Sorry Virginia, There is No Electric Deregulation Santa Claus
Even in the face of clear-as-day reality, some fantasies just won’t go away. Such is the case with those who continue to promote Texas-style electric deregulation in Virginia. Their latest vehicle is Senate Bill 591, and their latest advocacy salvo is a web post from the deregulation cheerleaders over at the DC-based advocacy group, “R Street Institute.” In it, the authors tout a list of too-good-to-be-true benefits of utility deregulation. It defies all common-sense, since they must willfully ignore the overwhelming evidence that the policy is an abject failure.
R Street makes several specious claims in support of SB 591, but lest anyone forget, it should be emphasized that R Street is pushing policy prescriptions that gave Texas an unreliable power grid, cost Texans billions of dollars, and most tragically, killed hundreds during preventable blackouts. As to R Street’s specific arguments, let’s debunk the biggest whoppers.
R Street Claim: Deregulation leads to cost savings
Fact: States with so-called “electricity competition” have, on average the highest cost electricity rates in the United States – and far higher than in Virginia. The first chart provides a snapshot of average electricity rates in 2001 – when full deregulation was taking hold in the states that ordered it – and compares them to rates 20 years later. The takeaway from the government data is that there is not a single state that deregulated with which Virginia consumers would want to trade places.
The second chart provides a deeper dive by comparing the jurisdiction R Street most hopes Virgnia will copy: Texas. While Virginia and Texas residential rates started out roughly equal in 2001 – Texas rates have been generally higher and more volatile over the succeeding two decades. Knowing all the electric grid turmoil and disaster Texans have endured, is there really any voter in Virginia that would look at this chart and conclude that the Commonwealth should be looking to Austin, TX for policy solutions?
Still not convinced? Take a gander at multiple analyses from across the country that all arrive at the very same conclusion: electric deregulation costs customers money.
“U.S. consumers who signed up with retail energy companies that emerged from deregulation paid $19.2 billion more than they would have if they’d stuck with incumbent utilities from 2010 through 2019, a Wall Street Journal analysis of U.S. Energy Information Administration data found.”
“On average, residents living in a deregulated market pay $40 more per month for electricity than those in the states that let individual utilities control most or all parts of the grid. Deregulated areas have had higher prices as far back as 1998.”
“As demonstrated through the bill analysis and shown above, for the five years examined, between 70% and 62% of customers with a supplier overpaid each year. Residential customers with a supplier overpaid between $37 million and $25 million each year, resulting in approximately $151 million total overpayment over the course of the five years examined.”
“Rates charged by competitive electric providers were on average 70% higher in 2021 than the state-run standard offer, the report found. An analysis showed that between 2018 and 2021, Maine households getting their supply from competitive providers paid between $78.1 million and $90.6 million more than standard offer rates, translating to an average overpayment of $280 a year.”
“Massachusetts Attorney General Andrea Joy Campbell issued a market study report finding that customers of competitive electricity suppliers paid $525 million more in electricity rates than what utilities would have charged. This report followed three earlier reports with similar findings. According to the study, “the continuation of consumer losses is disproportionately borne by residents in zip codes with a higher concentration of low-income and residents of color.” AG Campbell urged state legislators to pass regulations to ban these companies from operating in the state.”
R Street Claim: Deregulation leads to innovation
Fact: It depends on what R Street means by “innovation.” If they mean innovative schemes to take advantage of low-income and vulnerable customers, then they are correct. One of the hallmarks of electric deregulation is the unscrupulous marketers that descend on vulnerable populations coercing them into signing bad energy supply contracts at elevated rates, and engaging in other unethical behavior related to customer switching practices. Again, the evidence from across the country is damning.
“Gov. Maura Healey, Attorney General Andrea Campbell, and Boston Mayor Michelle Wu formed a united front at the hearing, calling on lawmakers to eradicate the retail market for electricity. They accused the retailers of lying, cheating, and using deceptive sales practices to sell homeowners overpriced electricity. The best way to address the problem, they said, is to get rid of the retailers.
“This is not just a few bad apples,” testified Michael Judge, Healey’s undersecretary of energy, who previously grappled with the problem at the Department of Public Utilities. “The consumer experience of being marketed these products is consistently awful.”
“The commission — which licenses nonutility gas and electric suppliers, but does not regulate their prices — said it is taking the rare step because of record-high numbers of complaints, many concentrated in low-income neighborhoods in Baltimore. Already, nearly a dozen companies have been barred from taking on new customers. Consumers say suppliers have overbilled them, enrolled them in contracts without their permission and falsely claimed affiliations with a utility or state agency.”
“Three retail electric companies owned by Houston-based NRG Energy have been ordered to pay a combined $900,000 fine for violating state rules that allow electric companies to prevent customers from switch providers until bills are paid.”
“The Pennsylvania Public Utility Commission (PUC) today approved a settlement agreement between Reliant Energy Northeast LLC (NRG Home or company) and the PUC’s independent Bureau of Investigation & Enforcement (I&E), following an investigation into the company’s marketing and sales practices as a licensed electric generation supplier (EGS) in Pennsylvania.”
R Street Claim: Deregulation leads to reliability
Fact: No need to beat a dead horse. One word: Texas
R Street Claim: Deregulation leads to emissions reductions
Fact: Switching from coal to natural gas generation leads to emissions reductions. The use of nuclear generation leads to emissions reductions. Widespread use of renewables leads to emissions reductions. But little suggests deregulation leads to emissions reductions. Rather, clean energy technologies that have been deployed in recent years are driven far more by public policies like renewable mandates, tax subsidies and legislative and regulatory support for technologies like advanced nuclear and offshore wind than anything to do with whether a state is regulated or deregulated.
R Street Claim: Deregulation leads to reduced cronyism and governance quality
Fact: Unfortunately, deregulation seems to coincide with an increase in cronyism and abuses of market power. To highlight just one case, deregulated merchant power generators in Texas were recently found to have exercised anti-competitive market power in the wake of Winter Storm Uri – overcharging customers between $285 to $380 million over the course of just one year. These companies wield enormous influence in the halls of the capitols in deregulated states. It’s gotten so bad that now only 2 companies control nearly 80% of the Texas residential market, hardly healthy competition. The lesson is clear – when deregulation occurs, scandals, crony capitalism and anti-competitive behavior ensues.
R Street Claim: States are migrating towards deregulation
Fact: No states have embraced deregulation since the initial group that transitioned to it in the early 2000’s. Rather, the more common path has been for states to recognize the harm of deregulation and reverse course – such as happened in Virginia, or in places like Arizona, California, and Montana.
SB 591 – A Needless Risk for Virginians
R Street makes clear it views SB 591 as just a first step towards Texas-style deregulation. It states plainly that it would “open the way for deeper restructuring in future years.” There is no doubt that SB 591 is the troubling first step towards repeating the mistakes of other states.
As noted by R Street – SB 591 would make it easier for large customers to take a portion of their power needs off the regulated system. Far from protecting smaller customers, this action would place them at greater risk of blackouts and extra costs. Why? Because under Virginia’s regulated electric system, new customers such as the Big Tech monopolies, must be able to prove that it is done in a way that benefits all customers. That means all customers pay their fair share. All customers help pay for reliability. And all customers are treated on a non-discriminatory basis. SB 591 disrupts this balance. The largest customers will seek to exercise their tremendous market power by striking deals that allow them access to cheap – but often unreliable sources of power – while dumping the costs of maintaining systemwide grid reliability services on the remaining smaller customers, like homeowners. The big get bigger and richer – and the little guy pays for it. SB 591 would let the largest, most sophisticated energy purchasers have their cake and eat it too. They want all the benefits of being connected to a grid – while shifting as much of their costs to other customers.
Furthermore, SB 591 is a threat to reliability. It would allow quicker switching of customers while gutting State Corporation Commission (SCC) oversight that exists to protect the public’s interests. Reliable electric generation requires planning and long construction lead times to ensure adequate capacity to serve all customers on the very hottest and coldest days. SB 591 incentivizes companies to underinvest in resilient generation technologies because tight and volatile electric markets mean more profits for unregulated merchant generators. This race to the bottom is exactly what has happened in the unreliable Texas market, and SB 591 is a step in that direction. Furthermore, the SCC is the cop on the beat ensuring that the side-deals for electricity struck by large customers don’t harm other Virginians. Encouraging rapid switching and hobbling SCC oversight and customer protections is a recipe for disaster in the Commonwealth. It will lead to underinvestment in generation, tight reliability reserves, higher prices and reduced customer protections for smaller customers.
In the final analysis, there is one statement R Street makes which is undoubtedly true; “stakeholders and policymakers can learn from states that have introduced electric competition already.” It is clear that once Virginians do survey the wreckage of state electric deregulation policy around the country, they’ll be well advised to reject SB 591 and other similar policy dead-ends.