As consumers we have an abundance of choices. We can choose among competing stores selling competing products. If we don’t want to drive to the store, we can go online and purchase what we need and have it delivered to our door.
We have choices among phone and Internet service providers, and choices among devices competing to provide phone and Internet services. We’ve come to take for granted choices among competing providers for just about every product and service we consume.
But there is one key area where choice is not an option for a majority of American consumers. While we have introduced competition into countless formerly regulated industries, from airlines and trucking to communications and information technology, when it comes to electricity we as a nation have been stuck at mid-stream in the transition to workable competition.
Beginning about 20 years ago various states began to slowly transition away from the traditional price-regulated monopoly utility construct and promote competition in the provision of electricity. In 18 states, the traditional utility company still owns the wires that deliver electricity to homes and businesses, but the electricity itself is provided by competing suppliers.
The number of consumers exercising their right to shop for competitive electricity supplies has grown substantially since 2008 in the 18 states that permit customers to choose their electricity supplier, despite this period being marked by flat electricity demand due to the economic slowdown. As of the close of 2011, nearly one out of every five kilowatt-hours of electricity in America was supplied by a competitive provider – even though customer choice is still denied to consumers in states representing 56% of total U.S. electricity load.
Electricity choice is thriving and growing in the states that allow retail competition, as is compellingly demonstrated by data compiled by DNV KEMA Energy & Sustainability and the U.S. Energy Information Administration. In more than a dozen states a majority of the electricity used by business and government customers is provided by non-utility, competitive suppliers. Residential customers are also rapidly joining the movement to electricity choice.
Since 2008, customer accounts served by competitive suppliers have grown more than 53%, from 8.7 million to 13.3 million in 2011. The total electricity load served competitively has grown 40% since 2008, from 488 million megawatt-hours to 685 million megawatt-hours in 2011, an increase of nearly 200 million megawatt-hours.
Since 2008, the total number of customer accounts served under choice arrangements grew by 53% to more than 13.3 million, including a dramatic increase in shopping by residential customers. Residential accounts served by competitive suppliers jumped more than 3.8 million to nearly 11 million, a 54% increase. The number of non-residential accounts served competitively increased by more than 800,000 to nearly 2.4 million – an increase of more than 50%.
Customers are choosing competitive electricity suppliers for much more than a comparatively attractive price. Competing suppliers are working with their customers to design contractual terms, information, innovative products and portfolio pricing to match the individual needs of customers.
Not only has there been substantial growth in customer migration from traditional monopoly-regulated electric supply to market-priced energy, key indicators demonstrate electric choice growth is sustainable. This stunning performance on the part of customers exercising competitive choice is creating pressure to provide greater freedom to electricity customers in states that have rolled back or limited retail competition.
While some resistance remains to customer choice, opponents of retail electric choice now rarely argue for rolling back choice in the 18 competitive jurisdictions, as any such efforts would be strongly opposed by the many satisfied shopping customers.
The surge in retail electric choice and the underlying reasons for that surge warrant renewed consideration of providing access to captive customers everywhere. As competitive choice models evolve, they can serve as a basis for a transition to choice in other states seeking favorable opportunities and increased benefits for their consumers.
Philip O’Connor is the former chairman of the Illinois Commerce Commission and noted expert on electricity competition issues. He is the author of Retail Electric Choice: Proven, Growing, Sustainable, a report prepared for the COMPETE Coalition, which represents nearly 630 electricity stakeholders, including customers, suppliers, traditional and clean energy generators, transmission owners, trade associations, technology innovators, environmental organizations and economic development corporations – all of whom support well-structured competitive electricity markets for the benefit of our country.
Dr. O’Connor’s analysis updates a similar report prepared for COMPETE in 2010, which found the competitive share of electricity sales volumes nationally grew from zero to 15% in the first decade since its inception, moving from a novel concept to a normal practice in the electricity business, as customers sought the flexibility and innovative pricing and services offered by competitive electricity suppliers.