Electricity Retail

The landscape of deregulation of electricity retail in the U.S. is varied.

Electricity retail choice, introduced as part of electricity restructuring, allows consumers to choose their electricity supplier. The landscape of retail choice across the U.S. is diverse, ranging from states that provide all consumers retail options to regulated states that do not offer such choices (National Governors Association; Figure 1).

Figure 1. Map of states with retail electricity choice. Data from the American Coalition of Competitive Energy Suppliers

Thirteen states and Washington DC have restructured their electricity markets and offer retail choice to residential and non-residential consumers. These states have required utilities to offer Provider of Last Resort or “default” service for customers who do not select an electricity retail supplier (Morey & Kirsh 2016).

States with partial retail choice have limitations on customers’ ability to choose their power supplier. CA, OR, GA, NV and VA allow certain non-residential consumers to choose their electricity provider. However, VA also allows residential customers to choose their electricity provider if they are shopping for 100% renewables and their local utility does not offer this option (Dominion Energy). In MI no more than 10% of the state’s total electricity consumption can come from an alternative electricity supplier, , a company that competes with the local utility to provide power (Michigan Public Service Commission).

In states with no retail choice, including MO, electricity prices are determined by the state utility regulatory commissions and consumers can only get their power supply from one utility company (National Conference of State Legislatures 2022).

While states have implemented retail choice differently, there are two key phases in states’ transition from regulated to restructuring their electricity market for retail choice (Rose et al. 2024):

• Beginning transition to retail choice by allowing competitive electricity suppliers to offer rates to customers, often with initial discounts based on regulated rates and a temporary rate freeze.
• End of transition, with customers paying prices determined by the market.

The benefits of retail choice for consumers remain unclear.

The goal of retail choice is to enhance competition, provide consumers with choices, and lower prices by transitioning to market-based pricing (Chen 2019). However, the effect of deregulating retail on consumer prices remains ambiguous.

Some studies indicate lower prices with retail choice, and retail competition correlated to lower prices for residential, commercial, and industrial customers, with effects vary over time (Bowen et al. 2023; Joskow 2006; Ros 2017). However, others found that after implementing retail choice, average electricity rates did not change from 1997 to 2012 (Borenstein & Bushnell 2015). Others suggest that states with retail choice tend to have higher electricity consumer prices compared to those in regulated states (Chen 2019; MacKay & Mercadal 2020; Rose et al. 2024). Evidence of consistent benefits to consumers from retail choice is inconclusive (Blumsack et al. 2008).

When states implement legislation for price freezes or mandatory price cuts, adopting retail choice leads to an initial price reduction (Bowen et al. 2023; Rose et al. 2024). Savings for residential customers were approximately $55/year, but industrial customers did not see any savings (Hill 2023). After restructured states ended price freezes, electricity rates increased by approximately 1.2 ¢/kWh in retail choice states compared to no-retail choice states in subsequent years (Rose et al. 2024).

Study designs and other factors limit conclusions.

The inability to isolate retail choice, incomplete data, and other factors that impact electricity prices limit the scope of analysis and effects of deregulating retail (Bowen et al. 2023; Rose et al. 2024).

States with retail choice showed sensitivity to natural gas fluctuation (Bowen et al. 2023; Hill 2023; Rose et al. 2024). Changes in natural gas prices are passed through to consumers more directly in restructured states, reflected in electricity prices (Hill 2023). After implementing retail choice, retail electricity prices rose by 0.35 ¢/kWh for each $1 increase per 1000 ft³ of natural gas—this effect doubled after fully adopting retail choice policies (Rose et al. 2024).

Participation of residential customers in states with retail choice tends to be low, and has stabilized at around 26% in recent years (Energy Information Administration 2023). Some states such as OH and MA have seen growth in customers, but IL and CT have experienced declines in participation.

References

American Coalition of Competitive Energy Suppliers (n.a.) State by State Energy Choice Map. Retrieved Nov 2024. https://competitiveenergy.org/consumer-tools/state-by-state-links/

Blumsack S, Lave L, Apt J (2008, August) Electricity prices and costs under regulation and restructuring. In 2008 Industry Studies Conference Paper. http://dx.doi.org/10.2139/ssrn.1134953

Borenstein S, Bushnell J (2000) Electricity restructuring: deregulation or reregulation. Regulation, 23, 46. https://faculty.haas.berkeley.edu/borenste/download/regulation00elecrestruc.pdf

Borenstein S, Bushnell J (2015) The US electricity industry after 20 years of restructuring. Annu. Rev. Econ., 7(1): 437-463. https://doi.org/10.1146/annurev-economics-080614-115630

Bowen WM, Hil N, Thomas A, Liu R, Henning M (2023) Consumer price effects of deregulated electric generation markets: The case of Ohio and the midwestern United States. Utilities Policy, 83: 101615. https://doi.org/10.1016/j.jup.2023.101615

Chen, WM (2019) The US electricity market twenty years after restructuring: A review experience in the state of Delaware. Utilities Policy, 57, 24-32. https://doi.org/10.1016/j.jup.2019.02.002

Dominion Energy (nd). Energy Choice. https://www.dominionenergy.com/virginia/rates-and-tariffs/energy-choice

Energy Information Administration (2023) Residential retail electric choice participation rate has leveled off since 2019. https://www.eia.gov/todayinenergy/detail.php?id=55820

Hill A (2023) Price freezes and gas pass-through: an estimation of the price impact of electricity market restructuring. Journal of Regulatory Economics, 63: 87–116. https://doi.org/10.1007/s11149-023-09459-w

Joskow PL (2006) Markets for Power in the United States: An Interim Assessment. Energy Journal. https://doi.org/10.5547/ISSN0195-6574-EJ-Vol27-No1-2

MacKay A, Mercadal I (2022) Deregulation, Market Power, and Prices: Evidence from the Electricity Sector. MIT CEEPR Working Paper 2022-008, April 2022. https://climate.mit.edu/posts/deregulation-market-power-and-prices-evidence-electricity-sector

Michigan Public Service Commission (n.a) Electric Customer Choice. https://www.michigan.gov/mpsc/consumer/electricity/choice

Michigan Public Service Commission (2023) Status of Electric Competition in Michigan. Link

Morey MJ, Kirsch LD (2016) Retail choice in electricity: What have we learned in 20 years?. Electric Markets Research Foundation. https://hepg.hks.harvard.edu/files/hepg/files/retail_choice_in_electricity_for_emrf_final.pdf

National Conference of State Legislatures (NCSL) (2022) Electricity Markets: A Primer for State Legislators. Electricity Markets: A Primer for State Legislators

National Governors Association (NGA) (n.a.) Electricity markets - 101. www.nga.org/electricty-markets

Ros AJ (2017) An Econometric Assessment of Electricity Demand in the United States Using Utility-specific Panel Data and the Impact of Retail Competition on Prices. The Energy Journal, 38(4), 73-100. https://doi.org/10.5547/01956574.38.4.aros

Rose K, Tarufelli B, Upton, GB (2024) Retail Electricity Market Restructuring and Retail Rates. The Energy Journal, 45(1): 1-49. https://doi.org/10.5547/01956574.45.1.kros