Energy Choice

on April 10, 2012 at 7:00 AM

“Choice,” perhaps better than any other word, describes the American marketplace for most consumer goods and services. From aisles-full of options in the grocery store, to automobile packages designed for almost every consumer preference, many Americans would say they do not lack for choices when it comes to most of their potential purchases.

There is one sector, however, in which choice has traditionally not been available – energy. Since the late 19th century, utility companies have been granted geographic monopolies to provide electricity and natural gas to consumers. For decades, the energy supplied to one’s home or business was pre-determined without any consumer input.

This began to change as policymakers started to understand that the utilities’ natural monopoly was not the provision of energy itself but rather the systems that delivered the energy. In the late 1970s, the federal government allowed non-utility companies to generate and sell electricity to utilities in wholesale markets. Over the next decade, federal and state governments took other steps to open the natural gas and electricity markets to competition. Beginning in the mid-1990s, a growing number of states began to allow non-utility companies (today’s competitive energy suppliers) to offer energy directly to consumers, while continuing to use the utilities’ pipes and wires to deliver that energy. State and federal policymakers have two major goals in restructuring energy markets: first, to give consumers control over their own energy decisions; and second, to encourage competition and innovation.

Today, in more than a dozen states, some form of competitive retail energy markets exist. The status of those markets varies widely; in some states, only commercial and industrial customers can exercise a choice. In others, choice is available solely for electricity or natural gas. Few markets are completely open to competition, but in an increasing number of jurisdictions consumers are being given a say in who supplies the electricity and natural gas that power, heat, and cool their homes and businesses.

States with the most competitive energy markets include Texas, Ohio, Pennsylvania, New York, Illinois, and Maryland. Typically, even after competition policies are put into place, retail suppliers cannot successfully enter into the marketplace until other regulatory decisions are made (such as lifting the non-market-based caps on the rates charged by utilities). The numbers of consumers switching to retail suppliers in these states have been substantial; in Pennsylvania, for example, switching rates range from nearly 30% of residential customers to more than 70% of industrial customers.

But energy choice is not available to every consumer, and it is worth asking why. For some states, like California, a more robust choice program existed in the past; structural problems with the markets and a number of bad actors resulted in policymakers returning to price-regulated energy models. In other states, low energy prices, from the widespread availability of hydroelectric power, for example, mean that there is little impetus from consumers to push for opening the markets – even if consumers could benefit from new products and services they may not even be aware exist. These can include fixed or variable prices, time-of-use rates, smart meters, renewable energy options, energy efficiency audits, and other value-added benefits.

Another concern is the fear that competition means “de-regulation.” This is not the case at all, however, any more than competition among grocery stores means that food safety standards are ignored, or that competition among mobile phone providers means truth-in-advertising laws no longer apply. Competitive energy suppliers must be licensed by the public utility commission of the state in which they operate, a license which can be revoked if the supplier violates any of the regulations governing its business and marketing practices. Consumers also have certain rights as energy customers; while these can vary slightly from state to state, there are several general protections that exist everywhere, including protection from unauthorized switching from one supplier to another, the guarantee of equal treatment by utilities to restore service after disruptions, and data privacy rules.

Energy choice is about empowering consumers to make informed energy decisions that best meet their individual needs. Whatever consumers might decide, having the opportunity to choose and staying informed about all the options available will ensure consumers make decisions that are right for them.

Frank Caliva III is a spokesperson for the American Coalition of Competitive Energy Suppliers (ACCES, intentionally pronounced like “access”), based in Washington, D.C.

ACCES is a group of retail natural gas and electricity suppliers who work to provide information about the benefits of competition, empowering consumers to make informed decisions that best meet their individual needs when purchasing energy from competitive suppliers. Policymakers, consumers and members of the media can visit to learn more about what energy choice is and offer specific information on the unique features of each state marketplace.