Competitively bid electricity markets are good for American consumers and businesses, particularly in Colorado. Some critics of competitive markets have unfairly blamed “restructuring” for high electricity prices in some states. The accusers arrive at this misguided conclusion by jumbling and linking disparate – and often unrelated – events and information. The mixing of facts distorts the real benefits of competitive markets. Well-structured electricity markets promote renewable and cleaner sources of energy (such as wind-driven power), energy efficiency, and technological innovation.
Under the current structure in our region, the role of the Colorado Public Utilities Commission has remained the same; it still oversees electricity price-setting. The PUC has in place some of the most respected bidding rules in the country, which help keep prices down and electric service and reliability up.
These bidding rules require that any plant over 250 megawatts must be bid out by the utility, creating strong competition at the wholesale level in Colorado for renewable and non-renewable projects alike. About 40 percent of the generation of Colorado’s largest utility, Xcel is now being provided by independent power producers like the Colorado Independent Energy Association. There is no “runaway wholesale market” here. It is one of the most stable aspects of Colorado’s energy scene, and it is a major factor in holding electric costs down.
For more than 15 years, independent power producers have been an integral part of Colorado’s energy industry. There are more than 50 independent power projects in Colorado that supply approximately 2,400 megawatts to serve the electricity needs of 2.4 million Colorado residents.
Independents not only help hold costs down but have a proven track record for reliability, and they produce electricity with clean, efficient natural gas-fired cogeneration and renewable technologies, including wind, hydroelectric and biomass.
Classifying the market experiment as a “disaster” is a misnomer. The critics of electric market competition begin their arguments with price, in this case using a flawed Tellus Institute Report. In truth, electricity prices in structured, competitive states have not risen faster than those in regulated ones – they simply started out higher in the first place, the main reason these states chose to deregulate in the first place.
The 2005-06 percentage price comparison from the Tellus report is hollow. If rates kept artificially low for years are suddenly allowed to adjust for true market prices, the result will obviously be a “large” observed price increase in the deregulated state, completely ignoring the years where consumers benefited from below-market prices.
According to a 2005 study by Cambridge Energy Research Associates, residential customers across the country saved $34 billion over seven years compared to what they would have paid under monopolies. The same study found that real prices were 16 percent lower during the seven years under competition than during the final seven years of monopolies.
Competition at the wholesale level in Colorado is saving ratepayers money by heavily influencing technology and power plant construction methods, along with helping to lower the cost of building and operating new electric generation facilities. Independent power projects in Colorado have attracted investments to the state of over $3 billion.
The market system in Colorado is also producing other benefits: clean technology and reliability. Many of the independent power projects are utilizing proven technologies that are cleaner than many plants currently operated by public utilities, and independent power producers operate more efficiently through cogeneration and other high-efficiency technologies.
Independent plants have contributed to the dependability of the regional electric system. In many instances, the power from these plants has been available to consumers even when traditional utility plants were out of service due to severe weather or equipment failures.
Competition will meet the challenge of providing more power to consumers at lower cost. Independent power sources are an indispensable part of Colorado’s energy future. IPPs can provide exactly what consumers want: lower costs, reliability and environmentally friendly operations.
Nicholas G. Muller is executive director of the Colorado Independent Energy Association.
