NCPA - National Center for Policy Analysis

Little Economic Support for Creating State-Sanctioned Power Authorities

March 30, 2011

In the last two decades, several states liberalized their electricity markets, ending government price-setting.  Now, some of those states are considering reestablishing the government's role through the creation of state-sanctioned power authorities -- in essence, government-operated "buyers' agents" for consumers, says Andrew Kleit, a professor of energy and environmental economics at The Pennsylvania State University.

  • The Pennsylvania legislation would create a state power authority, or power "agency," whose main directive would be procurement of (hopefully) low-cost power.
  • The state would first create contracts with any willing industrial consumers as well as all the "default" consumers (residential, commercial and industrial) in Pennsylvania who choose not to shop for power.
  • Then the state would go to private power plant investors and existing generators and make the other end of the contract with the lowest bidders.

On balance, the arguments for a Pennsylvania Power Authority are flawed.  No economic basis for establishing such an authority is readily apparent.  Further, the envisioned authority would pose high potential to cause harm to the marketplace, much as the California Power Authority did during its truncated tenure.  A Pennsylvania Power Authority may well be designed to serve special interests.  It seems more likely to repeat the errors of the California Power Authority by signing contracts harmful to consumers, says Kleit.

Source: Andrew N. Kleit, "A Pennsylvania Power Authority?" Regulation Magazine, Spring 2011.

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