Smart Grid Observer

Smart Grid Observer

New Research on Electricity Price Trends Reveals Cost Disparity Between Monopoly vs. Competitive States

Source: Smart Grid Observer

February 12, 2019 -- The Retail Energy Supply Association (RESA), the nation's leading trade association representing competitive retail energy suppliers, today (2/11) released new research on electricity price trends that reveals an eye-opening cost disparity between monopoly and competitive states. Researchers have discovered that, while the electricity industry as a whole is facing unprecedented market conditions - lower demand for electricity and a natural gas revolution -- consumers in states that allow retail energy competition are paying less for electricity, while consumers in monopoly states are paying more.

'The electricity industry has been struck by conditions it has never seen or experienced before,' said Tracy McCormick, RESA Executive Director. 'In the last decade we have seen either flat or lower demand for electricity combined with the shift toward natural gas. But what's most unsettling is that, while it affects every single state, it is consumers in monopoly states who are paying the price.'

In the white paper entitled, 'The Great Divergence in Competitive and Monopoly Price Trends,' Philip O'Connor, Ph.D. and Muhammad Asad Khan looked at data from the U.S. Energy Information Administration (EIA) and compared the weighted average price trends of the 35 U.S. monopoly states with the 14 U.S. jurisdictions that allow competition. Their research shows that between 2008 and 2017:

- The all-sector annual weighted average price in the 35 monopoly states was 18.7 percent higher in 2017 than in 2008.
- The all-sector annual weighted average price for the competitive retail markets was 7 percent lower in 2017 than in 2008.

The research also finds that the cost implications of such a difference are staggering. The analysis shows:

- If the annual percentage price changes in the 35 monopoly states had tracked with the percentage prices in competitive jurisdictions, consumers in the monopoly states would have paid nearly one-third of a trillion dollars ($331.8 billion) less.  
- If the same price trend patterns that occurred in the monopoly group had prevailed in the competitive jurisdictions, the cost to consumers in the 14 choice markets would have been higher by $225.6 billion.

The research also reveals one partial explanation for this cost disparity may be found in the way competitive markets and monopoly regulation treat power plant utilization. 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. In contrast, if plants are underutilized in competitive markets, they will experience unfavorable financial consequences, but it is investors who pay the price, not customers.

'After conducing our research, we found it poses an important challenge for policy-makers,' said Muhammad Asad Khan, co-author of 'The Great Divergence in Competitive and Monopoly Price Trends.' 'That challenge is to come to a clear and accepted explanation for the price divergence so that it can then become the basis for future reform that benefits consumers in every state.'      

Read the full white paper: The Great Divergence in Competitive and Monopoly Price Trends

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Also of Interest from SGO: 

9th Microgrid Global Innovation Forum - North America, March 18-20, 2019, Washington, D.C. 

4th Grid Modernization Forum, May 20-22, 2019, Chicago  

Utility Cyber Security Forum, June 25-26, 2019, San Diego

4th IoT Global Innovation Forum, July 9-10, 2019, Chicago