A new year brings a special milestone for the competitive power industry. This January, the Electric Power Supply Association is celebrating our 25th anniversary, marking the date in 1997 when two organizations – the National Independent Energy Producers and the Electric Generation Association – merged to advocate in support of a fully competitive electric industry and to encourage and expand the development of competitive power markets.
The merger followed Order No. 888 – a landmark decision passed in April 1996 by the Federal Energy Regulatory Commission (FERC), which sought to “promote wholesale competition through open access non-discriminatory transmission services.” FERC noted its goal was to “remove impediments to competition in the wholesale bulk power marketplace and to bring more efficient, lower cost power to the Nation’s electricity consumers.” No longer would utilities have a monopoly over all aspects of power generation and delivery in their designated service areas, with silos impeding efficiency and resource-sharing over a larger region.
Since then, electric competition has delivered progress that even the initial champions of opening power markets may not have envisioned – clearing a path for cost savings, efficiencies, greater reliability, significant decarbonization, and swift adoption of new, cleaner power generation technologies. Competition and restructured markets also freed captive ratepayers from the burden of paying for new power plant investments, construction, operations and closures – putting the risk of investment on private companies and shareholders.
Reliable Power
Competitive power markets were designed to secure reliable power at the least cost. They do so by sending price signals for new resources to enter the market, as well as to retain resources needed to meet demand. Additionally, power pooling and the ability to cover a wide geographic area and share power generation options efficiently over that area helps bring power to where it is needed, when it is needed.
- 10.4%: Reviewing two common measures of reliability, analysis by the Pacific Research Institute shows that the SAIFI was 10.4 percent lower in states with retail competition compared to the monopoly states and 6.5 percent lower on the SAIDI. SAIFI is a measure of the frequency of a sustained interruption whereas SAIDI is a measure of the duration of a sustained recovery.
- With the introduction of competition in the 1990s, competitive generators immediately began to reduce power plant outages and invest in reliability-enhancing innovation relative to monopolies (R Street Institute, 2021).
- Joining an organized market has led to improved reliability in monopoly states like Louisiana (R Street Institute, 2021).
- All generators are subject to mandatory standards imposed by the North American Electric Reliability Corporation. Following cold snaps in 2013-14, PJM Interconnection modified its market to provide weather preparation incentives for generators — which helped cut outages during a similar 2017-18 weather event nearly in half. PJM did not implement rolling blackouts in either event.
- 183,175 MW: The total installed generation capacity available to serve PJM customers in May 2021 – well in excess of forecasted peak summer demand. Throughout 2020, PJM dispatched reliable, secure power for the 65 million consumers its serves across 13 states and the District of Columbia (2020 PJM Annual Report).
- 34,000 MW: The total installed generation capacity in ISO New England, which is expected to be able to meet the forecasted peak winter demand of 19,710 MW according to the grid operator.
Cost Savings
When multiple power generators and independent companies bid to provide reliable electricity at the lowest cost, customers ultimately enjoy better outcomes. Why? Because market signals provide incentives for power generators to improve operational performance and invest in new, more efficient technologies. Competitive markets also keep wholesale prices responsive to changing fuel costs. As resources become cheaper, markets integrate those resources and prices reflect the cost difference.
The data tell the story – in every U.S. competitive power market, wholesale power prices have shown a downward trend over the past two decades.
- 41.7%: The drop in wholesale electricity costs in PJM Interconnection as of 2020, which at $21.40/MWh were the lowest prices of the competitive markets examined.
- 44.3%: The decrease in prices in the New England ISO as of 2020.
- 26%: The reduction in prices in the Lower Hudson Valley zone of the New York ISO lower as of 2020.
- Prices in the New York City zone of the New York ISO were 44.8% lower as of 2020.
- States with competitive retail electricity markets have had lower prices than states with monopolies. From 2008 to 2020, the 37 states with monopoly or partial competition models saw power prices rise 20.7%, while the 14 jurisdictions (13 states and the District of Columbia) with retail electricity competition saw prices decline 0.3% (Pacific Research Institute, 2021).
- $3.2-$4 billion: Annual savings enjoyed by consumers in the PJM Interconnection footprint, which serves 65 million customers in 13 states and the District of Columbia.
- $3.2-3.9 billion: Regional savings delivered to Midwest electricity consumers in the Midcontinent Independent System Operator service area in 2019.
Emissions Reductions and Environmental Benefits
Along with encouraging power providers to deliver least-cost solutions, competition has accelerated emissions reductions and been a key driver for putting more clean energy technology on the grid. Power generation owners must operate efficiently to remain economically competitive while providing power capacity to system operators. Meanwhile, market signals keep these power generators responsive to price trends. The low cost of cleaner natural gas dramatically advanced coal plant retirements, and the increasingly low cost of renewable resources is driving more investment in wind and solar generation.
Unlike regulated utilities, competitive power suppliers are nimble and flexible. If markets are allowed to work as they should, power generators will adapt quickly to invest in the lowest-cost, most-effective resources — achieving lasting widespread, regional results.
- 35%: The approximate average reduction in power sector CO2 emissions across ISO regions from 2005 levels. In contrast, non-ISO regions have reduced their power-sector CO2 emissions by about 27% over the same period.
- 39%: The drop in carbon dioxide emissions across the PJM Interconnection footprint since 2005, encouraged by the investment in and entry of new, more efficient power generation technologies and renewables.
- 51%: The decrease in New York state’s carbon dioxide emissions since the New York Independent System Operator launched competitive markets.
Innovation and Clean Energy Development
Our nation’s energy landscape is changing rapidly with exciting new potential for cleaner, more reliable and affordable power. Competitive power suppliers are uniquely positioned to lead investment in new technology and innovative approaches to electricity generation.
Competitive wholesale electricity markets improve access for new entrants and technologies—while lowering prices and keeping pressure on power generators to improve efficiency. That’s because markets allow grid operators and investors to respond nimbly to changes like declining natural gas and renewable prices or shifts in demand. Today, EPSA member companies own and are building some of the world’s largest battery storage projects, in addition to wind, solar, more efficient natural gas and other clean energy generation resources.
- 80%: The share of utility-scale renewable generation capacity deployed in ISO regions, despite only accounting for about 67% of all existing power plant capacity, of all types.
- 214%: The growth in distributed solar PV in ISO regions versus non-ISO regions at 199%, since the U.S. Energy Information Administration began keeping track in 2014.
Looking to the Future
As we look to the next 25 years, EPSA and our members are committed to building on the progress competitive electricity markets have enabled – prioritizing reliability, bringing more affordable energy choices to consumers and America’s economy, and reducing carbon emissions and incentivizing innovation. We’re competing for our nation’s energy future – bringing energy solutions today while building tomorrow’s power. Markets have delivered proven results. When it comes to policy choices and decisions surrounding our energy future, leaders should double down on competitive power markets – not retreat to regressive, monopolistic, or less effective models. By unleashing competition and choice, America will be better positioned to solve some of the most complex challenges facing the nation and the world.
Stay tuned for more updates and commemorative events as we celebrate a quarter century of competitive power solutions throughout 2022.
And join us Tuesday, March 29 at the National Press Club in Washington, D.C. for our Competitive Power Summit.
