic retail marketplace by quarantining its legacy monopoly utility to the operation of transmission infrastructure only. States that allow the old monopoly utility to continue to sell electricity directly to consumers have seen competition stifled.
The Energy Choice Coalition exists to stand up for free-market principles against a 20th-century monopoly system. Our objective is to open power generation and retail sales of electricity to competition in states where utilities still retain monopoly control and to encourage further reforms where competition has faltered. Without meaningful competition in electricity markets, consumers will not have an influential voice in the energy they depend on daily.
The following reforms are needed to replace the existing policy and regulatory framework governing our nation’s electricity sector with markets that respect consumer freedom and the transformational power of innovation and competition:
“States that left regulated electric monopolies in the retail supply business have seen these monopolies grow at the expense of competition. Quarantining the monopoly appears to be the single most effective approach to bringing about robust retail competition. It may be the only effective approach.”
THE NEED FOR ELECTRICITY RETAIL MARKET REFORMS, Cato Regulation Magazine Fall 2017
Quarantine Monopoly Utilities to the Wires. Regulated electric utilities should focus on owning and operating the most secure and reliable transmission system possible, and leave the generation and sale of electricity to private-sector companies to encourage maximum competitiveness.
Establish an Independent Distribution System Operator. A neutral party is needed to separate ownership of the distribution wires and poles from the management and operation of those assets to guarantee full and open access to generation and service companies.
Decouple Monopoly Utility Revenue from Electricity Sales. Vertically integrated utilities 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.
Implement Performance-Based Regulation. Switching from a system that guarantees a rate of return to one that rewards companies for their actual performance will discourage utilities from making investments that are not in the customer’s interest.
Replace Capacity Markets with Energy Only Markets. The Texas model of an energy only market protects competition and market access instead of the individual competitors, and ensures customers pay the real-time market price for the electricity they use.
Uniform Interconnection Standards. A single standard would eliminate unnecessary and costly restrictions to market entry.
Prioritize Transmission Infrastructure that is Fully Integrated with Markets and Operations. A robust integrated national transmission system is crucial to ensure a diverse group of competitive generating sources, including renewable and customer-based sources, can efficiently and cost-effectively deliver power to where it’s needed.
Establish an Independent Repository for Consumer Energy Data. A central database of consumers’ use and production of energy, accessible by customers and authorized third-party energy service providers, will improve the efficiency of and service offerings within wholesale and retail markets.