“Reforming the Carolinas’ Power Markets” by B. Murray: Economic Concepts of Markets and Government Interactions

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Introduction

Governments can create policies that strongly affect the state of the market, and their decisions can both increase and stifle competition. The discussed article by Brian Murray titled “Reforming the Carolinas’ Power Markets: Producing a Panacea or a Pandora’s Box?” looks at the situation which arose in North and South Carolina in 2019. In the last quarter of the year, the state senator of South Carolina, Tom Davis, urged the state to create a regional transmission organization (RTO) instead of the currently regulated monopoly on energy production. The article discusses the two models which are usually adopted in the United States, presenting the potential risks and benefits of each one, and one can see the use of such economic concepts as a monopoly, competitive pricing, and market monitoring.

Summary and Analysis

According to the author, both South and North Carolina have a traditional model of power market governance – a regulated monopoly. This means that one vertically integrated utility line is granted the ability to be the sole provider for the region. In exchange, the state utility commission possesses the authority over rates of the utility services that people have to pay. In this case, the approach is described as a monopoly because a single provider distributes goods. However, as another entity is involved in price control, the monopoly is regulated.

The second type of power market operation in the US is the “restructured” model, which can also be described as competitive. Here, an RTO holds auctions in which multiple generators determine prices for the wholesale power market. As Murray points out, this mode of operation is expected to lower the rates for utilities and encourage innovation in the sphere of renewable and clean energy. This belief is based on the classic concept that the participation of several smaller bidders in auctions will bring the prices down.

Interestingly, the author argues that the states do not have to select one from the two described models. Instead, Murray suggests that a hybrid of the two options could be a more lucrative solution. In this scenario, the monopoly in energy supply remains in place in the retail segment, but it is supplemented by RTOs running in wholesale markets. The article highlights that states with a monopoly are not devoid of competition, and policy is not powerless in driving innovation or environmental development.

Similarly, Murray notes that deregulation may expose the state to have volatile rates that fluctuate and place great stress on payers and the government. Regions with traditional regulation of the market based their prices on average costs of all energy types. In contrast, deregulated areas with RTOs determine the rates using “the marginal cost of the last unit bid into the market,” which is usually natural gas. Therefore, as natural gas prices spike up or fall, the states may encounter sudden and significant rate changes.

Conclusion

Overall, the article presents a discussion of how competition and monopoly are not always separate from one another, and that a balanced choice may exist in certain industries. In power markets, different approaches drive prices down, while also keeping the rates stable. As the author shows, a level of government regulation can increase innovation with the combination of RTOs and auctions. This paper further contributes to the discussion of such concepts as market monitoring and price setting and reveals that one-sided solutions are not always the only answer.

Bibliography

Murray, Brian. “Forbes, 2019. Web.

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