Recently Arizona electric utilities convinced a few state lawmakers they should repeal a 20-year-old law and fast! That law, which was never implemented, said Arizonans should be allowed to choose their own electric power suppliers. The anti-customer freedom bill is HB2101.
Last year Green Mountain Energy requested permission to sell 100 percent renewable power directly to Arizona consumers, citing that 20-year-old law as the basis for its request. The state regulator might not grant permission, but the power monopolies fear even the possibility of customer freedom. The monopolists are lobbying fast and hard against it.
The claims monopolists make about customer choice are predictable and largely groundless. They claim reliability will suffer and that rates will go up. They’ll point to California, which stumbled on its early attempt to create competition, and Texas because of its energy failures in February 2021.
Arizonans need not fear the California or Texas scare stories. Here’s why:
California’s early attempt at creating competition did fail 21 years ago. That failure has been well studied and is well understood. California regulators invented a new market, it was badly designed, and it fell apart under stress. Everyone now knows better. None of the fourteen states now allowing customer choice copied California regulations, and none have seen similar failures. None.
Arizonans should only fear the California example if Arizona regulators were considering implementing old California policies. There is no chance of that kind of mistake, so Arizonans should ignore this bit of fearmongering.
What about the Texas disaster in February 2021? It was catastrophic, but it was not caused by allowing customer to choose their own power suppliers.
Many power plants failed in Texas as components iced up or fuel supplies froze. As a result many homes were without power for hours and sometimes for days during the storm. It was some of the deepest, longest lasting cold to hit Texas in past 100 years.
Here’s the thing: these were power plant and natural gas supply failures, not failures caused by retail customers.
It is easy to see that customer choice was not to blame. Parts of Texas remain served by electric power monopolies, for example Austin and San Antonio. These monopoly areas saw power system failures like those in Houston and Dallas where customers choose their suppliers.
It’s worth noting, too, that electric reliability remains regulated. Federal regulations dictate reliability standards that apply nationwide, even in Texas. That’s why federal regulators led a major investigation of the failures, issuing a massive report last November. Nothing in the regulator’s report hints customers caused power plant failures.
Under state law Texas regulators have responsibility for overseeing the state’s power grid. That’s why every Texas public utility regulator at the time of the failures resigned or was fired by the Governor. Regulations were inadequate, as the massive failures revealed, but they were regulatory failures.
All this talk about regulation should make clear customer choice is not “deregulation.” Policymakers in fourteen states have chosen regulated markets for their electric power industry instead of regulated monopoly.
What about rates?
A detailed academic study by Rice University economists published in 2019 compared the parts of Texas allowing customer choice to those parts of the state still using monopoly. Power customers with choice saw their prices decline on average while customers locked into monopoly saw their rates remain about flat.
A 2018 analysis by the late Phil O’Connor, a former Illinois state regulator, compared prices in the fourteen states allowing customer choice to rates in the states locking customers into monopolies. customer choice states saw prices drop by 7 percent while rates in monopoly states rose over 18 percent.
A recent survey of rates by the Pacific Research Institute found similar patterns in rates and higher reliability performance and better environmental outcomes in the fourteen states allowing customer choice.
Opponents of customer choice will point to a story in the Wall Street Journal claiming customer choice led to billions in excessive power bills. The WSJ calculation assumes, without explaining or justifying the assumption, that rates should be the same everywhere. This baseline assumption is obviously false and the conclusions are useless.
Note again the more careful study done by Rice University economists that found competition pushed prices down overall in Texas. Some still unpublished academic research finds lower prices in some states with customer choice and higher prices in others, so a full understanding of power prices would require thoughtful digging around.
Arizona’s monopoly utilities are not encouraging thoughtful digging around in the evidence. They want to stop everything without time for any thinking through the evidence.
Monopoly utilities are telling Arizonans scary stories about customer choice because monopolies are afraid of one thing: A customer with a choice might not choose them.
More about Michael Giberson here. While I’ve linked to supporting information above, obviously there is more that can be said on the topic. I’ll continue to build on and explore the issues discussed in this blog.
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