COMPETE Study Details Success of Retail Competitive Markets

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Growth of customer switching in competitive retail electricity markets evidence consumers prefer supplier choice over monopoly system

While some policy makers and interest groups seek to continue the drawn-out debate over competitive reforms in the electricity industry, consumers are increasingly expressing their preferences through choice, a new study sponsored by the COMPETE Coalition reveals. The volume of electricity sales by competitive non-utility suppliers has doubled since 2003 in the continental United States, and increasingly competitive suppliers are offering innovative products and services allowing competition based on more than just price.

“The growth of the competitive share of national sales volumes from zero to 15% in the past decade understates the case,” concludes study author Philip R. O’Connor, a former utility regulator and chairman of the Illinois Commerce Commission in the early 1980s. In the 17 states that allow electricity competition at retail, competitive providers supply nearly 45% of eligible electricity demand, up from 20% in 2003. A majority, 57 percent, of all eligible non-residential demand is supplied by a competitive provider.

And while larger commercial and industrial customers have been quick to capitalize on competitive options, residential customers are increasingly opting to purchase their electricity from a competitive alternative to their traditional utility company. “The reality is that when given the opportunity to switch to competitive suppliers, customers do so in great numbers. They are seeking innovative energy products and solutions as they contribute to forging a more efficient market for everyone else as well,” O’Connor concludes in the study.

The report incorporates national statistics and in-depth examinations of seven states that have opened their retail electricity markets to competition to demonstrate that customer choice of electricity suppliers is well established and widely accepted, creating economic and environmental benefits for consumers. The report cites statistics on the growth in competitive retail power accounts and sales volume, percent of retail load served by competitive suppliers, and state-level switching rates.

“This paper clearly demonstrates the strong customer demand for competitive choice and we encourage policy makers across the country to take note,” said Joel Malina, COMPETE executive director. “As competition continues to deliver smart grid and c lean energy innovations, policy makers are seeing the real economic and environmental benefits that electricity markets provide.”

Nearly 9 million residential customers and 1.8 million businesses and government entities are currently served by a competitive supplier, and the volume of competitively served demand has doubled since 2003. Currently, more than a hundred competitive suppliers operate across the nation.

“COMPETE’s paper does an excellent job explaining what a success customer choice in electricity markets has been, not only in Pennsylvania, but in many states throughout the U.S.,” said Commissioner Robert Powelson, Pennsylvania Public Utilities Commission. “Since the passage of the Electric Generation Customer Choice and Competition Act in 1996, consumers in Pennsylvania have experienced myriad benefits, including savings of at least $7 billion, increased energy efficiency and reliability of generation resources, and the attraction of over 8,500 MW of new generation and over $12 billion in capital investment in the state.”

“The concept of choice is a fundamental feature of American life and the robust statistics contained in COMPETE's report show customers are exercising that fundamental right in choosing an electric supplier,” said Commissioner Erin O’Connell-Diaz, Illinois Commerce Commission. “Appropriate legislation, proper regulatory oversight to ensure consumer protection, dedicated market participants and first and foremost customers, have delivered this success story. This report makes clear consumers have had a taste of the many benefits of a competitive marketplace and they want more!”

Annualized demand for competitive commercial and industrial (C&I) customers now stands at nearly 460 million megawatt hours (MWh) and over 100 million MWh for residential customers. This aggregate 560 million MWh represents almost 15 percent of electricity consumption in the lower 48 states.

“Much of the switching by customers to competitive providers over the past decade has been an unabashed search for energy cost savings,” said O’Connor. “Larger customers led the way as factories, hospitals, schools, government facilities, office buildings and transit systems moved to reduce their operating costs, but more recently residential customers and small businesses have found savings.”

In summary, these experiences and statistics across the nation clearly demonstrate the four realities of competitive electric markets. First, wholesale electricity markets can successfully operate on a competitive basis. Second, market forces will produce efficiencies in the power industry. Third, multiple suppliers of electricity at retail can deliver savings and customized products to customers through bilateral contracts. And fourth, C&I and residential customers will choose among suppliers to satisfy their energy needs.

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Silvio Marcacci
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