What are retail energy
markets & why are they
important?
Retail energy markets allow consumers to choose among competitive suppliers and determine for themselves what energy supplier best serves their home or business. Competitive markets provide energy consumers with many options in energy management, efficiency, renewable “green” energy, term length and price. Just as most consumers can choose from various Internet or telephone service providers, consumers in many states can now choose an electricity and natural gas supplier for their home or business. This choice is a significant change over traditional utility service, in which an energy consumer has no choice but to purchase from a monopoly utility service provider offering few or no options in terms of energy management tools, renewable energy and efficiency, and pricing.
A drive toward innovation
In order to compete with other companies for customers, suppliers are driven to innovate. This innovation has fostered the development of “green” energy, risk management options, and energy efficiency programs. In addition, the creation of demand response programs allows customers to participate in competitive wholesale power markets by receiving payments to curb usage during periods of intense demand. These programs help all customers as it is less costly to curb demand than to build new generation resources to meet peak demand.
A choice for
the consumer
Retail energy choice is fundamentally different from traditional monopoly-protected and price-regulated electricity and natural gas utility companies, which have no competitors and are guaranteed a profit through government-derived rate structures. These utilities have no incentive to be attentive to consumer needs as they are guaranteed customers and profit. While monopoly utilities have little incentive to cut costs or offer innovative products and services, a competitive market does the opposite.
RESA wants to educate consumers about their options, and understand the difference between fixed-rate, variable-rate and indexed-rate products to make informed decisions.
Fixed-Rate Products
Description: A retail electric provider (REP) offers a specific rate for electricity that will not change during the contract term (e.g., a term can be 12-months). This is the most common type of electric product offered.
Customer benefit: A fixed-rate product provides consistent costs per kilowatt-hour (kWh) for customers’ electric rates. As a result, bills will fluctuate based on actual electric usage.
Variable-Rate Products
Description: A variable-rate per kWh can vary month-to-month based on market demand.
Customer benefit: Variable-rate products may provide lower prices and shorter-term contracts or no-term commitments. This may be helpful for customers at the end of an apartment lease or who want additional time to shop.
Indexed-Rate Products
Description: The customer enters into an agreement with a REP to pay for electricity at a price that is designed to fluctuate based on a formula from publicly available indices, like natural gas costs or wholesale power prices.
Customer effect: Customers may see very low prices when the product design’s inputs are low. However, customers also bear significantly more risk and expose customers to massive price fluctuations, particularly under wholesale indexed-rate products.
For more information about the energy choices in your state, please visit: https://www.resausa.org/energy-by-state/
Why RESA SUPPORTs ENERGY CHOICE
RESA recognizes the critical role that substantive, practical, fair and workable consumer protection and marketing practices play in promoting a robust and sustainable competitive retail market that provides value-added products and services to customers. RESA member companies are committed to meeting and promoting a set of guiding principles addressing consumer protection and marketing practices.
