R Street Testimony in Support of Missouri SB 487 Electricity Compettion

Testimony in support of SB 487, from:
Josiah Neeley, Texas Director, R Street Institute

April 1, 2025

Mr. Chairman and members,

My name is Josiah Neeley and I am a Senior Fellow in Energy Policy with the R Street Institute. R Street is a nonprofit, nonpartisan, public-policy research organization with a mission to engage in policy research and outreach to promote free markets and limited, effective government.

I am writing you today in support of SB 487. Electricity competition is a free-market policy supported by both economic logic and common sense. But more importantly, electricity competition is a tested policy that provides a proven benefit to states, both economically and environmentally.

For the past two decades, roughly a dozen states have operated under a competitive regulatory model. When we compare the performance of those states to those that have stayed with a monopoly model, we find that competition provides electric power that is cheaper and cleaner than that of Missouri’s current regulatory structure, yet still just as reliable. The experience of these states can and should guide Missouri as it contemplates taking similar steps.

There are four points in particular that are worth stressing:

1. Competition would mean substantial savings for electricity customers. 

Over the past decade, electricity prices in restructured states have tended to fall or remain stable, while prices in monopoly states have tended to rise. An analysis that looked at electricity prices between 2008 and 2016, founds that the weighted-average price of electricity in monopoly states increased by an average of 15 percent over the time period, while electricity prices decreased 8 percent on average in restructured states.^[1] 

These lower prices have translated into billions of dollars in cost-savings for electricity consumers. In fact, a joint report by the Illinois Chamber of Commerce, the Illinois Manufacturers’ Association, the Illinois Retail Merchants Association and the Illinois Business Roundtable notes that electricity restructuring resulted in $37 billion in consumer savings from 1998 to 2013.^[2] Similarly, a study by researchers from Cleveland State University and Ohio State University found that since 2011, restructuring in Ohio has led to $15 billion in consumer savings.^[3]

It is not surprising that competition would deliver lower prices. Whether it be car dealerships or washing machine vendors, businesses often try to attract customers by offering better prices than those of their competitors. There are features of Missouri’s current regulatory model, though, that would make a move to competition particularly likely to lower costs.

Currently in Missouri, utility rates are set based on what is needed for the utility to recover its costs, plus a percentage return on investment. This means that, paradoxically, the more a utility spends, the more it makes—even if that spending is wasteful. Utilities therefore have an incentive to invest in large, costly projects even if those same projects would not make sense in an open market.

I should stress that I am not blaming utilities here; they are simply responding rationally to the incentive structure that the government has put in place.

2. Competition can improve electric reliability

In addition to reducing prices to consumers, competition can help avoid blackouts. Research indicates that the introduction of competition in the 1990s induced a reduction in generator outages.^[4] The most severe reliability events in recent years primarily resulted from severe cold-weather events. And affected states with and without competition.^[5] 

Much attention has been given to the reliability problems experienced by Texas during Winter Storm Uri in February 2021. Uri was a catastrophic event, but the outages have been found to be due to issues unrelated to competition, such as power plant weatherization, poor gas-electric system coordination, insufficient gas supply to some generators and a lack of significant interties to neighboring systems.^[6] 

The fact that the Texas blackouts were not due to competition can be seen by comparing outages among competitive generators with those from monopoly utility assets. Competitive generators ended up having lower outage rates than monopoly utilities.^[7] 

3. Competition is also environmentally beneficial. 

States with competition have been quicker to adopt new, cleaner technologies and fuel sources. For instance Texas, a competitive state, has the most wind generation in the nation. By contrast, utilities in monopoly states have been more likely to keep older, polluting plants in operation even when they are uneconomical. Because of the cost-recovery issue mentioned above, it can make sense for these utilities to keep older coal plants in operation—even if it means installing costly emissions-control equipment required by federal regulations—rather than shuttering the plant in favor of lower-cost natural gas or renewable energy.

Even when it comes to traditional plants, generators in competitive states have done more to conserve fuel use than their counterparts in monopoly states, resulting in less pollution. For example, regulated coal plants often use a costlier fuel-procurement approach and hold higher levels of fuel inventory on-site than utilities in competitive states, which results in greater particulate-matter emissions.^[8] By contrast, in states with competition coal plant owners have tended to improve fuel efficiency, resulting in emissions reductions of between 4.6 and 7.6 percent in SO2, NOx and CO2 between 1991 and 2005 in those states.^[9] Nuclear generators that are subject to competitive pressures have also improved their availability and reduced refueling outage times, resulting in a 10 percent gain in operating efficiency.^[10] 

Retail competition has also made electricity providers more responsive to increasing demand for clean or green energy. Over the past decade, a growing number of customers have expressed a preference for green energy options. Providers in competitive areas have responded to this demand, while monopoly utilities have sometimes been slower to do so. In the span of just two years, for example, green choice customers in retail states more than doubled, while the number of customers in traditionally regulated states remained flat.

4. Electricity competition would also help make Missouri more attractive to businesses. Many large companies—from Walmart to General Motors Corp. to technology companies like Amazon and Microsoft—have adopted internal sustainability goals that require the purchase of renewable energy. In fact, corporate renewable energy procurement was roughly six times higher between 2015 and 2016 than in the late 2000s and early 2010s.^[11] The availability of retail choice can be a critical factor for corporations in deciding where to locate, particularly for the technology industry and other large institutional buyers of renewable energy. Yet monopoly utilities have often been slow to respond to this demand and have offered green options that do not appeal to many consumers.

For all of these reasons, it Missouri should embrace electric competition.