Uncategorized

Study explores benefits of competition in the Mid-Atlantic

Oct. 3, 2003 — The Center for the Advancement of Energy Markets, a non-profit think tank focused on the energy sector, has released a study which looks at the benefits of electric utility restructuring in the Mid-Atlantic (the PJM region).

The study estimates that all consumer classes have benefited enormously with billions of dollars saved (and more projected in the future) due to restructuring efforts, particularly at the wholesale level, in addition to non-price benefits and increased reliability. It is the first study of its kind, providing a quantitative and qualitative analysis of the impact of restructuring efforts on different consumer classes for each state in the Mid-Atlantic. The study is authored by Dr. Ron Sutherland with the active assistance of a working group representing more than 20 organizations and top energy economists in the country.

“This study proves that competition clearly benefits consumers – all consumers, large and small – in the Mid-Atlantic region,” stated Jamie Wimberly, CAEM President. “PJM provides a model for the country to follow and refutes some arguments now heard in Washington, DC, against competition in electricity markets. This study shows instead that regional approaches like PJM are in the best interest of consumers.”

Highlights of the study include:

• More than $3 billion in total savings in 2002 in the Mid-Atlantic (PJM) region, with individual states and jurisdictions saving in 2002: New Jersey, $1.46 billion; Pennsylvania, $993 million; Maryland, $662 million; Delaware, $97 million; and the District of Columbia, $74 million.

• Approximately $ 28.5 billion in expected future savings, with individual states and jurisdictions expected to save: New Jersey, $6.4 billion; Pennsylvania, $10.4 billion; Maryland, $3.8 billion; Delaware, $665 million; and DC, $504 million.

• Households in PA save $117, on average, on their electricity bill due to electric restructuring. Future lifetime savings in PA from current restructuring efforts (summed and discounted) are $1,263 per household. Households in other states annually save: NJ per household, $222; MD, $165; DE, $173, and DC, $15. Future lifetime savings for other states are: NJ, $1,512 per household; MD, $1,126; DE, $1,182; and DC, $105.

• Using the standard income multiplier in economic analysis, additional macroeconomic benefits should double the direct customer benefits presented above.

• Lower and middle income households are estimated to be the biggest winners. Lower and middle income households spend on average a much larger share of their income on electricity than high income households. Hence, low and middle income households received proportionately the largest benefit.

• The Mid-Atlantic (PJM) region is gaining a competitive advantage in the form of lower electricity costs compared with other regions, and this advantage will become more significant over time.

• Under PJM’s auction system, reliability has improved in the PJM region. Since 1997, the availability factor of generating capacity has increased continuously.

• Finally, while difficult to measure, restructuring efforts in the PJM region and within the states themselves are expected to result in a range of non-price benefits. In fact, as with competition in telecommunications services, there is a reasonable expectation that the largest benefit to consumers from greater competition could be these set of non-price benefits over time rather than simply lower costs.

“There are few economic policy actions that the government could undertake that provide such significant benefits to customers, relative to economic cost. Indeed, the main cost is one of political will.” added Dr. Sutherland, the study’s principal author and a CAEM Associate Scholar.

“To put these numbers in perspective, many lower income people in the Mid-Atlantic saved more from electric utility restructuring than the Bush Administration’s tax cuts. In Pennsylvania, residential consumers saved over $550 million in 2002, almost 10 times more than what was spent on child care services ($57.9 million) in Pennsylvania in 2002. In New Jersey in 2002, all consumer classes (residential, commercial and industrial) saved $1.4 billion in reduced electric bills, 17 times more than what was spent on school construction aid ($82 million) that year. Maryland, New Jersey, Delaware, Pennsylvania and the District of Columbia – every single state and jurisdiction benefited enormously. “

“The study is more than just an ingenious first estimate of the benefits of competitive power markets,” stated Robert Michaels, Professor of Economic at Cal State Fullerton and a member of the working group. “It also provides a well-done, concise summary of the major policy issues that is accessible to non-specialists.”

For more information on the report or the working group, contact Jamie Wimberly at [email protected] or visit http://www.caem.org/.