Good News on Electricity Competition Front

Choice lowers PA rates significantly

There’s a lot of cheery news today about retail electric competition in the U.S. and how the black eye that California and Enron have given electricity restructuring have not been fatal. This Pittsburgh Post-Gazette article reports on a study showing that Pennsylvania’s retail electricity rates in 2001 were 20 percent lower than in 1996, on average. Nationally, retail rates were 14 percent lower for residential consumers, 13 percent lower for commercial consumers, and 5 percent lower for industrial consumers. The article correctly points out that states with retail competition have seen green power providers come in and serve the market demand for renewable energy. What the article fails to point out, though, is that it’s unclear how much of those rates decreases has come from real competition and how much has come from mandated rate freezes. Pennsylvania, for example, has frozen its rates over a 10-year phase-out period. Ten years? The interaction of this continuing relic of regulation with other regulatory hangovers, like standard offer prices or “price to beat”, and provider of last resort at discounted rates, stifle potential entry and lengthen the timeframe over which consumers and innovative suppliers actually reap benefits from retail competition. Here’s another story on the report.

Another study, this one by the energy consulting firm Xenergy, shows that retail electricity restructuring is proceeding, according to this article. Xenergy estimates that 36,000 megawatts of energy are now being competitively supplied, a 140 percent increase on the 15,000 megawatts supplied competitively in 2001. Texas accounts for 11,000 megawatts, and Illinois, Ohio, New York, and … California account for over 3,000 megawatts each. California? Must read the study …

And our neighbors to the north, in the Canadian province of Alberta, want to remove Calgary’s and Edmonton’s ability to set retail electricity rates. Alberta has been a shining star in electricity restructuring in North America, and according to the Center for Advancement of Energy Markets, Alberta has done the best job of retail electricity deregulation on the continent. Now it’s challenging the municipally-owned electric utilities.

These are all good things.

Lynne Kiesling is director of economic policy at Reason Foundation and senior lecturer in economics at Northwestern University.