Virginian politics surrounding electric utilities is representative of a narrative impacting consumers nationwide. In 2015, the State Corporation Commission, Virginia’s state regulator, approved a rate increase that was intended to respond to an Obama-era policy that would have increased the cost of producing electricity. When the Supreme Court blocked the policy from realizing, the Commission argued against rescinding the rates and instead double-downed, forcing one group of consumers to subsidize another. To make matters worse, Virginia politicians decided to use the funds to advance and subsidize projects that were self-serving and boosted their interests and profile.
What is happening in Virginia is not unique to the Commonwealth. The continuance of utilities and politicians blocking competition from yielding a cleaner, more cost-effective electrical grid is on full display. Previously, the vertical integration of electricity – generation, transmission and distribution – was more understandable to distribute electricity from numbered generating plants to many consumers. But this old model is not reflective of the capabilities and potential of the 21st Century. Utilities and politicians refuse to publicly acknowledge low-cost, available and reliable alternatives.
But one must ask why that is. And the scary truth is: the incentive for politicians to hang onto monopolies is too great. Without monopolies, their vehicle (regulated power rates) to get to their destination (expensive political goals) has no gas, wheels or engine.
Read more about this reality at AEI.
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“Almost by definition, a competitive wholesale market satisfies consumer preferences better than possible for a monopolistic market. A competitive system shifts investment risk in the efficient direction, toward producers making investment decisions and away from customers who are forced under the traditional system of regulated rates to pay for mistakes. Without the regulated utility rate structure, it becomes much more difficult to use power prices to force one group of customers to subsidize other customers and interest groups pursuing ideological goals.
Because an electric grid is integrated as a matter of electrical engineering, mandatory reliability standards must be imposed. A longstanding system of such standards has been developed and enforced by the North American Electric Reliability Council (NERC), with oversight from FERC. Accordingly — for better or for worse — a competitive bulk power market is not “deregulated.” Instead, it is wholesale prices that are driven by market forces. Interstate transmission prices are regulated by FERC, which determines as well whether market outcomes in each regional market are “reasonable.” States continue to regulate contractual language, customer/supplier relations, sales practices, and on and on.
And indeed: Many states continue to mandate market shares for renewables — there would be no need to do so were they “competitive” in terms of costs and reliability — as well as environmental standards and myriad other factors that shape power markets in crucial ways. But competition at the wholesale level, as already observed in varying degrees in the RTOs and ISOs, in place of the traditional regulated utility structure imposes an important constraint protecting consumer wellbeing and economic efficiency. It is worthy of support from all those favoring market freedom over government bureaucracy.”