Whether it’s buying a car or choosing where to go for dinner, Missourians like having choices—but when it comes to electricity, Missourians are left with few. In fact, currently those of us who want electricity from the grid must get it from a single monopoly utility provider.
But that may soon change. Senate Joint Resolution 25 would finally give Missourians that choice, at least for our electricity. The legislation authorizes a statewide referendum on electricity competition that should spark a much-needed conversation about the benefits of reforming the state’s 100-year-old regulatory structure and requiring those that provide our power to compete for customers rather than letting them take Missouri customers for granted.
For most of the 20th century, every state operated under an electricity system similar to Missouri’s. Local monopoly utilities provided power to customers and were heavily regulated by state utilities commissions. Electricity rates were set based on the utilities’ expenses (plus a profit percentage), leading to a situation where the more a utility spent, the more money it made. This system encouraged wasteful spending and discouraged innovation, but since every state had the same system, it was hard to compare what was to what could be.
Beginning in the 1990s, however, a number of states began to restructure their electricity markets, allowing for greater competition. Today, more than a dozen states have adopted some form of choice for electricity.
And the results have been positive. From 2008 to 2016, the average price of electricity decreased 8 percent in states with competition, while rising 15 percent in monopoly states. Unfortunately, Missouri has gone in the wrong direction on this front; electricity rates in the Show-Me State increased by nearly 40 percent between 2008 and 2016. While Missouri once had among the lowest electricity rates in the nation, today electricity rates in Missouri are above the national average.
Lower electricity prices nationally have translated into billions in cost savings for consumers. For example, one recent study found that the introduction of electricity competition in Illinois resulted in $37 billion in consumer savings from 1998 to 2013. Another study found $15 billion in savings for electricity customers in Ohio over the course of this decade.
The fact that competition leads to cost savings for consumers shouldn’t be surprising. One of the chief ways businesses attract customers is by offering better quality services at a lower price than their competitors. Businesses under competition are constantly looking for new ways to improve their products or make them at a lower cost, and that applies to hamburgers, to health care, to schools, to electricity . . . to just about everything.
By contrast, when utilities are shielded from competition, they tend to resist innovation and are slow to adapt to changed circumstances. In the coming decades we are likely to see major changes in the way the electricity system operates. New technologies will give consumers much greater control over where they get their power and how they use it. Competition will help ease this transition.
Missouri itself increasingly faces competition from states such as Illinois, which can offer businesses the advantages that electricity choice provides. It’s time for Missouri to think seriously about whether to join more than a dozen other states and allow electricity competition. It would be good for the state, good for our businesses, and good for our families.
Patrick Ishmael is the director of government accountability at the Show-Me Institute. Josiah Neeley is a research fellow at the R Street Institute.