Changes in regulatory requirements, market structures, and operational technologies have introduced complexities that traditional ratemaking approaches can’t address. Poorly designed rates lead to...
Can higher electricity prices be more affordable?
states confirms the core conclusion from our prior article: rate increases have been very similar since restructuring was implemented in the 1990s. While it is correct that average retail rates in restructured states are 37 percent higher than in non-restructured states, that difference already existed prior to restructuring. New data for 2007 through 2010 show that retail rates in restructured states have increased and decreased more directly with changes in wholesale power markets. Over the 1997 through 2010 period, since restructuring was implemented, rates in fully restructured retail access states have increased 42 percent, while rates in non-restructured states have increased 48 percent.
Surprisingly, higher retail rates don’t necessarily translate into higher average residential bills nor do the higher rates necessarily mean that electricity is less affordable. While rates are significantly higher, average residential bills in fully restructured states are only slightly above residential bills in non-restructured states. Given higher average household incomes, electricity bills on average are a smaller portion of household incomes in restructured states than in non-restructured states. This unexpected result is particularly striking in California, where much lower average electricity use and higher household incomes make electricity bills more affordable on average than in either restructured or non-restructured states.
1. Pfeifenberger, Basheda and Schumacher, “ Restructuring Revisited : What we can learn from retail-rate increases in restructured and non-restructured states,” Public Utilities Fortnightly, June 2007.
2. The update is based on data reported by EIA in Form 826 through 2010, including revisions made by DOE to previously issued data back to 1990.
See http://www.eia.doe.gov/cneaf/electricity/page/sales_revenue.xls, last accessed on April 17, 2011.
3. Non-restructured states include: AK, AL, AR, CO, FL, GA, HI, IA, ID, IN, KS, KY, LA, MN, MO, MS, NC, ND, NE, NM, OK, SC, SD, TN, UT, VT, WA, WI, WV, and WY.
4. Full retail access states include: CT, DC, DE, IL, MA, MD, ME, NH, NJ, NY, PA, RI, and TX.
5. Suspended restructuring states include: AZ, MI, MT, NV, OH, OR, and VA (excluding CA, a large state with suspended restructuring, for which we report data separately as a case study).
6. These bills are calculated by dividing 1/12 of total annual residential electricity revenues by annual counts of residential customers. For customer counts, see: http://www.eia.doe.gov/cneaf/electricity/epa/customers_state.xls, last accessed on April 17, 2011. 2010 customer counts are not yet available from EIA 861, so we assume no change in the number of residential customers between 2009 and 2010.
7. Averages for the three categories of states reflect weighted averages of these percentages, where the weights are each individual state’s number of residential customers. Because 2010 state level median household income data are not yet available from the Bureau of Census, we used the Bureau of Economic Analysis’s estimated 2009-2010 percentage change in state level personal income to escalate the 2009 state level median household income data to 2010. For the core Bureau of Census data, see: http://www.census.gov/hhes/www/income/data/historical/household, last accessed on April 17, 2011.
For the Bureau of Economic Analysis escalators, see: http://www.bea.gov/newsreleases/regional/spi/2011/xls/spi0311.xls, last accessed on April 17, 2011.