Retail Competition in the Energy Market
Missouri took a step toward reshaping part of its electricity market with the passage of House Bill 417 out of the House General Laws Committee. This legislation would introduce retail competition in Missouri’s electricity generation sector, shifting away from the current monopoly-based model. In the other chamber, a similar bill (Senate Bill 487) also had a public hearing.
Today, many Missourians receive electricity from state-approved monopoly utilities, which own and manage the generation, transmission, and distribution of electricity for their customers within exclusive service territories. Transitioning to a retail competition system would shift the ownership of generation from state-approved monopolies to private entities competing to sell power, while transmission and distribution would remain under utility control.
Responding to Change
The energy sector is in a state of flux, with several critical uncertainties lingering:
- How accurate are current energy demand forecasts?
- Will technological advancements from artificial intelligence significantly reduce energy consumption, and if so, how soon?
- What is the trajectory of electric vehicle adoption?
- How will the Trump administration’s regulatory reforms, such as recent changes at the Environment Protection Agency (EPA), impact the coal industry?
- Will the Nuclear Regulatory Commission (NRC) enact needed reform?
These unknowns highlight the challenges of relying on a regulated monopoly model, where long-term infrastructure planning is guided by government oversight rather than market signals. Competitive markets, on the other hand, offer greater adaptability. For example, the rise of hydraulic fracturing led to significantly lower natural gas prices over the last decade. Customers in competitive markets experienced the benefits of low gas prices sooner than customers in monopoly markets did.
Additionally, in a competitive market, private suppliers, not ratepayers, bear more financial risk of failed energy investments. If there is a significant cost overrun or if a project fails to come online, customers have less exposure as they can switch to another supplier or remain insulated through competitively priced default service (if they do not select a supplier).
Further Considerations
Despite the benefits of retail competition at the state level, other free-market reforms are needed. Energy regulation is complex, with overlapping layers of subsidies, taxes, and federal mandates distorting market forces. A truly free and competitive energy market would require broader regulatory reforms at the federal level to ensure private developers can better respond to market demand.
Another key consideration is the role of incumbent utilities in a competitive system. House Bill 417 requires utilities to divest their generation assets before retail choice begins, but it grants them discretion in how they do so. Utilities like Ameren could choose to sell their power plants to unaffiliated private developers or transfer them to a newly formed competitive affiliate, as long as the transaction occurs at fair market value and receives commission. As Missouri considers this transition, it will be important to define the appropriate role of former monopolies in a newly competitive market.
Retail competition is not a silver bullet, but it could introduce market forces to a historically insulated energy sector. Missouri policymakers ought to consider how implementing retail competition might work, and what potential barriers exist at both the state and federal levels.
