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Leading Energy Economist: Electric Industry Competition Spurs Efficiency and Puts Risks on Investors, Not Consumers

Harrisburg, PA - Another expert today joined the chorus of voices arguing that competitive electric markets are benefiting Pennsylvania customers. Jonathan Lesser, a Ph.D. economist and nationally known expert on competitive electricity markets, said "Electric industry restructuring has provided real and measurable benefits to Pennsylvania consumers and businesses." Lesser made his remarks in a white paper written on behalf of the Electric Power Generation Association and the Electric Power Supply Association, two groups that support competitive electricity markets.

In support of his point that competition has produced measurable benefits, Lesser pointed out that since Pennsylvania restructured its electric industry in 1996, "The state's nuclear plants alone generate almost two million megawatt-hours more electricity enough to power almost 170,000 homes."

Lesser's paper, titled "The Benefits of Electric Restructuring to Pennsylvania Consumers," makes several other points about restructuring, including:

  • Traditional regulation had shortcomings.
    Lesser said, "Prior to electric competition in Pennsylvania, retail customers in Pennsylvania absorbed significant and steady rate increases resulting from a number of factors, including inefficient operations, construction cost overruns and higher fuel prices."
  • Competition has benefited Pennsylvania customers.
    As Lesser put it, "Pennsylvanians have benefited by millions of dollars each year from more efficient generation with increased output and lower operating costs and new market entrants providing both innovative generation and demand side response programs."
  • Shifting of risk from ratepayers to investors.
    "Pennsylvania consumers," Lesser said, "no longer bear the financial risks of failed generating plants or cost overruns, as they did under the old regulatory system." Instead, he said competition has "shifted generation construction and operation risk from consumers, provided market incentives to improve plant efficiency and promoted competition and innovation in retail electric markets."
  • Markets provide best answer to price increases.
    Lesser acknowledged that higher prices are expected after multi-year rate caps expire in the next few years. However, he argued, "It is the market itself that provides a self-correcting mechanism to resolve transient price increases." Instead of more regulation, Lesser said, "The better answer is to apply competitive procurement principles, while at the same time pursuing rate mitigation strategies such as energy efficiency and demand response programs and rate phase in and budget plans to ease the transition to market prices for all consumers."

Lesser concluded, "There are no 'silver bullets' policymakers can use to prevent an increase in electric prices. Neither regulation nor competition can prevent the tremendous increases in worldwide demand for fossil fuels that have driven electric prices higher. But, unlike more regulation, competition can provide the lowest available cost."


Leading Energy Economist: Electric Industry Competition Spurs Efficiency and Puts Risks on Investors, Not Consumers.PDF
Benefits of Electric Restructuring to Pennsylvania Consumers.pdf

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EPSA is the national trade association representing competitive power suppliers, including generators and marketers. These suppliers, who account for nearly 40 percent of the installed generating capacity in the United States, provide reliable and competitively priced electricity from environmentally responsible facilities serving global power markets. EPSA seeks to bring the benefits of competition to all power customers.