Competition, Choice Still Winners For Electricity Consumers

The Technology of Electricity Changes Constantly; Economics Does Not


WASHINGTON, D.C. -- In an update of its landmark study on electricity and competition, the National Center for Policy Analysis (NCPA) today released a new study showing that, while deregulation has not been done well in some states, where it has been the delivery of services has improved, generation capacity has been enhanced, and consumers have more and better quality choices. Most important, deregulation is beginning to deliver lower prices.

“We should not let the mistakes some states have made in restructuring electricity markets overshadow the growing story of success in those states that have done the job right,” said the study’s co-author, Carl Johnston, NCPA Senior Fellow and a post-doctoral research fellow at the Interdisciplinary Center for Economic Science at George Mason University.  “Restructuring can deliver tangible consumer benefits, but it must be done right,” he said.

Restructuring means prices are set competitively, utilities shed generating plants and transmission lines, and consumers have a choice of providers, according to the study.  The consumer benefits are tangible:

  • Electricity prices better reflect the actual cost of production than politically determined rates.
  • Responses to market demand indicated by price have added efficiencies to plant upgrades and additional generation and transmission capacity is growing at a faster pace than in nonrestructured states.
  • Consumers pay less for electricity in some competitive markets than they did under monopoly.  In Texas, for instance, retail customers in some competitive markets paid up to one-third less in 2010 than in 2001.
  • Renewable power output grew almost 20 times faster in restructured states than in regulated states.

The NCPA study is a follow-up to its original study, coauthored by Nobel-prize winning economist Vernon Smith.  In the foreword to the study released today, Dr. Smith and his coauthor, Stephen Rassenti, note that the combination of competition, restructuring and new technology have resulted in “the development of innovative new services, increased use of renewable energy sources, additions to generating capacity and moderation in the growth of demand.”

In the original NCPA study, Drs. Smith and Rassenti prescribed a number of policies to improve delivery of electric power.  Most states ignored their suggestions and their restructuring efforts were less successful than they might have been.

“The choice is not between faulty restructuring and traditional monopoly electric power providers,” added NCPA Senior Fellow H. Sterling Burnett, “but rather between traditional providers and well-designed restructuring.”        

Full text of “Turning on the Lights 2011: The Consumer Benefits of Electric Power Competition” at http://www.ncpa.org/pub/st332

The report was released today at the American Legislative Exchange Council’s Spring Task Force Summit in Cincinnati, Ohio.

Burnett blogs about environmental issues and more at www.environmentblog.ncpa.org.

The National Center for Policy Analysis (NCPA) is a nonprofit, nonpartisan public policy research organization, established in 1983. We bring together the best and brightest minds to tackle the country's most difficult public policy problems — in health care, taxes, retirement, small business, and the environment. Visit our website today for more information.