Understanding the Impacts
Can restructured electricity markets deliver better value for American households?
Study Prepared by FTI Consulting for THE ALLIANCE FOR COMPETITIVE POWER
Background
Until the 1990s, America’s electricity was provided by regulated monopolies that were “vertically integrated.” In these areas, generation, transmission, and distribution were all controlled by the same utility with state appointed regulators deciding how much ratepayers should pay the utilities.
Starting in 1996, some states began restructuring their electric markets, which divided ownership of generation, transmission, and distribution between the state regulated utilities and private sector companies. Today, 13 states and the District of Columbia have “restructured” electricity markets founded on the principle that competition would deliver lower cost power to ratepayers than the rate regulated model. In these restructured systems, private investors bear the costs and risks associated with the generation segment, and regulators are unable to pass those costs onto ratepayers.
FTI Consulting used publicly available data from government to compare the affordability, environmental performance, and reliability of restructured and vertically integrated states from 1996-2022 to understand which system performs better for consumers.
FTI’s analysis found that restructured markets had lower electricity rate growth, lower emissions, and greater reliability compared to states that are still vertically integrated.
Key Findings
1. LOWER COSTS
Retail rates have grown more quickly in vertically integrated states compared to states with restructured electricity markets.
Over this period, average customer electricity rates in vertically integrated markets grew by 86 cents more per kilowatt hour, compared to restructured states.
2. LOWER EMISSIONS
Faster coal retirements and more efficient nuclear operation contribute to superior emissions performance in states with restructured electricity markets.
Emissions from electricity generated in restructured states fell 10% faster than in regulated states. Today electricity in restructured states is produced with 15% fewer emissions.
FTI also analyzed state policies, finding that restructured states are far more likely to have cap and trade policies or renewable portfolio standards. Despite these policies putting upward pressure on rates, restructured states have contained rate growth effectively.
3. BETTER RELIABILITY
Customers in states with restructured electricity markets experience fewer power outages and less time overall without power.
Customers in restructured states experienced an average of 5% fewer outages overall.
Restructured states consistently overperform during severe weather conditions like Winter Storm Elliot. The PJM market, which includes many of the largest restructured states, weathered the storm without shedding load and was even able to export energy to nearby states to assist with the crisis.
Longview Power is one of the newest coal plants in the US developed under competitive market structures. The owners of the plant have declared (and successfully exited) bankruptcy twice because of construction cost overruns and unfavorable market conditions.
The company is now working on expanding their operations to include new solar and natural gas generation.
But because Longview Power is privately owned, shareholders foot the bill for the plant’s financial difficulties and new investments—not customers.
In 2017, Calpine reached an agreement with Entergy Louisiana to rebuild and transfer the Washington Parish Energy Center.
Calpine completed the transfer in 2020 at a cost of ~$900 per kilowatt, a significant savings to ratepayers compared to Entergy Mississippi’s latest natural gas power plant, which is projected to cost around $1,600 per kilowatt.
The Bottom Line
Restructured electricity markets perform better for American consumers across key metrics.
The findings are clear - restructured markets have delivered significant benefits to consumers. In light of these benefits, regulators and policymakers should continue to focus on delivering solutions through open markets, rather than revert to monopoly ownership and more centralized planning concepts.
Methodology
For this analysis, FTI used publicly available data from government sources to ensure transparency and replicability in results. The report primarily relies on data from the Energy Information Administration (EIA) and Environmental Protection Agency (EPA). Specific forms include EIA Forms 860, 861, 906, 920, and 923 as well as EPA eGRID data. States are classified as restructured if they implemented full retail customer choice. FTI also analyzed outcomes in PJM, which includes states with both regulated and restructured electricity markets.
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