Did You Know

New Study Indicates Savings of $10 Billion from Competitive Electricity Markets for U.S. Electricity Consumers

According to a new report titled Power Jolt Required: Measuring the Impact of Electricity Deregulation, American consumers could save $10 billion from lower electricity prices if every state matched the best practices of the 13 fully competitive states. The report finds that, most notably, competitive power markets help attract new generation supply and lower electricity prices.

The report, issued by the Fraser Institute, an independent public policy organization based in Vancouver, British Columbia, uses the Retail Energy Deregulation Index (RED) developed in 1997 by the Center for Advancement of Energy Markets, as the basis for many of its comparisons. The report assesses how deregulation affects new electricity supply and retail pricing in the United States, Canada, Australia, the United Kingdom and New Zealand. Specifically, the Fraser Institute finds that U.S. states with a competitive retail electricity market attract generation growth 80 percent faster per capita than those states that have not restructured their electricity markets. The report also finds that U.S. states that have yet to restructure their markets do so and drop prices there by 7 percent to 9 percent over five years.

The report reinforces the belief that competitive markets can have positive quantifiable benefits for consumers. According to the report’s principal author, Mark Mullins, “The real constraints on deriving consumer benefits from this industry are public misconceptions and the unwillingness of many politicians to create positive change.” Mullins’ main recommendation is that energy policy-makers should deregulate their state’s electricity markets.

The report lays out a number of reforms that will help jurisdictions reap the benefits of competition, including: 1) create a competitive framework; 2)restructure the generation sector by, among other things, separating generation from transmission; 3) restructure distribution; 4) empower consumers; and 5) improve regulation.

If these recommendations are followed, states could see an influx of generation supply, as well as a long-term lowering of prices. The report, however, does note that “prices may also have to rise in a deregulated market to attract new investment to restore the demand-supply balance and ensure that reliability conditions (continuous power when needed) are met.”

By introducing customer choice, competition, market pricing and effective regulation, consumers and taxpayers can reap significant economic and reliability gains, according to the Fraser Institute. For more information, contact EPSA’s Kimberly Blackburn at kblackburn@epsa.org.