Competition continues to work for electricity consumers

For the past five years, the COMPETE coalition, which supports well structured competitive electricity markets, has undertaken an analysis of U.S. Energy Information Administration (EIA) data to compare restructured states versus the traditionally regulated states over time, and take into account inflation so that comparisons are made in real dollars.

Consumers in states with electricity competition have seen their rates decline over the past decade and a half while ratepayers in states without competitive retail markets experienced rate increases, a revised analysis of EIA and Bureau of Labor Statistics data shows.

This year’s updated analysis looked at electricity price data from 1997 through 2013, with 1997 chosen as the starting point because it marked the last year before states began restructuring. And the pricing data for that time period was assessed in two ways so to capture the difference between retail and wholesale competition. One assessment considered states that benefit by being within the footprint of organized competitive wholesale power markets overseen by regional transmission organizations (RTOs) or independent system operators (ISOs).  The other looked at the 16 states and the District of Columbia that have restructured their electricity markets to promote competition at retail.

The data, adjusted for inflation, show that consumers in states that restructured to promote retail competition saw their rates decline by 3.6 percent, while ratepayers in states that retained the traditional regulatory model saw their rates increase by 8.2 percent. Consumers in states within the footprint of RTOs and ISOs (which include several states that retained traditional regulation) saw their rates decline by 0.9 percent, while those in states outside of organized competitive wholesale power markets saw their rates increase by 6.7 percent.

The data show that in restructured states, residential rates declined 5.8 percent, while rates in states without competitive retail markets increased 4.3 percent. Commercial customers in restructured states saw their rates decline 12.1 percent while their counterparts in states without competitive retail markets saw a 2.1 percent increase. For industrial customers in restructured states rates declined 2.5 percent while they rose 11.4 percent in other states.

For residential customers in states within the footprint of RTOs and ISOs, rates decreased 3.1 percent while their counterparts in states outside of the organized competitive wholesale markets saw their rates increase 3.2 percent. For commercial customers in RTO/ISO states, rates declined 10.4 percent while their counterparts outside of RTOs and ISOs saw a 1.8 percent increase. For industrial customers, those in RTO/ISO states saw a 1.7 percent increase while those outside of the markets saw an 8.7 percent increase.

In most industries and for nearly all goods and services, we allow competition to work in the best interests of consumers. These data show that competition in electricity, when it is allowed, does indeed work for consumers.

Massey is counsel for COMPETE and a former FERC commissioner.