(August 2011) Economic consultant Michael Rosenzweig challenges Constantine Gonatas’s proposal for ensuring FERC’s demand response rulemaking achieves its objectives. Also, Juliet Shavit...
Beyond-the-meter technologies challenge the utility monopoly.
Since the emergence of competitive retail markets in United States in the late 1990s, the power retail business has been through its fair share of booms and busts. It was first adopted as a growth engine by a number of utilities and other market participants. It was subsequently dropped by most utilities when the market collapsed and restructuring came to a screeching halt in the early 2000s. The market has resurged since then with independent power retailers leading the way with a continued focus on commodity sales.
Nevertheless, the competitive retail electricity market in the United States has progressed slowly over the last decade. The lack of a national blueprint for utility restructuring has created a patchwork of disparate market structures, making standardization difficult to achieve. This has been further complicated by the overarching political agendas of state regulatory commissions and their desire to protect consumers. A hodgepodge of transitional regulated rate caps froze retail commodity costs in many markets, limiting consumer switching and stunting competition. Thus, power retail has been relegated to an afterthought by most in the utility industry for many years.
Today, 21 states are considered to have competitive electricity markets. However, a closer state-by-state assessment of the progress of deregulation reveals that only four states ( e.g., Texas, New York, Connecticut, and Massachusetts) have enough switching to be considered truly competitive (see Figure 1) . Despite the other 17 states’ competitive market structures, their switch rates aren’t sufficient to represent real competition. This restricts the entrance of new competitive retailers and makes these markets effectively closed.
A series of events in the past two years has positively affected the power retail market and brought a renewed interest and life to this market. First, frozen utility price caps have been expiring since 2008, and this has opened new markets to competitive retailers. For example, PPL’s territory opened to residential competition in 2010, PECO’s will open in 2011, and Allegheny Energy’s will open in 2012. Second, the market conditions of the past year and a half—low gas prices and load reduction caused by the recession—temporarily created unprecedented headroom for competitive retailers. Last, traditional wholesale marketers have seen their markets slowly eroded as municipalities and electric cooperatives have built their own generating capacity, and these marketers have turned to retail as a way to expand their portfolios. The combination of these events has given power retailers the opportunity to build and expand in new markets.