Energy competition will deliver the best outcomes for customers and our climate in 2022

With world leaders focused intensely on the shared challenge of climate change, much was expected of that recent COP26 summit in Glasgow. The results were, to put it mildly, thoroughly disappointing as participants failed to gain consensus on any real groundbreaking pledges.

Despite an underwhelming COP26, Democrats stateside continue to push their own climate measures with a reconciliation bill that contains billions in proposals and tax increases they hope will define America’s energy future. While some proposed solutions are simply too costly, others are destructively impractical, threatening to derail the nation’s burgeoning energy economy and saddle customers with skyrocketing energy costs.

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The good news is that there are better, proven solutions that will support access to low-cost energy and a market-based transition to clean energy. For example, energy markets and their customers would benefit tremendously from increased competition. To get there, we’ll need to initiate conversations at both federal and state levels about policy options that encourage and institutionalize competition in our electricity markets, moving us away from vertically integrated, monopoly utility markets that are outdated and inefficient.

There is transformative power in competition especially when applied to our nation’s electricity grid. However, many markets today lack competition altogether. These are vertically integrated markets made up of utilities with a monopoly on power generation. 

On the other hand, some markets foster competition for electricity generation among wholesale market participants. In these competitive markets, multiple generators and independent power producers in a wide region compete to drive the best outcomes for consumers and the environment.

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In terms of cost, the competition enshrined in the wholesale model has proven effective in driving down costs for customers. A recent paper from the Pacific Research Institute, a California-based think tank, found that families and businesses lose out financially when states cling to the outdated monopoly model. 

Comparatively, the Institute found that electricity prices in competitive markets are trending downward and were at or near 6-year lows as of 2020 in regions like New York, New England, and the mid-Atlantic. This contrast – whereby competitive markets have benefited by more affordable electricity versus monopoly states – is mostly because monopoly utilities set rates to maximize returns for shareholders, instead of setting rates to attract customers.

Competitive markets are also a positive force for the deployment of more renewable power, a move that we will need to foster naturally if the U.S. is to meet the climate goals being pursued by leaders of both parties.

That was one of the messages sent earlier this year to the Federal Energy Regulatory Commission (FERC) by nine former commissioners of that body, who argued that competitive markets were critical to "a least-cost customer-centric transition to a low carbon or zero-carbon grid…" Data supports that claim, as a recent analysis by the University of Texas-Austin’s Dr. Joshua Rhodes found that competitive market regions are reducing carbon emissions faster than monopoly regions.

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Statistics matter, but so does real-life evidence. In Pennsylvania, for example, competitive market power generator Calpine Corp. began providing reliable power to the state and the rest of the PJM market in 2019 from its dual-fueled, natural gas combined-cycle electric generating facility York 2 Energy Center. As Calpine’s CEO noted, the plant will "operate cost effectively without the need for government or public subsidies, demonstrating that letting the competitive markets work is the best way to optimize generation resources."

Conversely, monopoly utilities are not inherently structured to meet cost or environmental objectives. They’re prone not only to stifling progress, but have been found guilty on more than on occasion of the kind of corruption we routinely ascribe to the word "monopoly." 

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Ohio-based FirstEnergy Corp., for example, was forced to pay millions of dollars after admitting to conspiring to pay off public officials in Ohio in exchange for action on policies that would benefit FirstEnergy Corp. In the end, the company agreed to pay a $230 million monetary penalty, but not after customers of the company paid the bill for their power provider’s wrongdoing.

As federal and state lawmakers look for consensus on moving the needle on climate change, they should look to regional wholesale and retail market competition to enable the progress they want, rather than trying to force through with mandates and expensive taxes. 

Competition has proven capable of saving customers money and helping the environment. Policymakers should encourage policies that allow markets to work, unleashing the power of competition rather than burying American taxpayers with taxes and costs they can’t afford.

Steve Forbes is Chairman and Editor-in-Chief of Forbes Media.