Why restructure an electricity monopoly state? 2 states restructured to allow retail electricity competition and consumer choice – WHAT, WHY, and HOW

Energy Freedom Colorado researches “retail restructuring” (or “deregulation”) – changing a monopoly electricity system to one that allows competition and consumer choice of electricity provider and rate plan. Residents and businesses in about 20 states enjoy some form of electricity choice. This is a summary of their initial findings. http://energyfreedomco.org/why-restructure.php

WHAT are the key elements of “retail restructuring”?

  • Applies to monopoly investor-owned utilities (IOUs), but could be an opt-in for co-ops and municipal utilities.
  • Vertically-integrated IOUs are separated into electricity generation (power plants) and delivery (poles and wires); generation assets are divested to a separate company; and recovery of “stranded costs” is negotiated.
  • Many electricity providers compete for customers based on cost, energy source and other factors.
  • Both individual choice and aggregated community-level choice are best (see the Illinois model).
  • For more information, see the overview “Electricity Competition and Consumer Choice in Colorado.”

WHY would a monopoly state want retail competition and consumer choice?

  • Monopolies for electricity generation can no longer be justified given thriving competition in other states.
  • Competition will lower costs for consumers in the long run.
  • Competition and consumer choice will lead to cleaner electricity, especially as the cost of renewable energy and energy storage continue to decline. Many retail choice providers offer a high-renewables option.
  • People and corporations want to contract directly for low-cost renewables without the additional costs added by monopoly utilities. States without corporate choice may have difficulty attracting and keeping energy intensive businesses.
  • Competition will likely accelerate the pace of innovation if nimble third parties are allowed to propose better solutions for grid needs (in both retail and wholesale markets). Innovative ideas include: “Non-wires alternatives”; energy storage; distributed energy resources (DER); and demand-side management. These are flexible alternatives to centralized baseload generation, new transmission lines, and upgrading substations.
  • The cost-of-service utility business model contains perverse incentives that inflate costs by encouraging overbuilding and by stifling innovation. Competition will unleash third-party innovators to propose cost-effective solutions such as those listed above.
  • Competition shifts the risk of generation investment from consumers to the private sector, where it belongs.
  • Now is the time to act, as retail markets will take 3-6 years to implement. The state should begin to position itself for a more dynamic, complex, distributed, renewable, and innovative grid of the future.

HOW could retail restructuring be implemented?

  • Restructuring ultimately requires state legislation. However, it can be advanced by legislators, PUC commissioners, business coalitions, other stakeholder groups, and/or by voters as in Nevada.
  • A committee in the Legislature and/or at the PUC could be established to study development of a competitive retail electricity market, using a transparent stakeholder process like that in Nevada. We can learn lessons of successful restructuring programs from other states, and avoid past mistakes.
  • This is not a partisan issue. There should be equal numbers of D and R sponsors or committee members.
  • Messages/themes: “monopoly vs competition”; “consumer choice”; “cheaper and cleaner electricity”.  
  • IOUs may see restructuring as an opportunity. In Massachusetts, the CEO of the dominant utility promoted restructuring as a way to reduce business risk. Opportunities could be offered as “carrots” to incumbent utilities rather than be put out to bid, for example: needed grid modernization; greater distribution-level management of local DERs and electric vehicle charging; new energy services; and fair stranded cost recovery.  For more detail, see “The Case to Study Retail Electricity Choice” (submitted to PUC docket no. 17M-0694E).

Energy Freedom Colorado stands ready to answer questions, provide background information or knowledgeable opinions, and give assistance or advice to legislation drafters (contact). Website: EnergyFreedomCO.org