Full Title: Affordable and Reliable: Creating Competitive Electricity Markets to Deliver Consumers Affordable, Reliable, and Low-Emission Electricity
Author(s): Wayne Winegarden
Publisher(s): Pacific Research Institute (PRI)
Publication Date: September 29, 2021
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Electricity regulations should ensure customers have access to affordable and reliable electricity, while generating the lowest feasible emissions. These goals are generally uncontroversial. The controversy arises with respect to how these goals can be achieved.
The outdated belief is that monopolies should generate, transmit, and distribute electricity to retail customers, which is the traditional market structure for the delivery of electricity. Monopolies are rightly viewed as harmful to consumers. But, proponents of this model claim that the electricity market is different, and the traditional structure is necessary because utilities are natural monopolies. A natural monopoly arises when there are exceptionally large fixed-costs to start a business and then the costs to produce additional goods and services continually decline as the business gets larger – the larger the
business gets, the cheaper its costs of production become.
Monopoly producers operate without the fiscal discipline and positive consumer incentives created by robust competitive markets. The incentive to innovate or learn from mistakes is blunted because neither the government nor the utility suffer the consequences from making incorrect decisions. Ratepayers do. Due to such flaws, there is a growing realization that an actual competitive environment for the generation and retail delivery of electricity is necessary to improve service and affordability.