Is It Time to Deregulate All Electric Utilities?
Supporters of deregulation say market forces are the best way to lower costs and foster innovation. Opponents say so far, deregulation has delivered little benefit to customers.
About two decades ago, the electric industry started getting a makeover. A number of states launched initiatives to break apart monopoly utilities and allow retail companies to sell electricity to consumers.
Today, in more than a dozen states and the District of Columbia, retail customers can shop around for the best deals on electricity, sometimes in the same way they shop around for a cellphone provider.
The question is, has the experiment with choice paid off, and is it time for the rest of the country to embrace open, competitive retail electricity markets?
Voters in Nevada apparently think so. Last week, they overwhelmingly approved a ballot measure that aims to end the monopoly of the state’s largest utility and allow customers to choose their provider.
Supporters of deregulation say that monopoly utilities have little incentive to innovate or operate efficiently, and that it will take market forces to create a cheaper, cleaner, more reliable electricity system.
Opponents say choice hasn’t exactly delivered on its promise of lower prices. In fact, its legacy so far is one of price run-ups and instability, they say.
Andrew N. Kleit, a professor of energy and environmental economics at Pennsylvania State University, argues that more states should deregulate their electricity markets. Making the contrary case is Kenneth Rose, an independent consultant and a senior fellow in economics at the Institute of Public Utilities at Michigan State University.
YES: It Is the Best Way to Lower Costs and Increase Innovation
By Andrew N. Kleit
Today’s modern society requires a reliable electricity system. Anyone who has lived through a major blackout, such as occurred in the Northeast in 2003, knows that when the lights go out, life shuts down.
Users of electricity also want power to be affordable, of course, and at the same time, policy makers increasingly are demanding that more of the nation’s energy come from renewable sources such as wind and solar.
Meeting these competing challenges won’t be easy. Creating a cleaner, more reliable and less expensive electricity grid is going to require new ideas and a great amount of technological development to lower costs. Unfortunately, these are things that run counter to the incentives of regulated utilities.
In a regulated system, government agencies make basic production and grid-access decisions, and set electricity rates in a way that guarantees utilities a certain rate of return on capital investments and other approved costs. Because utilities’ profits are a function of how much they spend, there is little incentive to cut costs and increase efficiency.