Retail Choice in Electricity: What Have We Learned in 20 Years?

Categories: Demand Response, Innovative Electricity Pricing, Market Design, Pricing, Rate Design

February 24, 2016

Laurence Kirsch

Mat Morey

CA Energy Consulting was engaged by the Electric Markets Research Foundation to review the U.S. experience over the past twenty years with retail electricity customers being allowed to choose their electricity suppliers. In the 1990s, the proponents of such retail choice projected significant gains in the forms of lower retail prices and innovative products and services. Through a review of studies covering a wide range of retail choice issues, Dr. Morey and Dr. Kirsch have found a very mixed set of outcomes suggesting that, after twenty years, retail choice has delivered only a small part of its advertised benefits. The impacts of retail choice on prices are ambiguous, but it is clear that electricity prices remain significantly higher in retail choice states than in traditional states and that changes in the price gap have been driven primarily by fuel price fluctuations. Retail choice appears to promote renewable resources and dynamic pricing programs, but it has a mixed record in promoting demand response and customer satisfaction. Although retail choice may help resource adequacy by extending the market penetration of dynamic pricing programs, it may also exacerbate the resource adequacy problem by materially adding to the financial uncertainties faced by investors in generating resources. The report recommends that policymakers measure program success in terms of reductions in customers’ bills rather than switching rates, encourage real-time pricing, and protect consumers from supplier default and fraud.

The full report is freely available from the Electric Markets Research Foundation.

A short version of these findings has been published in Public Utilities Fortnightly.