Customers in Deregulated States Pay More for Electricity

May 18, 2015

Press Release

Arlington, Va., May 18, 2015—After nearly two decades of retail and wholesale electric market restructuring, the promise of reduced electricity rates has failed to materialize. In fact, customers in states with retail choice programs located within electric markets operated by Regional Transmission Organizations (RTOs) are now paying more for their electricity than they did in 1997, as a new American Public Power Association (APPA) report, 2014 Retail Electric Rates in Deregulated and Regulated States, shows.

In 2014, customers in deregulated states paid 12.7 cents per kWh — 3.3 cents per kWh above the 9.4 cents per kWh paid by customers in regulated states.

“Policymakers who implemented electric utility restructuring starting in the 1990s hoped to reduce electricity rates through increased wholesale and retail competition. As APPA’s latest report shows, the reality after nearly 20 years is much different. This should be a wake-up call for us all. Simply saying that we have markets and that they are competitive does not make it so,” said APPA President and CEO Sue Kelly.

States that implemented retail choice electric plans had high electricity rates and it was hoped that competition among electric suppliers would result in lower rates. However, the retail choice experience — combined with the divestiture of utility generating assets, and the exposure of retail consumers to wholesale rates set in RTO markets — has resulted in an increasing gap.

Elise Caplan, manager, electric market analysis at APPA, explained that RTO-operated mandatory capacity markets in the New York, New England and PJM RTOs, make the situation worse. In 1997, retail rates in deregulated states within these RTOs with capacity markets were 3.5 cents per kWh higher than rates in regulated states. In 2014, that gap grew to 4.1 cents — an increase of 0.6 cents per kWh. Such an increase in costs is hard to justify, especially when these markets do not provide greater resource adequacy or reliability than the markets in states with lower rates.

The report shows rate differentials for regulated vs. deregulated states by RTO markets region — ISO New England, PJM, NYISO, MISO, and the Western states.

Given the revelations of this report and long-standing concerns with the failure of capacity markets to perform, APPA welcomes the recent introduction of Senate and House energy bills with capacity market provisions.

Senate Energy and Natural Resources Chairman Lisa Murkowski (R-AK) introduced S. 1222, the Continuity of Electric Capacity Resources Act calling for tariff and other amendments if certain enumerated objectives are not being addressed by the capacity markets.

S. 1272 was introduced by Senator Edward Markey (D-MA) and would require the Government Accountability Office (GAO) to conduct a study on the effects of forward capacity auctions and other capacity mechanisms on consumer prices, generation, and competition in energy markets.

S. 1222 and S. 1272, in addition to multiple other bills, will be addressed at a Senate Committee on Energy and Natural Resources hearing on Tuesday, May 19 at 10 AM. Sue Kelly, APPA’s president and CEO, will testify at the hearing.