December 3, 2020 at 9:07 am

Competition has also broken down barriers to allowing customers to take advantage of innovative products such as rooftop solar panels

By Sandesh Ilhe

It wasn’t too long ago when the government told everyone where to get their electricity and how much they were going to pay for it. Electric utilities were granted monopolies over their customers, and in return those utilities had to get government approval for every major business decision they undertook. But starting two decades ago, 13 states plus D.C. decided to break up the monopoly and allow competition among electricity generators and resellers. While each state pursued competition a little bit differently, and some better than others, the results have been consistent.

Introducing competition into electricity markets has lowered prices for customers and offered a greater variety of products while providing a nimble footing for future energy industry developments. Monopolized states should be taking notes.

Since 2008, when competitive states worked out the legal kinks of transitioning from monopolies, customers in competitive states have seen their inflation-adjusted electricity prices fall 16%, whereas monopolized customers have seen theirs rise about 3%. If prices in monopolized states had declined at the same rate as in competitive states, monopolized customers would have saved a third of a trillion dollars in electricity costs between 2008 and 2017. Protecting customers from rising costs was one of the original justifications of states granting—and then fully regulating—monopolies. Competition is now achieving this goal better than monopolies are.

Not only are competitive customers saving money, they typically have more products to choose from. For instance, dynamic pricing options—helping customers take advantage of changing electricity prices—and demand response programs—helping customers save money by reducing electricity usage a key times throughout the day—are more widely used in competitive states. Large commercial and industrial customers are also often able to take advantage of flexible contacts to adjust to energy market developments. Allowing electric service providers to compete for customers means that those customers can choose between more and better options to fit their lifestyle.

Competition has also broken down barriers to allowing customers to take advantage of innovative products such as rooftop solar panels. For example, competition in Texas has spurred rooftop solar usage by making it easier for solar-seeking customers to choose an electricity provider more conducive to their goals, all without the need for state mandates of solar energy development.

Interestingly, customers in competitive states benefited faster from the past decade’s most significant energy industry innovation—fracking—than monopolized customers. Electricity providers in competitive states took advantage of low natural gas prices and switched to natural gas faster than in monopolized states, and those price savings were passed onto customers. Why the difference? Electricity providers in competitive states can make decisions at the speed of business, whereas in monopolized states they must gain government approval for every business decision, which can take months to years. This flexibility will be key in the coming years, making it easier to adapt to future innovations such as battery storage or small-scale nuclear reactors.

Sandesh Ilhe

With an Engineers degree in Advanced Database Management and Information Security, Sandesh brings the deep understanding of the digital world to the table. His articles reflect the challenges and the complexities that come along with every disruption in the industry. He carries over six years of experience on working with websites and ensuring that the right article reaches the right reader.

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