- Email: [email protected]
If Retail Competition Is So Good, Why Aren’t We Getting More?
Electricity Currents A Survey of Current Industry News and Developments
If Retail Competition Is So Good, Why Aren’t We Getting More? Competition, as anyone who’s been through Economics 101 would have been taught to attest, is good. When consumers can choose among multiple providers of a good or service, they tend to get lower costs and better service – at least, according to the textbooks. The sheer fact that consumers have the option to switch from one supplier to another in search of a lower price and/or better service quality is enough to result in both. Monopolies, on the other hand, are evil – as anyone who’s played the game of Monopoly knows. They tend to raise prices, skimp on quality, and simply not care when customers have no alternatives. Just ask anyone served by a poorly managed monopoly utility – or for that matter, Aeroflot, still enjoying virtually monopoly status within Russia. Don’t like the nonexistent service or high prices? Tough luck. Your only option is not to fly, which is hard to do in a country as big as Russia. The debate about the merits of retail competition in the electricity sector, or customer choice as it is sometimes called in the U.S., is not as simple as the
Continued on page 6
October 2015, Vol. 28, Issue 8
In Electricity Currents This Month: If Retail Competition Is So Good, Why Aren’t We Getting More? . . . . . . . . . . . . . . . 1 How Much Is It Worth to Be Connected to Grid?. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Distributed Solar: Evil Drag on Network, Or Misunderstood Blessing? . . . . . . . . . . . . . 4 Electricity Currents is compiled from the monthly newsletter EEnergy Informer published by Fereidoon P. Sioshansi, President of Menlo Energy Economics, a consultancy based in San Francisco. He can be reached at [email protected].
How Much Is It Worth To Be Connected to Grid? Consumers have grudgingly gotten accustomed to paying fixed monthly fees for a variety of services, including garbage pickup, cable TV, telephone landlines (for those who still have them), mobile phones (which typically include a significant fixed price component), Netflix, the local exercise gym, etc. Many charge a flat fee – usually based on capacity – or a flat fee plus a variable component – usually based on volume. The logic of the fixed component, to the extent that there is one, is to cover the fixed costs of service. For many businesses – say, cable TV – virtually all costs are fixed, which means that spreading 1
drop to 10 percent from the current 30 percent in 2017 and possibly expire thereafter? Hughes called the expiration of the ITC ‘‘irrelevant.’’ That may be an overstatement, but the gist of his argument is clear. Hughes, like many others, says community solar is where a lot of action will be. It will give consumers, many of whom may not have a viable option to install their own solar panels, an opportunity to share in a low-cost, large-scale scheme. Within the U.S. utility industry, many executives are beginning not only to accept but to internalize the rapid transformation of the power sector. Speaking at the same convention, Ted Craver, CEO of Edison International, the parent of Southern California Edison Company (SCE), said:
Southern California Edison is focused on creating a modern, bidirectional grid that can accommodate California’s growing solar generation capacity any time of day,
adding, If a customer spends $15,000 to $20,000 to put solar panels on his roof, then the utility better be prepared to take on the electricity when the customer has excess and, in turn, provide electricity when he needs more. If SCE can’t accommodate that customer, the customer will invest a little more money on energy storage and disconnect from the grid completely. Then we have lost a customer for good.
Utterances such as this would have been unthinkable a few years earlier. They are rapidly becoming commonplace, and not just in the U.S.& http://dx.doi.org/10.1016/j.tej.2015.09.014
If Retail Competition Is So Good, Why Aren’t We Getting More? Continued from page 1 Aeroflot example suggests, though. Since electric service tends to be heavily regulated when provided by a monopoly company, the prices – and to a lesser extent service quality – are closely watched. At least that is the theory, assuming a vigilant, resourceful, and competent regulator, which of course is not always the case. Even if service quality is mediocre to poor, regulated prices tend to be reasonable, that is, more or less commensurate with the cost of providing the service and the risks of doing business in an essentially riskless environment. That, in a nutshell is the mantra of every regulator, certainly in the U.S., where regulated prices are supposed to be just and reasonable – a highly loaded and subjective term. In the 1990s, following the success of other pioneering countries, notably in England and Wales, regulators in several states in the U.S. – under pressure mostly from large industrial and commercial consumers – decided that the time had
6
arrived to restructure the power sector, introduce competition at both the wholesale and retail levels, and let market discipline and the forces of competition determine the outcome among competing suppliers. The expectation was tangible savings to consumers and improved service quality – just as the teachers had promised in Economics 101. At one point in the late 1990s, dozens of states had either introduced competition or were planning to do so. There was even interest at the federal level to make it the law of the land. The outcome could have been different had it not been for what happened in California and Enron – remember? The 2000–01 California electricity crisis not only put an end to competition in the Golden State, but sent shock waves across the country, and beyond. Many regulators decided the devil they knew – regulated monopolies with their inherent inefficiencies and customer indifference – were The Electricity Journal
better than the devil they didn’t know – a possible repeat of what happened in California. Only Texas was brave enough to proceed with a fully competitive retail market, introduced in 2002 and, by all measures, it has proved to be the best working competitive retail market in the U.S. and, by some measures, in the world. Overnight, retail competition became a dirty word. Several states that were about to introduce retail choice decided to hold off. It has taken over a decade for memories of the California disaster – by some accounts costing over $30 billion all told – to fade. In the last few years, interest in retail competition has revived in some circles and has made progress in a few states that are gradually expanding the choices available to consumers. Two recent reports suggest that well-designed retail competition does indeed work and saves consumers a bundle. Whether service quality improves or consumers actually get better offerings can be debated – as further described below. The first report is the 2015 edition of the Annual Baseline Assessment of Choice in Canada and the U.S. (ABACCUS), annually produced since 2007 by DEFG. According to its lead author, Nat Treadway, 18 jurisdictions in the U.S. and Canada offer customer choice to residential and 19 to commercial & industrial consumers under different rules and restrictions. In the residential market, Eligibility extends to at least 39.2 million residential accounts. Of these, 17.1 million (44 percent) received generation service (power only) or comprehensive electric service from a competitive retail energy provider or REP by the end of 2014. Most retail access jurisdictions primarily rely on a transaction between each residential consumer and his or her chosen competitive retail energy provider. Three states primarily rely on municipal aggregation of residential customers to secure competitive power contracts. Several states place significant restrictions on the scope of retail electric competition.
Not surprisingly, there are significant differences in terms of the outcome as reflected in the scores, with Texas on top, as it has been since it opened its market in 2002. For the C&I market, ABACCUS says, October 2015, Vol. 28, Issue 8
Nineteen jurisdictions in North America allow direct retail access to significant numbers of commercial and industrial customers. . . . Commercial and industrial customers negotiate customized energy service solutions and contract terms. These businesses acquire electricity just as they contract for other goods and services, reflecting their risk tolerance and taking into account many other issues: their production lines and energyconsuming devices; the operating schedule and ability of interrupt certain energy-consuming devices with little notice; their corporate sustainability goals; the level of inhouse energy management expertise; their energy-price risk tolerance; the significant of electricity costs to overall operating costs; the characteristics of the industry in which they operate; etc. Large energy consumers are sophisticated and they are fully able to manage and sign a contract that best suits their operations.
What can we make of this confusing picture, a fact acknowledged by ABACCUS? Different U.S. states and Canadian provinces have taken different paths, reflecting their different goals, priorities and starting points. As a result, North America has something of a patchwork of laws governing the electric sector. While the industry shares many features in different places, each jurisdiction has a few unique features. The journey is still young and subject to further reform.
Not only is the picture uneven, all the news is not necessarily good. For example, In seven states, net switching declined in 2014. That is, in these states, more customers returned to default service than moved from default service to competitive service during the year. This was the result of market price volatility, policies regarding default service and the relationship between market prices and the default service rate. Net switching statistics are a compelling measure for anyone interested in the performance of retail electric markets. Another simple measure is the average electricity price in each state or province. People often draw conclusions about the success or failure of electricity restructuring based on one of these two metrics, although both measures have significant limitations.
The report describes why some markets seem to function better than others, and – following years of experience and experimentation – what are the important attributes of service that most appeal to consumers. What can we learn from the North American retail markets? According to Treadway, ‘‘Workable 7
retail electric competition can thrive under a range of market structures and policies. Pennsylvania, Illinois and Texas – just to name a few – demonstrate there is more than one way to bring a choice of energy suppliers, new and innovative services, and lower prices to retail consumers.’’ The ABACCUS report adds, The basics are well understood. Workable retail electric competition requires a clear definition of the regulated monopoly services, an unbundling of existing rates and services, supportive billing options, consumer education, consumer protection, monitoring and analysis, and an ongoing commitment to policy reform. The phasing out of default service is the single most important reform that will increase market confidence and participation because with that action, a jurisdiction makes a clear statement of intent.
Another report, Evolution of the Revolution: The Sustained Success of Retail Electricity Completion, by Philip O’Conner and Erin O’Connell-Diaz, takes a more generous view of the same picture. As they see it, customer choice, when it is allowed, is ‘‘enthusiastically embraced’’ by consumers and delivers tangible benefits. The authors refute claims by opponents who claim that retail customer choice would ‘‘increase prices and price volatility and decrease generation investment and electric reliability.’’ The growth of residential customer accounts since 2003, they note, is the best measure of the popularity of retail choice. The authors note that, ‘‘the data paint a compelling portrait of an highly successful public policy adopted by 13 states and DC nearly two decades ago in favor of competition in electricity generation and the right of customers to choose their electricity supplier. Delivery services continue to be provided local, regulated utilities.’’ Moreover, they claim, ‘‘Overall, price trends have been more favorable for consumers of all types in the Customer Choice Jurisdictions than have price trends in the Monopoly States. In the group of 14 Customer Choice Jurisdictions average weighted prices for all customer classes fell against inflation while price rose relative to inflation in the 35 Monopoly States.’’ 8
The authors highlight Illinois as a successful case by comparing it to two neighboring states of Wisconsin and Michigan as proof: The findings in this report show extraordinary performance of competition in Illinois. Of the 49 jurisdictions in the study, Illinois had the lowest 1997–2014 rate of price increase (15.2 percent) while its neighbor, Wisconsin and its monopoly industry model, had the highest (105.5 percent). Taken together, consumers in Wisconsin paid $5.6 billion more for electricity in the weak economic period 2009–2014 than if they had paid the competitive prices paid by Illinois consumers. Michigan consumers fared even worse, with a premium over market prices of $10.6 billion during the same period. Illinois also increased generation production by 50 percent and is now, by far, the Midwest’s primary electricity producer and exporter.
Not everyone, however, is convinced that the purported gains outweigh the risks and/or some of the evils of retail competition. Among the controversies in the debate is whether electricity is in fact a commodity, as in frozen concentrated orange juice, or is a critical service with multiple attributes, such as how it is generated, from what resources, and used to what end? According to those who see electricity as a critical social service, it is more than an undifferentiated kWh which consumers select based on lowest unit price. Retail choice, in their view, degrades electric service to a mere commodity, and encourages retailers and consumers to focus on a single attribute – cents/kWh – which leads to sub-optimal outcome from a societal and environmental perspective. These people find flaws in the retail choice model, at least as it has evolved in the U.S. Some prefer the stodgy regulated utility model provided it is guided by an enlightened regulator – who, for example, encourages energy efficiency and distributed generation, decouples utility volume from profits, establishes and enforces aggressive renewable content requirements, among others. Who needs competition when you can get all these extras without even asking for them? The Electricity Journal
Before you shake your head in total disbelief, or disgust, consider the fact that retail choice, even in highly ranked markets like Texas, has resulted in a number of perverse service plans, for example, options that encourage more consumption to get lower per-unit costs. Ralph Cavanagh and Amanda Levin of the Natural Resources Defense Council are among those who question the purported benefits of retail competition. In a chapter to appear in a forthcoming book edited by this section’s editor titled, Rehabilitating Retail Electricity Markets: Pitfalls and Opportunities, they write: For those committed to a clean energy future, utilities remain the most important investors and integrators. . . . Regulators exploring ways to redefine ‘‘the utility of the future’’ should be cautious about claims that commodity markets and non-utility actors can replace utilities as long-term system planners, investors and resource integrators.’’
Regarding consumer choice, Cavanagh and Levin add, Retail electricity choices can benefit individual customers who are proactive and informed, but on the whole, the retail market produces outcomes that are not socially desirable. Regulators in every state have had to intervene to ensure reliability and promote clean energy, and the
October 2015, Vol. 28, Issue 8
greatest progress in energy-saving, innovative customer pricing has originated in regulatory decisions. Abundant experience shows that retail competition is not a promising route to a clean energy future (emphasis added).
More important, looking into the rapid evolution of the industry from a one way conduit of undifferentiated electrons to a much more complex service integrator, they write, Increasing penetration of DERs (distributed energy resources) and other energy management technologies will disrupt the current utility business model and require changes in both utility thinking and grid management. As more customers gain control over their energy use, the importance of the utility as a commodity trader diminishes. However, the utility’s role in overseeing the local grid and providing energy services becomes more critical. In terms of demonstrated progress on energy efficiency, renewable energy, and the grid enhancements that add value to both, direct access has failed to deliver.
In short, Cavanagh and Levin are not sold on the competitive retail market, despite the claims of such analysts as O’Conner and O’Connell-Diaz. The bottom line is how one views electric service, its price, reliability and how it is generated and delivered.& http://dx.doi.org/10.1016/j.tej.2015.09.012
9
If Retail Competition Is So Good, Why Aren’t We Getting More? Competition, as anyone who’s been through Economics 101 would have been taught to attest, is good. When consumers can choose among multiple providers of a good or service, they tend to get lower costs and better service – at least, according to the textbooks. The sheer fact that consumers have the option to switch from one supplier to another in search of a lower price and/or better service quality is enough to result in both. Monopolies, on the other hand, are evil – as anyone who’s played the game of Monopoly knows. They tend to raise prices, skimp on quality, and simply not care when customers have no alternatives. Just ask anyone served by a poorly managed monopoly utility – or for that matter, Aeroflot, still enjoying virtually monopoly status within Russia. Don’t like the nonexistent service or high prices? Tough luck. Your only option is not to fly, which is hard to do in a country as big as Russia. The debate about the merits of retail competition in the electricity sector, or customer choice as it is sometimes called in the U.S., is not as simple as the
Continued on page 6
October 2015, Vol. 28, Issue 8
In Electricity Currents This Month: If Retail Competition Is So Good, Why Aren’t We Getting More? . . . . . . . . . . . . . . . 1 How Much Is It Worth to Be Connected to Grid?. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Distributed Solar: Evil Drag on Network, Or Misunderstood Blessing? . . . . . . . . . . . . . 4 Electricity Currents is compiled from the monthly newsletter EEnergy Informer published by Fereidoon P. Sioshansi, President of Menlo Energy Economics, a consultancy based in San Francisco. He can be reached at [email protected].
How Much Is It Worth To Be Connected to Grid? Consumers have grudgingly gotten accustomed to paying fixed monthly fees for a variety of services, including garbage pickup, cable TV, telephone landlines (for those who still have them), mobile phones (which typically include a significant fixed price component), Netflix, the local exercise gym, etc. Many charge a flat fee – usually based on capacity – or a flat fee plus a variable component – usually based on volume. The logic of the fixed component, to the extent that there is one, is to cover the fixed costs of service. For many businesses – say, cable TV – virtually all costs are fixed, which means that spreading 1
drop to 10 percent from the current 30 percent in 2017 and possibly expire thereafter? Hughes called the expiration of the ITC ‘‘irrelevant.’’ That may be an overstatement, but the gist of his argument is clear. Hughes, like many others, says community solar is where a lot of action will be. It will give consumers, many of whom may not have a viable option to install their own solar panels, an opportunity to share in a low-cost, large-scale scheme. Within the U.S. utility industry, many executives are beginning not only to accept but to internalize the rapid transformation of the power sector. Speaking at the same convention, Ted Craver, CEO of Edison International, the parent of Southern California Edison Company (SCE), said:
Southern California Edison is focused on creating a modern, bidirectional grid that can accommodate California’s growing solar generation capacity any time of day,
adding, If a customer spends $15,000 to $20,000 to put solar panels on his roof, then the utility better be prepared to take on the electricity when the customer has excess and, in turn, provide electricity when he needs more. If SCE can’t accommodate that customer, the customer will invest a little more money on energy storage and disconnect from the grid completely. Then we have lost a customer for good.
Utterances such as this would have been unthinkable a few years earlier. They are rapidly becoming commonplace, and not just in the U.S.& http://dx.doi.org/10.1016/j.tej.2015.09.014
If Retail Competition Is So Good, Why Aren’t We Getting More? Continued from page 1 Aeroflot example suggests, though. Since electric service tends to be heavily regulated when provided by a monopoly company, the prices – and to a lesser extent service quality – are closely watched. At least that is the theory, assuming a vigilant, resourceful, and competent regulator, which of course is not always the case. Even if service quality is mediocre to poor, regulated prices tend to be reasonable, that is, more or less commensurate with the cost of providing the service and the risks of doing business in an essentially riskless environment. That, in a nutshell is the mantra of every regulator, certainly in the U.S., where regulated prices are supposed to be just and reasonable – a highly loaded and subjective term. In the 1990s, following the success of other pioneering countries, notably in England and Wales, regulators in several states in the U.S. – under pressure mostly from large industrial and commercial consumers – decided that the time had
6
arrived to restructure the power sector, introduce competition at both the wholesale and retail levels, and let market discipline and the forces of competition determine the outcome among competing suppliers. The expectation was tangible savings to consumers and improved service quality – just as the teachers had promised in Economics 101. At one point in the late 1990s, dozens of states had either introduced competition or were planning to do so. There was even interest at the federal level to make it the law of the land. The outcome could have been different had it not been for what happened in California and Enron – remember? The 2000–01 California electricity crisis not only put an end to competition in the Golden State, but sent shock waves across the country, and beyond. Many regulators decided the devil they knew – regulated monopolies with their inherent inefficiencies and customer indifference – were The Electricity Journal
better than the devil they didn’t know – a possible repeat of what happened in California. Only Texas was brave enough to proceed with a fully competitive retail market, introduced in 2002 and, by all measures, it has proved to be the best working competitive retail market in the U.S. and, by some measures, in the world. Overnight, retail competition became a dirty word. Several states that were about to introduce retail choice decided to hold off. It has taken over a decade for memories of the California disaster – by some accounts costing over $30 billion all told – to fade. In the last few years, interest in retail competition has revived in some circles and has made progress in a few states that are gradually expanding the choices available to consumers. Two recent reports suggest that well-designed retail competition does indeed work and saves consumers a bundle. Whether service quality improves or consumers actually get better offerings can be debated – as further described below. The first report is the 2015 edition of the Annual Baseline Assessment of Choice in Canada and the U.S. (ABACCUS), annually produced since 2007 by DEFG. According to its lead author, Nat Treadway, 18 jurisdictions in the U.S. and Canada offer customer choice to residential and 19 to commercial & industrial consumers under different rules and restrictions. In the residential market, Eligibility extends to at least 39.2 million residential accounts. Of these, 17.1 million (44 percent) received generation service (power only) or comprehensive electric service from a competitive retail energy provider or REP by the end of 2014. Most retail access jurisdictions primarily rely on a transaction between each residential consumer and his or her chosen competitive retail energy provider. Three states primarily rely on municipal aggregation of residential customers to secure competitive power contracts. Several states place significant restrictions on the scope of retail electric competition.
Not surprisingly, there are significant differences in terms of the outcome as reflected in the scores, with Texas on top, as it has been since it opened its market in 2002. For the C&I market, ABACCUS says, October 2015, Vol. 28, Issue 8
Nineteen jurisdictions in North America allow direct retail access to significant numbers of commercial and industrial customers. . . . Commercial and industrial customers negotiate customized energy service solutions and contract terms. These businesses acquire electricity just as they contract for other goods and services, reflecting their risk tolerance and taking into account many other issues: their production lines and energyconsuming devices; the operating schedule and ability of interrupt certain energy-consuming devices with little notice; their corporate sustainability goals; the level of inhouse energy management expertise; their energy-price risk tolerance; the significant of electricity costs to overall operating costs; the characteristics of the industry in which they operate; etc. Large energy consumers are sophisticated and they are fully able to manage and sign a contract that best suits their operations.
What can we make of this confusing picture, a fact acknowledged by ABACCUS? Different U.S. states and Canadian provinces have taken different paths, reflecting their different goals, priorities and starting points. As a result, North America has something of a patchwork of laws governing the electric sector. While the industry shares many features in different places, each jurisdiction has a few unique features. The journey is still young and subject to further reform.
Not only is the picture uneven, all the news is not necessarily good. For example, In seven states, net switching declined in 2014. That is, in these states, more customers returned to default service than moved from default service to competitive service during the year. This was the result of market price volatility, policies regarding default service and the relationship between market prices and the default service rate. Net switching statistics are a compelling measure for anyone interested in the performance of retail electric markets. Another simple measure is the average electricity price in each state or province. People often draw conclusions about the success or failure of electricity restructuring based on one of these two metrics, although both measures have significant limitations.
The report describes why some markets seem to function better than others, and – following years of experience and experimentation – what are the important attributes of service that most appeal to consumers. What can we learn from the North American retail markets? According to Treadway, ‘‘Workable 7
retail electric competition can thrive under a range of market structures and policies. Pennsylvania, Illinois and Texas – just to name a few – demonstrate there is more than one way to bring a choice of energy suppliers, new and innovative services, and lower prices to retail consumers.’’ The ABACCUS report adds, The basics are well understood. Workable retail electric competition requires a clear definition of the regulated monopoly services, an unbundling of existing rates and services, supportive billing options, consumer education, consumer protection, monitoring and analysis, and an ongoing commitment to policy reform. The phasing out of default service is the single most important reform that will increase market confidence and participation because with that action, a jurisdiction makes a clear statement of intent.
Another report, Evolution of the Revolution: The Sustained Success of Retail Electricity Completion, by Philip O’Conner and Erin O’Connell-Diaz, takes a more generous view of the same picture. As they see it, customer choice, when it is allowed, is ‘‘enthusiastically embraced’’ by consumers and delivers tangible benefits. The authors refute claims by opponents who claim that retail customer choice would ‘‘increase prices and price volatility and decrease generation investment and electric reliability.’’ The growth of residential customer accounts since 2003, they note, is the best measure of the popularity of retail choice. The authors note that, ‘‘the data paint a compelling portrait of an highly successful public policy adopted by 13 states and DC nearly two decades ago in favor of competition in electricity generation and the right of customers to choose their electricity supplier. Delivery services continue to be provided local, regulated utilities.’’ Moreover, they claim, ‘‘Overall, price trends have been more favorable for consumers of all types in the Customer Choice Jurisdictions than have price trends in the Monopoly States. In the group of 14 Customer Choice Jurisdictions average weighted prices for all customer classes fell against inflation while price rose relative to inflation in the 35 Monopoly States.’’ 8
The authors highlight Illinois as a successful case by comparing it to two neighboring states of Wisconsin and Michigan as proof: The findings in this report show extraordinary performance of competition in Illinois. Of the 49 jurisdictions in the study, Illinois had the lowest 1997–2014 rate of price increase (15.2 percent) while its neighbor, Wisconsin and its monopoly industry model, had the highest (105.5 percent). Taken together, consumers in Wisconsin paid $5.6 billion more for electricity in the weak economic period 2009–2014 than if they had paid the competitive prices paid by Illinois consumers. Michigan consumers fared even worse, with a premium over market prices of $10.6 billion during the same period. Illinois also increased generation production by 50 percent and is now, by far, the Midwest’s primary electricity producer and exporter.
Not everyone, however, is convinced that the purported gains outweigh the risks and/or some of the evils of retail competition. Among the controversies in the debate is whether electricity is in fact a commodity, as in frozen concentrated orange juice, or is a critical service with multiple attributes, such as how it is generated, from what resources, and used to what end? According to those who see electricity as a critical social service, it is more than an undifferentiated kWh which consumers select based on lowest unit price. Retail choice, in their view, degrades electric service to a mere commodity, and encourages retailers and consumers to focus on a single attribute – cents/kWh – which leads to sub-optimal outcome from a societal and environmental perspective. These people find flaws in the retail choice model, at least as it has evolved in the U.S. Some prefer the stodgy regulated utility model provided it is guided by an enlightened regulator – who, for example, encourages energy efficiency and distributed generation, decouples utility volume from profits, establishes and enforces aggressive renewable content requirements, among others. Who needs competition when you can get all these extras without even asking for them? The Electricity Journal
Before you shake your head in total disbelief, or disgust, consider the fact that retail choice, even in highly ranked markets like Texas, has resulted in a number of perverse service plans, for example, options that encourage more consumption to get lower per-unit costs. Ralph Cavanagh and Amanda Levin of the Natural Resources Defense Council are among those who question the purported benefits of retail competition. In a chapter to appear in a forthcoming book edited by this section’s editor titled, Rehabilitating Retail Electricity Markets: Pitfalls and Opportunities, they write: For those committed to a clean energy future, utilities remain the most important investors and integrators. . . . Regulators exploring ways to redefine ‘‘the utility of the future’’ should be cautious about claims that commodity markets and non-utility actors can replace utilities as long-term system planners, investors and resource integrators.’’
Regarding consumer choice, Cavanagh and Levin add, Retail electricity choices can benefit individual customers who are proactive and informed, but on the whole, the retail market produces outcomes that are not socially desirable. Regulators in every state have had to intervene to ensure reliability and promote clean energy, and the
October 2015, Vol. 28, Issue 8
greatest progress in energy-saving, innovative customer pricing has originated in regulatory decisions. Abundant experience shows that retail competition is not a promising route to a clean energy future (emphasis added).
More important, looking into the rapid evolution of the industry from a one way conduit of undifferentiated electrons to a much more complex service integrator, they write, Increasing penetration of DERs (distributed energy resources) and other energy management technologies will disrupt the current utility business model and require changes in both utility thinking and grid management. As more customers gain control over their energy use, the importance of the utility as a commodity trader diminishes. However, the utility’s role in overseeing the local grid and providing energy services becomes more critical. In terms of demonstrated progress on energy efficiency, renewable energy, and the grid enhancements that add value to both, direct access has failed to deliver.
In short, Cavanagh and Levin are not sold on the competitive retail market, despite the claims of such analysts as O’Conner and O’Connell-Diaz. The bottom line is how one views electric service, its price, reliability and how it is generated and delivered.& http://dx.doi.org/10.1016/j.tej.2015.09.012
9