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.
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.