New Study Finds $34 Billion in Consumer Savings From Restructuring of Electricity Markets

COMPETE, the national coalition promoting the public interest benefits of competitive electricity markets, hailed today’s release of a new, independent study quantifying $34 billion in residential electric consumer savings from 1997-2004 stemming from the restructuring of the U.S. electricity market.

“Beyond the Crossroads: The Future Direction of Power Industry Restructuring,” authored by Cambridge Energy Research Associates, Inc. (CERA), an IHS company, finds that “U.S. residential electric consumers paid about $34 billion less for the electricity they consumed over the past seven years than they would have paid if traditional regulation had continued” without competition. U.S. real power prices were 16 percent lower during the seven years of the electric restructuring era than during the previous seven years of the regulated era.

Driving these savings, the study concludes, are “many of the expected gains from introducing more competitive pressures into the power business – greater efficiency, more innovation, and cost discipline.” Significant savings were derived from restructuring having reallocated and thus shifted the cost of the most recent overbuild of power generating capacity away from ratepayers to investors who held the market risk. In addition, the study determines that, from an economic perspective, the success of electric restructuring should be judged by a wide set of criteria, including how well power prices line up with production costs and provide proper price signals.

“Competition in electricity markets has been an American success story, to the tune of tens of billions of dollars in savings for the American consumer,” said former U.S. Senator Don Nickles, COMPETE’s chairman. “The conventional ‘wisdom’ among critics of competition has been that competition has somehow failed to lower consumer prices. With the CERA study, we find empirical evidence that the naysayers have gotten it wrong,” Senator Nickles said.

The restructuring of the U.S. electric utility industry began with passage of the Energy Policy Act of 1992, through which Congress brought the American tradition of competition to the most basic of public commodities – electricity. Today, open and competitive regional electricity markets are up and running in the Northeast, Midwest, California and Texas, bringing varied benefits (from access to generation at the lowest available cost, to enhanced reliability and energy efficiency, to increased investment in newer, cleaner technologies) to about two-thirds of U.S. electricity consumers.

The largest of these regional markets is the PJM Interconnection (PJM), which extends from the Mid-Atlantic region to the Midwest and covers all or part of 13 states and the District of Columbia. Other regional markets include ISO New England (in six Northeastern states), the New York ISO, the California ISO, and the Midwest ISO (MISO) (which spans all or part of 15 Midwestern states and the Canadian province of Manitoba).

“Competition has been the bedrock of our nation’s economic prosperity and stability,” Senator Nickles added, “a sentiment underscored just last week by Federal Reserve Board Chairman Alan Greenspan."

In remarks to the National Italian-American Foundation on October 12th, Chairman Greenspan said, "Governments today...are rediscovering the benefits of competition and the resilience to economic shocks that it fosters...The impressive performance of the U.S. economy over the past couple of decades, despite shocks that in the past would have surely produced marked economic contraction, offers the clearest evidence of the benefits of increased market flexibility...Flexibility is most readily achieved by fostering an environment of maximum competition."

"Chairman Greenspan has it right: competition is good for America,” Senator Nickles said.

To learn more about CERA and “Beyond the Crossroads,” please visit www.CERA.com