Yahoo Finance
As readers of Adam Smith know, the market functions to provide consumers with goods and services at the lowest price (within limits set by law).
Yet, several years ago, we submitted a piece claiming that restructuring the electricity industry had not produced noticeable consumer benefits, and the irate peer reviewer (we suspect a big shot restructuring maven ) retorted that you can’t prove a negative but added, “Who said that restructuring was supposed to benefit consumers?” On the first point, we simply opined that consumer benefits were not evident.
(Maybe the situation would have been worse without restructuring, for all we knew, but evidence for benefits seemed limited).
As for the second point, we took it for granted that the consumer was supposed to be the ultimate beneficiary, not market players or consultants.
Were we naive? To check on whether those conclusions still hold, we periodically examine the price of electricity by segmenting it into three parts: “Fuel and renewables”, “Utility” and “Other”.
Competitive forces, we reasoned, should reduce those components of the cost structure subject to market forces, and the utilities would continue no more or less productive than before.
Advocates had predicted restructuring savings as high as 40%.
On the other end, one management consultant concluded that if all utilities employed best practices, they could save about 10%, not chump change but not revolutionary, either.
Related: IEA Sees Massive Oil Surplus In 2027 As Middle East Supply Returns The figure below shows that, in 1990-2000, as the industry geared up for competition, the real price of electricity fell 17%, with fuel costs accounting for 7% points of the fall.
In other words, the industry hit the predicted savings in anticipation of full restructuring.
After that, prices tended to move up and down with fuel costs.
The “Other” component of price did not contract significantly, either.
| Product | Price | Change |
|---|---|---|
| Brent Crude | $102.14/bbl | +0.34% |
| WTI Crude | $96.90/bbl | +0.21% |
| EN590 Diesel | $846/MT | +0.18% |
| Jet Fuel A-1 | $1090/MT | +0.55% |
| Mazut M100 | $450/MT | -0.15% |
| Bitumen 60/70 | $470/MT | +0.08% |
| Sulphur Gran 99.5% | $470/MT | -0.44% |
| Urea 46% Gran | $650/MT | +1.12% |
| NPK 16-16-16 | $460/MT | -0.28% |
| Nat Gas TTF | $15.42/MMBtu | +0.92% |
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