Energy Policy:

New COMPETE report says deregulated electricity markets will boost economy

How can the electricity sector spur economic growth in the United States? During today's OnPoint, Jonathan Lesser, president of Continental Economics, discusses a new white paper, written on behalf of the COMPETE Coalition, that focuses on the impact of competitive electricity markets on economic growth. Lesser also explains how the Federal Energy Regulatory Commission's recent transmission ruling will affect consumers and the economy.

Transcript

Monica Trauzzi: Hello and welcome to OnPoint. I'm Monica Trauzzi. Joining me today is Dr. Jonathan Lesser, president of Continental Economics. Dr. Lesser is releasing a white paper today, prepared for the COMPETE Coalition, demonstrating the impact of competitive electricity markets on economic growth. Dr. Lesser, thanks for coming on the show.

Jonathan Lesser: Thank you for having me.

Monica Trauzzi: Dr. Lesser, electricity markets are going through so many changes right now with the addition of renewables, changes to transmission. Why is it such a critical part of the U.S. economy?

Jonathan Lesser: Well, electricity, over the last hundred years, has become ubiquitous in the economy. What you see is that a lot of old industrial processes now rely almost completely on electricity. We don't have old-fashioned arc furnaces for manufacturing steel. We have electric arc furnaces. We use electricity, obviously, in the computer industry. Your studio here is obviously-critically relies on electricity. So, it's just sort of a lifeblood of the economy today. And that's why we need policies that provide that electricity at the lowest possible prices and promote innovation in producing and distributing that electricity.

Monica Trauzzi: We hear so much about the general public taking electricity for granted. We go to the wall, flip the switch and the light comes on. But do you think our politicians do that as well? They sort of take it for granted and maybe don't push so hard for these policies that you're referring to?

Jonathan Lesser: I'm not sure what-I am sure politicians have so much on their plate these days that they probably aren't just focused on electricity. But it is easy to take it for granted because our system has worked so well for so long and, unlike in many parts of the world, you can just flip the switch and you expect the power to be there. And you only get upset when you flip the switch and the power doesn't come on. So I think it's easy to forget, because we've been so successful in creating a reliable electric network, why it's so important to the economy.

Monica Trauzzi: So, what are the policies that you outline in this white paper that could promote customer benefits?

Jonathan Lesser: Well, there are really five policies that I'm promoting through COMPETE. The first is that we really need to encourage and promote wholesale and retail competition wherever possible, because those markets are working. The market that serves the DC area here called PJM is the largest electric market in the country. It's working very, very well. We have low electric prices. We have lots of capacity. We have lots of innovation in terms of demand-side management, different types of resources that can all be integrated, including renewable energy. So, that's the first key. The second is to avoid letting monopoly utilities sort of stifle competition. I mean, monopolies aren't particularly innovative. They don't have to be. And you have situations where monopoly utilities are really trying to thwart competition. We should try to avoid that. We want to also create an environment that promotes and reduces uncertainty as much as possible, because that's necessary to promote investment. And if we're going to, there's nothing that investors abhor more than uncertainty. So, creating an environment that promotes the greatest sort of uncertainty and lets investors know what sort of rules they will face in this competitive market is really going to help. The next policy, which is probably the most controversial is to avoid artificial subsidies that distort competitive markets, because artificial subsidies, it sounds good, you know, it's short-term gain, but it inflicts much higher costs, long-term pain. And we really need to get away from those. And finally, electric competition is clearly not by itself going to save the economy, but electric policies that promote electric competition can, in addition to other policies that promote, you know, economic growth, it can be a real linchpin of that. So that's really the five things that, you know, we're trying to promote.

Monica Trauzzi: So, with all the talk right now about transmission cost allocation, what impact do you feel FERC's current proposal could then have on the economy?

Jonathan Lesser: Well, FERC's proposal, I think, is fair and more geared towards allocating costs for transmission cost to those who are going to benefit from those investments. That's as it should be. I mean, having people bear costs for which they have no responsibility or get no benefit is something you probably want to avoid as much as possible. So I think FERC's policies will help in that respect.

Monica Trauzzi: So, in the white paper you point to the natural gas industry as an example on competitive pricing. Explain the connection that you're making.

Jonathan Lesser: Well, the natural gas industry is really…I would call it the poster child for how successful competition works. We have an incredibly vibrant, competitive natural gas industry now. We have shale gas, that's growth that's exploding. The reserves are just coming online like crazy. The U.S. Energy and Information Administration has increased between 2008 and 2009. Their reserve estimate went up by 75 percent. And what's critical to remember is that back in the late 60s everyone was forecasting that we had less than 10 years natural gas reserves left before the spigot would literally run dry. And then the reserves kept crashing down each year until in '78 Congress passed legislation to deregulate natural gas prices. And lo and behold, we are now awash in natural gas. And that deregulation and allowing prices to be competitive and creating a vibrant, competitive market has created the innovation, the new technology that is now leading to much lower natural gas prices. And those lower natural gas prices are in turn lowering electric prices for the benefit of everyone.

Monica Trauzzi: So, what do you see as the job growth potential for the electricity sector in the short term?

Jonathan Lesser: I think the job growth potential within the electricity sector is probably fairly small itself. But it's not the growth within that sector, it's how electricity and low electricity prices will work through the economy and sort of stimulate the overall economy. And the research I've done has shown, you know, the potential is hundreds of thousands of new jobs easily.

Monica Trauzzi: All right, we'll end it there. Thank you for coming on the show. It's nice to see you.

Jonathan Lesser: Thank you.

Monica Trauzzi: Thanks for watching. We'll see you back here tomorrow.

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