Electricity Competition and the Public Good: Rethinking Markets and Monopolies

The United States electricity sector is engaged in a long-term experiment regarding the proper role of market competition. Many states that transitioned to competitive electricity markets in the early 2000s are again reconsidering the relationship between market competition and public policy goals. Low natural gas prices, falling costs of renewable energy and energy storage, and improvements in efficiency are causing early retirements of coal and nuclear power plants and thus affecting environmental policy goals and economic interests. States that continue to rely on monopoly utilities for electricity are also reconsidering the role of competition, but from a different angle.

Rather than focusing on mitigating the downsides of competition, some traditionally regulated states are creating new opportunities for third parties to compete with monopoly utilities. The implications for electricity sectors in restructured and traditionally regulated states extend far beyond the particular facilities that stand to gain from new subsidies or the monopoly utilities subject to new forms of competition. Post hoc changes to market rules risk wasting resources that will be necessary to aggressively reduce greenhouse gas emissions, ensure long-term affordability, and mitigate the employment impacts of a transitioning sector. This Article explores the factors causing policymakers to reconsider the role of competition in the pursuit of energy goals.

It identifies lessons for realizing the benefits of electricity sector competition while managing the downsides that occur during periods of unanticipated change. In restructured markets, the lessons center on strategies to address job losses and achieve state environmental goals. In traditionally regulated states, the lessons focus on opportunities to harness competition to deliver additional societal benefits without undermining the traditional rate-setting model for monopoly utilities.