Check out the Knowledge Problem for another great post by economist Lynne Kiesling on competitive electricity markets. In her latest commentary, Kiesling looks at the state of retail energy choice and why it has not kept pace with increases in competition in wholesale electricity markets.
Lots of possible theories exist for such weak competition — high customer acquisition costs, incumbent default service contracts as an entry barrier, regulation-mandated full depreciation of long-lived incumbent assets as a barrier to innovation, customer indifference, to name a few.
Kiesling’s past research points to another reason – Texas’ ERCOT market has simply done a better job of quarantining the regulated utility monopoly to owning and maintaining the poles and wires, and leaving generation and services to the competitive market. This is something that most other restructured state electricity markets have failed to fully achieve.
Kiesling provides great background in her latest peice on what “quarantining the monopoly” means, so check it out for yourself and subscribe to her Substack site, Knowledge Problem.
The idea of limiting monopoly utilities to owning and maintaining the transmission and distribution grid, a segment of the system that can still possibly be considered a natural monopoly, is central to a well-designed competitive electricity market – and is at the top of the Energy Choice Coalition’s policy goals.
Regulated electric utilities should focus on owning and operating the most secure and reliable transmission system possible, and leave the generation and sale of electricity to private-sector companies to encourage maximum competitiveness. Monopoly utilities must get out of the business of generating and selling electricity before a 21st century electric grid can emerge. Private sector energy and services companies can meet consumer demand through competitive markets. But when monopoly utilities are allowed to remain in the market, they can use their regulation-enabled competitive advantage to inhibit competition, resulting in higher costs and slower technology adoption.