We need to reform our electricity regulations. The current system is a relic that holds back innovation.
Who has a good system for us to emulate? The Swedes.
Lynne Kiesling of Knowledge Problem is in Sweden and she says people there can choose their provider of electricity.
This model is already in parts of Texas, but should be deployed around the rest of the country. Here’s why:
- Information and research are easy: competing firms provide information about their various products and services online, making it easy to compare across products and for an individual to evaluate which products and services are most likely to meet his or her satisfaction.
- Change is easy: Individual consumers can choose a provider and service online, submit personal information securely online, and view and agree to a contract online; the contract is processed within days.
- Rivalry and product differentiation: The low retail entry barriers mean that customers have many differentiated products from which to choose, particularly a variety of time-differentiated products.
The transmission and distribution/wires service quality and price are still regulated, and the customer bill reflects a payment for wires access and the transportation of the electricity commodity from generators to consumers. Note also that Sweden participates in what is arguably the most efficient and healthy wholesale power market in the world — the NordPool. Swedish generators participate in a robust wholesale market, and generators outside of Sweden can profit by selling to Swedish customers.
Thus the Swedish electricity model has many valuable and commendable features that the U.S. model lacks. Individual customers are free to choose in robust, rivalrous retail markets. Those retail suppliers are free to offer a variety of different products and services. They are also free to buy electricity in a robust, rivalrous regional wholesale electricity market. These chains of voluntary transactions accomplish something in Sweden that we fail to accomplish in the U.S. — they integrate wholesale and retail markets to communicate individual consumer preferences through the electricity value chain. Individual preferences are not stifled in Sweden as they are in the U.S. The systemic consequences: better capacity utilization, higher resource optimization and energy efficiency, and high reliability and service quality.
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