Competitive electricity markets are based on free market principles, but despite looking far and wide, the Adam Smith version of the free market doesn’t exist in practice. Competitive power markets are free markets in the same way the stock market is – both facilitate trade of commodities within the rules and administrative mandates required to operate the market efficiently and without fraud.
TODD SNITCHLER, PRESIDENT AND CEO, ELECTRIC POWER SUPPLY ASSOCIATION
The “free markets” guiding economic outcomes are ultimately shaped by the federal, state, and local administrative constructs in which they operate. Those constructs are as present in financial markets, air travel, and other highly regulated sectors of the American economy, as they are in electricity markets. But policy interventions that prevent the market from being the perfect manifestation of Adam Smith-style free market exist for several reasons, namely, to improve outcomes, decrease stakeholder risk, and increase safety and transparency.
While maybe not “pure” free markets in the academic sense, competitive electricity markets are delivering on the promises of competition that free market advocates are calling for. Competitive power suppliers are investing in and building lower- and zero-carbon technology through private investment, adapting long-term planning to policy signals, and reducing consumer costs. So when free market hardliners attack this lack of fidelity to market principles, they fail to acknowledge the strength of the current market structures and the smart policies that would improve on its design. More to the point, their criticism fails to identify a single functional market today that doesn’t benefit from some guardrails …
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