Retail power rates before and after retail restructuring

How have retail power prices changed due to reforms enabling customer choice of electric power suppliers? Here is a chart summarizing average changes before and after 1997, the year the first state began to reform.

Source: Presentation by Brattle Group economist Johannes Pfeifenberger to the National Council of State Legislators Energy Policy Forum, Dec. 6, 2016).

Prior posts have discussed the effects of allowing electric power customers to choose their own electric suppliers (here and here). Many states initiated reforms to allow customer choice explicitly to bring retail power prices down, so many assessments of reform have been concentrated on the price effects.

It seems like an easy task to compare prices before reform and prices after, but easy comparisons can be misleading because they ignore other influences on power prices not directly related to allowing customer choice. For example, natural gas prices have seen dramatic ups and downs over the last 20 years and those fuel price changes will affect retail power prices. We would only want to credit retail price reforms for the benefits of low natural gas prices (or blame them for the burden of high natural gas prices) if the reforms themselves caused those price changes.

Wholesale market reforms may have enabled growth in natural gas generation capacity, but it does not seem that retail customer choice independently has increased demand or otherwise directly affected natural gas markets. Instead, the fracking-driven boom in supply and, more recently, increasing exports of LNG seem to have driven natural gas price trends over the past two decades.

So I’ll repeat the warning from one of the previous blog posts which also applies here:
“[T]he chart above isn’t a sophisticated analysis of the causes of electricity rate changes. It would take a lot more advanced analysis to solidly back the claim that competition produced lower rates.”

Some economists and data analysts have sought to produce the necessary analysis. I’ll discuss some of these works in future posts.

Surprised to see NFIB promoting electric monopolies in Arizona, especially as competition is bringing rates down for small businesses elsewhere

“Over the period [2001-2020], Arizona’s electric rates for commercial customers have increased 2.74¢/kWh (a 37% increase over 2001 rates) whereas similar rates in New York, Illinois, and Ohio have increased by only 1 to 1.5¢ and rates in Texas and Pennsylvania have fallen.”

Last week the Arizona Senate discussed SB1631, a bill that would repeal the state’s stated policy of promoting competition in electric power service. It’s the companion of HB2101 that I discussed in a post two weeks ago: “Electric monopolies in Arizona fear their customers would leave if given the chance.”

I was listening to the Senate’s Natural Resources, Energy, and Water committee discussion of the bill and was surprised to see the AZ representative of the National Federation of Independent Business stand up in support of this bill, which is to say for monopoly and opposed to competition. (Video of the committee’s discussion is here. The link takes you to the start of the discussion at the 0:49 mark, NFIB’s Chad Heinrich appears just after the 1:19 mark.)

Now Mr. Heinrich reports that the position is the result of a vote by his members, and that is a perfectly respectable way for a group to choose positions. But the organization should also help its members understand the context of the vote. Arizona’s commercial ratepayers may be paying a little extra because consumers are locked into monopoly providers.

The following chart shows the change in average commercial electric rates since 2001 for several states. I’ve shown the U.S. average (blue) and Arizona (light green) along with the five largest states to allow commercial customers to choose electric suppliers: Texas, New York, Pennsylvania, Illinois, and Ohio. (You can look at the data yourself. Click the link to see this data via the EIA’s Electricity Data Browser. Go explore.)

Now the chart above isn’t a sophisticated analysis of the causes of electricity rate changes. It would take a lot more advanced analysis to solidly back the claim that competition produced lower rates. (Some relevant advanced analysis was discussed in my HB2021 post.)

Still, at first glance, over the period available in EIA’s Electricity Data Browser, Arizona’s rates for commercial customers have increased 2.74¢/kWh (a 37% increase over 2001 rates) whereas similar rates in New York, Illinois, and Ohio have increased by only 1 to 1.5¢ and rates in Texas and Pennsylvania have fallen. Again, the chart is not conclusive evidence, but if a monopoly lobbyist wants to reject the suggestive picture above or dispute the data collected by the U.S. Energy Information Administration, ask them to show their work.

NFIB members in Arizona may want to hear from NFIB members in New York, Pennsylvania, Illinois, Ohio and Texas about the advantages and disadvantages of competitive power markets.

Electric monopolies in Arizona fear their customers would leave if given the chance

Recently Arizona electric utilities convinced a few state lawmakers they should repeal a 20-year-old law and fast! That law, which was never implemented, said Arizonans should be allowed to choose their own electric power suppliers. The anti-customer freedom bill is HB2101.

Last year Green Mountain Energy requested permission to sell 100 percent renewable power directly to Arizona consumers, citing that 20-year-old law as the basis for its request. The state regulator might not grant permission, but the power monopolies fear even the possibility of customer freedom. The monopolists are lobbying fast and hard against it.

The claims monopolists make about customer choice are predictable and largely groundless. They claim reliability will suffer and that rates will go up. They’ll point to California, which stumbled on its early attempt to create competition, and Texas because of its energy failures in February 2021.

Arizonans need not fear the California or Texas scare stories. Here’s why:

California’s early attempt at creating competition did fail 21 years ago. That failure has been well studied and is well understood. California regulators invented a new market, it was badly designed, and it fell apart under stress. Everyone now knows better. None of the fourteen states now allowing customer choice copied California regulations, and none have seen similar failures. None.

Arizonans should only fear the California example if Arizona regulators were considering implementing old California policies. There is no chance of that kind of mistake, so Arizonans should ignore this bit of fearmongering.

What about the Texas disaster in February 2021? It was catastrophic, but it was not caused by allowing customer to choose their own power suppliers.

Many power plants failed in Texas as components iced up or fuel supplies froze. As a result many homes were without power for hours and sometimes for days during the storm. It was some of the deepest, longest lasting cold to hit Texas in past 100 years.

Here’s the thing: these were power plant and natural gas supply failures, not failures caused by retail customers.

It is easy to see that customer choice was not to blame. Parts of Texas remain served by electric power monopolies, for example Austin and San Antonio. These monopoly areas saw power system failures like those in Houston and Dallas where customers choose their suppliers.

It’s worth noting, too, that electric reliability remains regulated. Federal regulations dictate reliability standards that apply nationwide, even in Texas. That’s why federal regulators led a major investigation of the failures, issuing a massive report last November. Nothing in the regulator’s report hints customers caused power plant failures.

Under state law Texas regulators have responsibility for overseeing the state’s power grid. That’s why every Texas public utility regulator at the time of the failures resigned or was fired by the Governor. Regulations were inadequate, as the massive failures revealed, but they were regulatory failures.

All this talk about regulation should make clear customer choice is not “deregulation.” Policymakers in fourteen states have chosen regulated markets for their electric power industry instead of regulated monopoly.

What about rates?

A detailed academic study by Rice University economists published in 2019 compared the parts of Texas allowing customer choice to those parts of the state still using monopoly. Power customers with choice saw their prices decline on average while customers locked into monopoly saw their rates remain about flat.

A 2018 analysis by the late Phil O’Connor, a former Illinois state regulator, compared prices in the fourteen states allowing customer choice to rates in the states locking customers into monopolies. customer choice states saw prices drop by 7 percent while rates in monopoly states rose over 18 percent.

A recent survey of rates by the Pacific Research Institute found similar patterns in rates and higher reliability performance and better environmental outcomes in the fourteen states allowing customer choice.

Opponents of customer choice will point to a story in the Wall Street Journal claiming customer choice led to billions in excessive power bills. The WSJ calculation assumes, without explaining or justifying the assumption, that rates should be the same everywhere. This baseline assumption is obviously false and the conclusions are useless.

Note again the more careful study done by Rice University economists that found competition pushed prices down overall in Texas. Some still unpublished academic research finds lower prices in some states with customer choice and higher prices in others, so a full understanding of power prices would require thoughtful digging around.

Arizona’s monopoly utilities are not encouraging thoughtful digging around in the evidence. They want to stop everything without time for any thinking through the evidence.

Monopoly utilities are telling Arizonans scary stories about customer choice because monopolies are afraid of one thing: A customer with a choice might not choose them.


More about Michael Giberson here. While I’ve linked to supporting information above, obviously there is more that can be said on the topic. I’ll continue to build on and explore the issues discussed in this blog.

Comment here or email me at contact@mgiberson.com.

February 2022 #texasfreeze offers ERCOT a practice run

Many Texans faced forecasts of the early February 2022 winter storm with a degree of anxiety. Last year’s energy system failures had horrendous consequences including lost lives and damaged property. The energy system failures in the biggest energy producing state resulted in billions in damages.

The forecasts were clear this year that nothing like last year’s long, deep freeze was expected. Still, many worried.

As it turned out the forecasts were true enough. There was a two-day period with temperatures stuck below freezing, but nothing like last year. In February 2021 the Dallas-Fort Worth area stayed below freezing for about 130 consecutive hours, but the February 2-5 winter storm remained below freezing just 44 hours.

All in all, the early February freeze made for a practice run for Texas energy suppliers, but not a severe test of the ERCOT-managed power grid. Natural gas supply remains a concern, both because its state regulator appeared relatively unconcerned about last year’s failures and because productions has dipped with freezing temperatures this winter.

The chart below shows temperatures at Dallas Love Field, starting with the hour before temperatures dropped below freezing and ending when temperatures rose above freezing. The early February 2022 event is shown in blue and the solid black is a January 2018 cold snap it resembles. The January 2018 did not produce any serious problems for ERCOT, so there would be few reasons to expect this similar freeze to be a challenge either.

Three other winter weather events are shown for comparison, including last year’s freeze and the February 2011 winter storm. Data described below.

February 2022 is not over yet and we may yet get another winter blast in Texas. No one should declare “mission accomplished.” But the cold did let ERCOT practice it’s “all hands on deck” winter response. They’ll also get a chance to review how things went and be better ready next time.

Chart data: Data above for 2011-2021 collected from the NOAA’s National Centers for Environmental Information. The NCEI data runs about 3 to 5 days behind the present, so I hand scraped hourly data from the Weather Underground history page which is up to date. All data from Dallas Love Field. Obviously it is a big state so one location does not tell the full story.

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