1. How We Got Here: A Brief History of Utility Competition
Jerry Ellig, Research Professor Utility Deregulation Educational Forum /16/19

2. Jerry Ellig
@RegStudies
RegulatoryStudies.gwu.edu 2

3. Wholesale electric competition
Federal power projects focus on generation
Many munis and co-ops don’t generate
Public Utility Regulatory Policies Act of 1978
Energy Policy Act of 1992
Jerry Ellig
@RegStudies
RegulatoryStudies.gwu.edu

4. Retail electric competition
Jerry Ellig
@RegStudies
RegulatoryStudies.gwu.edu 4

5. Texas success ERCOT region
6.2 million residential, 1.1 million commercial, 4336 industrial
Senate Bill 7 (1999) starts retail competition in 2002
Generation/marketing separated from wires
Utility’s default “price to beat” set 6% below 1999 rate
Automatic fuel cost adjustment twice a year
Voluntary for co-ops and munis
5,700 MW new plants built
ERCOT customers – 2.6 times the # of SC ratepayers
Price to beat offered for 5 years or until utility’s retailer lost 40% of customers
Jerry Ellig
@RegStudies
RegulatoryStudies.gwu.edu 5

6. Texas prices since deregulation
Jerry Ellig
@RegStudies
RegulatoryStudies.gwu.edu 6

7. Texas prices vs. national
6.2 million residential, 1.1 million commercial, 4336 industrial
Jerry Ellig
@RegStudies
RegulatoryStudies.gwu.edu 7

8. Customer switching since 2002
92% of customers have switched
Jerry Ellig
@RegStudies
RegulatoryStudies.gwu.edu 8

9. Residential competition
Jerry Ellig
@RegStudies
RegulatoryStudies.gwu.edu 9

10. Inflation-adjusted electricity prices, 2008-16
Source of chart: Smith & Maloney, “Energizing Enterprise,” Palmetto Promise Institute, Nov. 2018 10

11. California disaster (2000-2001)
Restructuring law passed in 1996
Mandatory retail price reductions as high as 30%
6.4 cent/kwh retail price cap
Little or no demand response to price changes
Utilities required to buy all power through a state-run spot market
Just 672 MW new plants
Hydro imports 48% lower in 2000 than 1999
Hydro accounts for 20-25% of CA electricity
Jerry Ellig
@RegStudies
RegulatoryStudies.gwu.edu 11

12. “We knew that the deregulation of
wholesale power markets would bring high
volatility in wholesale prices, because of
the great variation in the marginal cost of
generating energy to satisfy off-peak and on-peak demand levels. To protect against this volatility, the main task of a local utility should be to re-structure their demand schedule to include more interruptible retail contracts that would allow them to reduce consumption in response to high on-peak prices.”
--Vernon Smith, A Life of Experimental Economics, Vol II.
Jerry Ellig
@RegStudies
RegulatoryStudies.gwu.edu 12

13. Direct infrastructure competition Walter Primeaux John Kwoka
Primeaux: 1960s - 50 duopolies, compet reduces costs by 11% and avg price by 33%
Kwoka: cities with some customer switching, costs 16% lower prices 19.4% lower (24% with head-to-head)
Jerry Ellig
@RegStudies
RegulatoryStudies.gwu.edu 13

14. Potential for direct competition?
Primeaux: 1960s - 50 duopolies, compet reduces costs by 11% and avg price by 33%
Kwoka: cities with some customer switching, costs 16% lower prices 19.4% lower (24% with head-to-head)
Source: Smith & Maloney, “Energizing Enterprise,” Palmetto Promise Institute, Nov. 2018 14

15. Precedents from other network industries
-Competition in cable, phone, broadband is accepted and national policy
-Service by multiple railroads reduces rates
-Most TX gas pipelines operate at decreasing returns to scale, lower costs & revs than FERC-regulated of comparable length ( )
-Competition and dereg in airlines, rail, trucking, gas, and LD telecom generated $50-60 billion annual benefits (price reductions and service improvements) by 1995
Jerry Ellig
@RegStudies
RegulatoryStudies.gwu.edu

16. Competition out-performs regulated monopoly
Jerry Ellig
@RegStudies
RegulatoryStudies.gwu.edu 16

17. Conclusions
Competition out-performs regulated monopoly, if policymakers get the institutions right
Generation and marketing are surely competitive, wires may be
Exclusive service territories lead to higher prices
Jerry Ellig
@RegStudies
RegulatoryStudies.gwu.edu 17

18. For further information: Jerry Ellig
@ElligJerry
Regulatorystudies.gwu.edu