Misguided Report Ignores Truth: Organized Markets Deliver Economic and Environmental Benefits

Electricity prices are falling dramatically in organized competitive markets, particularly when compared with states that stayed with a monopoly-protected utility industry. But these facts are ignored in the most recent attack on electricity competition from the American Public Power Association (APPA).

APPA’s report groups competitive states in the same category as states with monopoly regulation, so it’s a murky picture if comparing competitive states with monopoly states is the goal. Besides, comparing retail rates on a state-by-state basis is a flawed way to assess the benefits of multi-state regional competitive wholesale power markets.

Price differentials in electricity have always existed – one reason why competitive states opted to restructure in the first place. For example, Illinois and Pennsylvania, two highly competitive states APPA mischaracterizes as regulated, had rates well above the national average prior to restructuring.  But consumers in those states now enjoy rates well below the national average.

Competition’s economic benefits become clearer every day. The latest data comes from PJM Interconnection, ISO-New England and New York ISO. Wholesale energy prices fell 45.1 percent across the PJM Interconnection, says PJM’s 2009 State of the Markets Report. In ISO-NE, wholesale electricity prices and annual electricity demand both fell to their lowest levels since 2003 while the average price of wholesale electricity fell 48 percent. And, in NYISO, the 2009 wholesale average price was $48.63 per MWh, 49 percent below the 2008 average of $95.21 per MWh.

A better approach is to compare states within RTOs and ISOs to those outside the organized competitive markets. While energy prices have increased in every state, the rate of increase in organized competitive market states is lower than in states outside of organized markets. Energy Information Administration (EIA) data shows that when adjusted for inflation from 1997 to 2009, the national average rate increased 44.5 percent, 47.1 percent in non-RTO states, but only 43.8 percent in RTO states.

Rates are only one way to measure the benefits of organized competitive markets. APPA’s campaign obscures the economic and environmental benefits of competitive markets, such as enabling innovative technologies like demand response, smart grid, and new sources of clean energy generation. APPA’s myopic focus on price ignores competition’s environmental benefits.  Clean energy generation is thriving in competitive states.

More and more policy makers and environmentalists recognize that continued monopoly barriers in the electricity industry are thwarting the technological innovation required to move us into a 21^st Century Clean Energy Economy. Joel Malina | April 8, 2010