Why the Electricity Competition Debate Just Flipped—Again

In 1998 California’s Power Exchange wholesale power market went live, symbolizing the then-new impetus for efficiency through electricity markets. The promise then was disarmingly simple: generation prices that reflected actual costs, customer choice, and an information revolution that would make your toaster as smart as your telephone. California, Pennsylvania, New England, and the UK each promised a brave new market in both wholesale and retail power. Readers who have followed Knowledge Problem since the dot‑com era will remember my running commentary on what worked, what melted down, and why. The original case for competition was about three things: letting retail prices tell the truth, letting consumers choose, and letting innovators experiment.

Twenty‑six years later, many observers concluded the experiment had failed, especially for residential customers. Even economists and other friends of markets warned that small‑customer risk, thin hedging instruments, high customer acquisition costs, and clumsy billing systems made full retail choice a bridge too far. Better, they argued, to integrate time‑of‑use (TOU) rates into the vertically‑integrated utility and call it progress.

Read more in the Knowledge Problem here.

The views and opinions expressed are those of the author’s and do not necessarily reflect the official policy or position of C3.