Competitive electricity markets continue to develop: study

Vermont, May 30, 2007 — The Alliance for Retail Choice (ARC) released a study showing that many states continue to make progress in adopting competitive retail electricity markets. New York and Texas were the clear leaders among states that have given customers the ability to choose their electricity supplier.

“Our economy is built around competitive markets, and we need to bring the full advantages of that model to electricity customers,” said Thomas Rawls, director of ARC. “Customers in Texas and New York have a range of excellent choices. In many other states, customers are still waiting to get the full benefits that can be delivered by the competitive marketplace.”

According to the report, “The design of ‘default service’… is the most significant factor that determines the success of retail choice. A poorly designed default service undermines retail competition.”

Nat Treadway, managing partner of Distributed Energy Financial Group LLC (DEFG) the consulting firm that conducted the study on behalf of ARC, added, “Many factors contribute to the development of a well-designed market, but nothing is as important as making sure that the regulated rate available to customers accurately reflects current prices in the electricity markets.”

“Despite the complexity of electricity markets, state regulators continue diligently to work through the challenging issues of creating effective retail electricity markets,” Rawls added.

ARC’s Baseline Assessment of Choice in the US (ABACUS) considers the market structures, business practices and regulatory policies that support electricity choice for residential consumers in 28 states and 2 Canadian provinces. ABACUS is designed to assess each state on its progress in implementing retail competition in electricity markets.

Retail electricity choice is thriving in Texas and New York because the electricity market structure in those states has advanced sufficiently for competitive markets to work effectively. More than 3.7 million residential customers are being served by competitive suppliers in those two states alone.

Ten other states, including Massachusetts, Connecticut, Illinois, Maryland, and Pennsylvania, have been classified as achieving “medium progress.”

In Texas, which recently ended its five-year rate transition for residential consumers, residential consumers can choose from over 50 distinct products — a wide array of offers including electricity from wind energy, fixed-price products for multiple years, pricing that guarantees savings in extreme summer heat, and products that encourage energy efficiency.

In New York 625,000 or 11% of residential consumers are purchasing their electricity from competitive suppliers, a growth of 55% in one year. In one utility service area, residential customers have a total of 37 electric rate offerings available from suppliers, green power providers, and the local utility. Offerings include fixed prices, indexed, blended, and green power. In aggregate, 41% of the total electricity usage in New York is currently provided by competitive suppliers.

While the ABACUS study did not assess retail electricity competition for large customers, numerous large commercial and industrial consumers have benefited from the introduction of competition. They have seen price reductions and the introduction of new products and services that help them to manage risks, increase reliability and manage energy in the same way they manage other inputs.

ARC made its assessment with the assistance of representatives of eight state regulatory commissions. The ABACUS Advisory Group helped create a methodology that takes into account 20 components of retail service to score each state. Among the key components considered were the design of default service, ease of choice, uniformity of standards, consumer education, competitive safeguards, and rules governing utilities and their affiliates.

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