Choice is Not Ideal for Electricity Consumers

By Kent Singer, CREA Executive Director

We love Colorado for a variety of reasons: the great weather, the spectacular scenery, the friendly people, and yes, the craft beer. From our outpost here at the CREA offices in the north Denver area, we’re within a stone’s throw of small brewers offering everything from Gilpin Black Gold to Colorado Wild Sage. There’s no question that having a choice in adult beverages is, to quote Martha Stewart, “a good thing.”

Does that mean that having a choice of electricity suppliers makes sense for Colorado’s electric co-ops? I don’t think so.

I’m making this comparison because a recent article that appeared on the web page of the Independence Institute argued that Coloradans should be able to choose their electricity supplier because “we have tons of choices for craft beer.” Well, yes, but there are some pretty important differences between craft beer and electricity. Like the fact that pretty much anyone with a relatively small capital investment can start a craft brewery. Or the fact that if you’re out of craft beer your life won’t come to a screeching halt.

The Independence Institute piece advocated for retail choice, that is, allowing electricity consumers to choose their power supplier. In Colorado today, we have a system of regulated monopoly. This means that electric utilities, like your local electric co-op, have exclusive service territories with both the right and the obligation to serve the customers who live in those areas.

The facilities needed to do that 24/7 are incredibly expensive. Over the last 75 plus years, electric co-ops across Colorado spent billions of dollars to build networks of power plants, transmission lines, substations, distribution lines, transformers and all the associated equipment necessary to keep your lights on and your choice of beer cold. It’s frankly impossible to duplicate this system (deemed the greatest engineering achievement of the 20th century by the National Academy of Engineering) in any kind of cost-effective way.

So, Colorado policy-makers decided over the years that electric utilities should be designated as monopolies and have the exclusive right to serve specific parts of the state. For electric co-op member-owners, this means that your locally-elected co-op board makes sure that you have affordable, reliable service.

The investments made in the development of the electric grid were made by hardworking people across the state who have an interest in seeing these systems maintained and upgraded. If a third party sells power to you, the end use customer, those third parties will take advantage of a power grid that you paid for and it will diminish the ability of your electric co-op to keep that system up and running. Your co-op may be able to recover “wheeling” charges from the new power supplier, but those charges will not make up for the lost revenues from reduced sales of electricity.

Under a retail choice scenario, third-party power suppliers will be able to “cherry pick” the biggest and best loads of an electric co-op or other utility, leaving the rest of the system’s customers to pay the fixed costs of operating the utility. Historically, the most vocal advocates of retail choice were the large commercial and industrial users of electricity. We appreciate those customers and we don’t want to see them exit our systems and leave our rural, small business and residential customers with higher electricity rates.

The Independence Institute writer argues that Colorado is “one of 21 states across the country stuck in a regulated market dominated by monopoly utilities.” This statement implies that the other 29 states have retail choice. That’s not true. The fact is that only 13 states have some form of a retail choice market for electricity, and the remaining 37 states rejected retail choice in favor of traditional monopoly service. In several cases, states repealed their retail choice experiments because they turned out to be a bad deal for consumers.

We’ve been down this road before in Colorado. As I mentioned in a column earlier this year, our legislature considered several retail choice proposals back in the late 1990s. When those bills failed, a study panel evaluated the pros and cons of retail choice. The panel concluded that retail choice was not in the best interests of Colorado ratepayers.

There is no doubt that the electric industry is changing as the result of advances in technology and consumer interest in solar panels, electric cars, smart buildings and other innovative approaches to power generation and consumption. Colorado’s electric co-ops are at the forefront of innovation with our deployment of automated meters, community solar farms, small hydropower plants and other forward-looking solutions.

None of this innovation can continue, however, unless co-ops continue to operate on a sound financial footing. Retail choice threatens that footing and that’s why we’re opposed to it. After all, while Colorado is a great place for a cold craft beer, it is also a place where we in the electric co-ops are doing our best to slake rural Colorado’s thirst for electricity as well.