Bills and Rates

Residential rates in deregulated states saw uptick

Residential rates in deregulated states increased by 0.3 cent more than they did in regulated states between 1997 and 2018, increasing from 10.1 to 14.8 in deregulated states versus 7.2 to 11.6 in regulated states, the American Public Power Association said in a 2018 update to its report, “Retail Electric Rates in Deregulated and Regulated States.”

The April 2019 report offers an updated comparison of retail rates in deregulated and regulated states, using data from the U.S. Department of Energy’s Energy Information Administration from 1997 through 2018. The report was prepared by Paul Zummo, Director, Policy Research and Analysis, at the Association.

The data show that between 1997 and 2018, increases in retail electric prices in states with deregulated electric markets and regulated states were about the same, though with a slightly higher percentage increase in regulated states.

According to the update, rates for both deregulated and regulated states increased steadily for the first half of the previous decade, then increased dramatically in deregulated states between 2005 and 2006 as more rate caps came off and natural gas prices increased. Rates in regulated states also increased, though at a slightly slower pace.

Due to the decline in natural gas prices, rates in deregulated states declined from 2008-2012. But rates in deregulated states began increasing again after 2012.

The report said that states that implemented retail choice electric plans were generally high cost states at the time. The hope was that competition by electric suppliers would result in lower rates. In 1997, the states in the deregulated category had weighted average rates that were 2.3 cents per kWh above rates in the regulated states (8.1 vs. 5.8).  But after 20 years that gap remains exactly the same (11.9 vs. 9.6).

“Though the gap has remained the same nominally and narrowed in percentage terms from a 40 to 24 percent differential, the original promise of greatly reduced prices has not materialized,” the update went on to say. “Moreover, most of the gains achieved in deregulated states has been in the commercial and industrial sectors.”

Since 2012, residential rates in deregulated states increased by almost twice the increase experienced in regulated states (1.4 versus 0.8).

The report said that the differential increase has occurred despite growing participation in retail choice for residential customers.

Unbundled sales, which refers to sales to customers choosing an alternative supplier, increased more than six-fold between 2006 and 2017 (13.6 million megawatt hours versus 92.9 million MWh).

However, a much higher percentage of commercial and industrial customers choose an alternative supplier than residential customers, most of whom remain with their default utility.