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Utility Dive – Consumers in retail competition markets saved $300B over the past decade, trade group says

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Dive Brief:

  • New research released Monday by the Retail Energy Supply Association (RESA) highlights what the group calls an “eye-opening cost disparity” between states with competitive energy markets and those with monopoly utilities, and the rates their customers pay.
  • The white paper, “The Great Divergence in Competitive and Monopoly Price Trends,” concludes electricity consumers in competitive retail markets have saved $300 billion over the past decade, relative to what consumers in so-called “monopoly states” pay for their energy.
  • Researchers say while plant utilization has “declined in greater proportion in monopoly states, plants in those states are granted full cost recovery — with consumers left to absorb those costs.”

Dive Insight:

Electricity prices in many states with retail choice are high, but RESA’s analysis concludes they are moving lower, as consumers reap the benefits of cheap natural gas and lower electricity demand. But the same cannot be said for states with monopoly utility structures.

“In the last decade we have seen either flat or lower demand for electricity combined with the shift toward natural gas,” RESA Executive Director Tracy McCormick said in a statement. “But what’s most unsettling is that, while it affects every single state, it is consumers in monopoly states who are paying the price.”

The group’s research compares average price trends of the 35 U.S. monopoly states with the 14 U.S. jurisdictions that allow competition. Between 2008 and 2017, RESA’s analysis showed the all-sector annual weighted average price in the monopoly states was 18.7% higher in 2017 than in 2008. For retail competitive markets, the all-sector annual weighted average price was 7% lower in 2017 than in 2008.

“The dollar implications of such spreads in price paths are large,” the report says.

If 2008-2017 annual percentage price changes in the monopoly states had tracked with percentage price changes in the competitive jurisdictions, “all consumers in the monopoly states would have paid one-third of a trillion dollars ($331.8 billion) less,” the report says.

Broken out by customer class, RESA estimated residential customers would have saved $109.9 billion; commercial customers, $139.9 billion; and industrial customers, $83.5 billion.

RESA also said the report points to one “partial explanation” for the cost disparities: differences in the way competitive markets and monopoly regulation treat power plant utilization.

Plant utilization, as measured by capacity factor, “has declined in far greater proportion in the group of monopoly states than in competitive markets, due in great part to the shift from coal toward gas,” the report says. “However, as long as rate-based capacity is considered ‘used and useful’ — even if underutilized — full cost recovery is accorded, with consumers absorbing those costs.”