Ameren customers will likely face a rate hike of 8% to 12% on their electric bills next year, but because Missouri’s electric utilities are monopolies, there’s nothing they can do about it.
This is nothing new for Missourians. Since 2008, when nationwide electric demand largely stopped rising, Missourians’ electric bills have risen 19% even after inflation — the third-largest increase in the country. These prices have risen faster than salaries and the general cost of living, meaning households and businesses are spending more money on electricity with less left for other needs.
Missourians are paying the price of playing electric utility monopoly, and it’s time to wonder whether allowing customers to choose their electric suppliers might be a better way to serve Missourians.
If lawmakers are searching for ways to control rising electric rates, they don’t have to look far. Thirteen states — including neighboring Illinois — and D.C. allow customers to choose between competing electric service providers, and the results are encouraging. During the same post-2008 period that Missourians’ bills rose by 19%, customers in the 34 other monopolized states fared better but still paid 3% more for their electricity. By contrast, customers in the competitive states saw their bills decrease an average of 16%.
Originally, concerns about unregulated monopolies naturally arising and imposing steep price increases on customers led policymakers to preemptively establish regulated monopolies as a way to keep costs down and ensure adequate investment in electric generation. Contrary to these fears, states with electric competition are now achieving these goals better than monopolized states.
Competitive reforms promote innovation, customer empowerment and greater efficiency in the electric power industry. Many Americans saw similar benefits decades ago when the railroad, trucking and telephone industries were deregulated, and it’s time to take a similar approach to electricity.
The pressures of competition help make the electric service industry more efficient and open to innovation. For instance, since market forces prevent competitive providers from simply passing costs along to captive customers, providers have found ways to increase power plant operational and fuel efficiency, with customers reaping the benefits of lower overall costs. And when the fracking boom lowered natural gas prices, customers in competitive markets saw these savings passed along to them more promptly and efficiently than monopolized customers.
A competitive market also enables both service providers and customers to take advantage of technological innovation. Take, for instance, the recent trend of customers generating their own electricity through devices like at-home solar panels. This practice poses a regulatory headache for monopolies, as commissions and utilities must sort through the challenges of customers infringing on utilities’ service monopoly and how to reimburse customers for their electricity. Conversely, competitive markets face fewer regulatory barriers and encourage more efficient customer generation practices, as customers can choose providers more aligned with their desires.
Competitive markets also have the edge on monopolies in cases when emissions limits are mandated. Competitive electric providers have an incentive to reduce emissions cost-effectively, so they are motivated to procure clean energy in the most economical way possible. Monopoly utilities have no such incentive, knowing that their ratepayers are on the hook for any increased costs.
Additionally, providers in competitive markets are more likely to offer their customers dynamic pricing programs that vary prices over the course of the day to incentivize customers to reduce electricity usage during expensive, peak-demand times like the afternoon and early evening. Such programs can save customers money, and they can also lower peak electric demand, reducing harmful pollutants from seldom-used generators that only run during times of high electric demand.
And that’s just what’s happening today. A flexible operating environment will make it easier to adapt to future innovations, whether they come in the form of improvements in battery storage or the adoption of small modular nuclear reactors. Simply put, innovation is central to competition, but peripheral in a monopoly.
Change can be difficult, and restructuring Missouri’s electricity market will require careful attention. But as nearly a decade and a half of rising electricity prices has shown, keeping the status quo has become an expensive proposition for all Missourians.
Jakob Puckett is a policy analyst at the Show-Me Institute.
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It's time for Missouri to embrace electric competition - Columbia Missourian
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