Choice is pushed as a good thing. Mostly it is bad. Children get to make choices when parents split up. In the military it’s a cliche to say never volunteer for anything. They made a movie about Sophie’s Choice and that didn’t turn out well.
More choices of health insurance will be as harmful as electric choice has been. As someone said no one knew how complicated health policy. Electricity choice is a bit more straight forward. Given a choice most people choose to pay more for powering their homes. The system was designed by and for the powerful to transfer money up the income scale. Health care will follow the model.
Electric Choice schemes began to spread around the turn of the century. Information on increased costs to elderly and poor is not easily available but data by states and major classes of users is published by the Energy Information Agency. Prices for Residential customers have been increasing at a faster rate than Commercial customers. Where deregulation or “Electric Choice”, has been foisted on a state residential customer’s share of the costs have increased relative to Commercial Customers.
The choices are given to those who write the contract.
Tennessee has a strong tradition of rate equity and universal service. Their regulated rates for Commercial and Residential customers track closely over time. Texas is a proponent of deregulation encouraging companies to charge as high as they can get away with. Corporate consumers have more market power to obtain favorable rates. Texas residential customers paid on average 16% higher rates than commercial in 2002, last year they paid 43% more. Were the spread held the same Texas homeowners and renters would have paid $1,367,681,000 less for electricity in 2016.
Overall US residents had nearly $10 billion dollars transferred from them to commercial companies last year compared to 2002.
Electric utility generation is a natural monopoly. The industry is capital intensive. Setting up power plants is costly with huge up front costs which must be recovered over time. Small consumers have little practical choice. If your live near a coal power plant you will get your electrons and your air and water pollutants from that plant. Pretending you are getting electricity from a wind farm in California is not going to change anything but the price you pay.
The cost of electricity generation varies over time. It peaks during summer and winter, especially for residential use. Industrial users have less variability. Their demand is more constant than commercial and residential customers. During times of low demand more costly generating plants are idled and power is generated at the lowest cost plant. During periods of high demand the most costly capacity is brought on line. Industrial users also have the capability to build their own generating plants if it makes economic sense giving them market power. Residential users are more limited both in the capital to build generators and the resources to research and negotiate prices.
The good socialists in the 30’s who spread electricity away from the cities with small cooperatives and the Rural Electrification Agency, in spite of power company efforts to shut them down, operated under a principle of universal coverage. Only Social Security had a more positive impact on the standard of living for the working class. With deregulation this principle is being undermined. Generators and distributors are being split apart. “Retail suppliers” which include power brokers are able to pick off less sophisticated consumers and charge higher rates. Those who still have land lines are called constantly with high pressure sales pitches for contracts which bind them to high cost suppliers.
Before deregulation state utility commissions negotiated rates with utility companies. Rates were set based on cost factors and public policy. The nationwide average residential rate in 2002 was 7% more than the commercial rate. In 2016 the average differential was 21%. The more choice you have the more you pay. Here’s what’s happened in the states with the biggest advocates of “choice”.
Highest Residential Price vs Commercial - All Deregulated
State |
2002
cents per kwh |
Res/Comm |
2016
Cents/kwh |
Res/comm |
Pennsylvania
Residential |
9.74 |
114% |
14.03 |
152% |
Pennsylvania
Commercial
|
8.50 |
|
9.25 |
|
Texas
Residential |
8.05 |
116% |
11.02 |
143% |
Texas
Commercial |
6.95 |
|
7.71 |
|
Michigan
Residential |
8.28 |
106% |
15.30 |
143% |
Michigan
Commercial |
7.79 |
|
10.68 |
|
Coal Ain’t Coming Back
Everyone knows coal uses is declining though pathological liars say otherwise when it is to their advantage.
In 2016, the electric power sector accounted for an estimated 92% of total U.S. coal consumption. From 2008 to 2016, coal’s share of electricity generation decreased, and in 2016, natural gas-fired generation exceeded coal’s share of the U.S. electricity mix on an annual basis for the first time. Largely because of an expected increase in the price of natural gas, the use of natural gas-fired generators is expected to decline slightly in 2017. However, new natural gas power plants are currently being built, and by 2018 the availability of these units may lead to increases in natural gas-fired generation. — Energy Information Agency
However, electric choice provides cost savings to utilities. Another opportunity to privatize profits and offload costs to the public. A feature of “choice” is to split the generation plants from distribution systems. The same electricity is delivered, but magically it is imagined that the power is bought from an independent generation plant, perhaps not even on the grid that supplies your area. If you live next to a coal powered plant you still get an increased risk of asthma, but you can choose to pay a higher price to “buy” wind powered electricity.
The chart below shows power plants being added and retired. The down bars closing plants above is added capacity. Coal plants are being shuttered rapidly as they age out. Wind and solar capacity is increasing. The source for this is an excellent short government article here. It’s worth a read.
As always the public pays for costs after polluters have finished profiting. Since the generating companies have been split from the utility companies it is now possible for the operators of older polluting power plants to walk away and leave a mess behind.
While the Thames Generation Plant in Connecticut operated it is estimated that fine particle pollution had these costs:
In 2011 the plant owner declared bankruptcy and ceased operating.
Ed Malley in Power Magazine speaks of the impact of the decommissioning costs:
“Who pays” has emerged as a very interesting question. In states that are still regulated, decommissioning costs could be passed through to ratepayers, subject to public service commission approval. In deregulated states, shareholders would pay for decommissioning, subject to management approval.
Before deregulation the integrated utility company would be responsible for cleanup. Now with deregulation the corporation set up for power generation declare bankruptcy, walk away and leave the locals a “brownfield”. Pensions and benefits for plant employees can also be cut, and property taxes go unpaid.
Electric “choice” is painful and expensive. Health care choice will be worse.
IN THE WEEDS
The increased spread between the commercial and residential rates in 2016 compared to 2002 is shown below. The bigger the spread the more residential are supporting commercial users.
STATE |
res vs comm 2002 |
2016 |
Deregulated |
STATE |
res vs comm 2002 |
2016 |
deregulated |
Alabama |
107% |
108% |
|
Montana |
115% |
108% |
|
Alaska |
119 |
113 |
|
Nebraska |
120 |
122 |
|
Arizona |
114 |
116 |
|
Nevada |
104 |
143 |
|
Arkansas |
128 |
122 |
|
New Hampshire |
118 |
128 |
1998 |
California |
95 |
115 |
* |
New Jersey |
117 |
127 |
1999 |
Colorado |
130 |
124 |
|
New Mexico |
118 |
123 |
|
Connecticut |
118 |
127 |
1998 |
New York |
110 |
122 |
1997 |
Delaware |
122 |
133 |
1999 |
North Carolina |
126 |
129 |
|
Florida |
123 |
123 |
|
North Dakota |
109
|
112 |
|
Georgia |
118 |
119 |
|
Ohio |
106 |
124 |
1996 |
Hawaii |
111 |
111 |
|
Oklahoma |
117 |
135 |
|
Idaho |
127 |
131 |
|
Oregon |
108 |
120 |
1997 |
Illinois |
112 |
140 |
1997 |
Pennsylvania |
115 |
152 |
1996 |
Indiana |
116 |
117 |
|
Rhode Island |
118 |
126 |
|
Kansas |
122 |
126 |
|
South Dakota |
119 |
121 |
|
Kentucky |
107 |
110 |
|
Tennessee |
99 |
103 |
|
Louisiana |
107 |
107 |
|
Texas |
116 |
143 |
2002 |
Maine |
119 |
130 |
2000 |
Utah |
121 |
125 |
|
Maryland |
123 |
130 |
1999 |
Vermont |
133 |
143 |
|
Massachusetts |
109 |
123 |
1998 |
Virginia |
115 |
120 |
2007 |
Michigan |
106 |
143 |
1998 |
Washington |
103 |
112 |
|
Minnesota |
127 |
129 |
|
West Virginia |
115 |
120 |
|
Mississippi |
107 |
110 |
|
Wisconsin |
125 |
131 |
|
Missouri |
120 |
120 |
|
Wyoming |
122 |
118 |
|
United States |
107 |
121 |
|
Washington DC |
109 |
110 |
2001 |
*California has suspended most of their “choice”.
Deregulation information here. The full implementation of “choice” take a while. Deregulation leads to wider swings in prices. Compare Rhode Island prices to North Dakota: