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EPSA Study Finds APPA Analysis Flawed and Inaccurate
"The reality is that competition works, and business and consumers want competition. If we recreate the same electric monopolies that historically shackled electric utility consumers with cost overruns and poor operating performance, then electric consumers will lose, not gain."
WASHINGTON, D.C. - The Electric Power Supply Association (EPSA) today released a recent paper by Jonathan A. Lesser of Continental Economics responding to a June 2009 paper prepared by Edward Bodmer for the American Public Power Association (APPA). Dr. Lesser's briefing paper, entitled "Bad Economics, by Any Other Name, is Still Bad: APPA's Analysis of Wholesale Electric Competition is Flawed," criticizes the APPA report for "retreading many of the same arguments that have been rejected by the Federal Energy Regulatory Commission (FERC) for well over a decade," and using "incorrect and incomplete data" to make the claim that competition and consumer choice allow companies to profit at the expense of customers.
EPSA President and CEO John E. Shelk said, "EPSA believes that competition plays a crucial role in electricity markets. The restructuring of wholesale electricity markets has allowed risk to fall on those best suited and able to manage them - electricity suppliers, while competition has provided these generators with the incentives to keep costs low and production high. This realignment of risk and reward benefits both producers and consumers."
"Dr. Lesser performed a through review of the APPA study, which claimed that generators were earning excess profits, and found fundamental errors with APPA's analysis and their conclusions," said Shelk. "Competition is not a zero-sum game. Supplier profits do not mean consumer losses. Competition in the electricity industry, like competition in any other industry, promotes increased efficiency and innovation and allows suppliers to pass on savings to consumers through lower electricity prices. A return to the days of utility monopolies would mean a return to the days of inefficient operational performance and gross cost overruns - costs that would be paid for by retail consumers."
Lesser found that the APPA study contains numerous analytical and economic flaws, in addition he notes that, "although the APPA report criticizes the higher returns earned by competitive wholesale generators, it omits any discussion of the far greater risks those firms undertake, and the potential consequences of those risks - including bankruptcy and massive financial loss. As even the APPA report concedes, 'complications related to goodwill, write-offs, bankruptcy, capital structure changes and other factors generally do not arise for monopoly utilities.' Of course, one reason many of those complications do not arise is because monopoly utilities' customers bear those risks, rather than the utilities' investors."
The EPSA paper concludes that "The reality is that competition works, and business and consumers want competition. If we recreate the same electric monopolies that historically shackled electric utility consumers with cost overruns and poor operating performance, then electric consumers will lose, not gain."
Report - Bad Economics, by Any Other Name, is Still Bad: APPA's Analysis of Wholesale Electric Competition is Flawed
CONTACT: JOHN SHELK
(202) 349-0154or 703-472-8660
EPSA is the national trade association representing competitive power suppliers, including generators and marketers. These suppliers, who account for nearly 40 percent of the installed generating capacity in the United States, provide reliable and competitively priced electricity from environmentally responsible facilities serving global power markets. EPSA seeks to bring the benefits of competition to all power customers.