Study: "More Than Half" of U.S. States Allow Retail Electric Competition

"[M]ore than half of U.S. states allow retail competition for large industrial or commercial customers, [but] few today have competitive electricity retail markets at the residential level," says a new report by MIT.

Strangely -- or perhaps not so strangely -- those 25+ specific states offering "retail competition for large industrial or commercial customers" were not listed in the report.

Even under the most liberal of interpretations, it cannot be said that any more than 21 U.S. states offer some form of retail electric competition, and this charitably includes states such as Arizona -- where competition is permitted by law but no administrative rules exist to allow customers to actually exercise their right to shop -- and Nevada -- where a customer's competitive choice is subject to approval by the PUC.

The report's statement that there are more than 25 states with retail choice was not directly footnoted (other sentences following that statement were footnoted, but the source material, EIA data, did not state 25 states had retail choice).

Elsewhere, the report more correctly states, "Currently, there is little or no retail competition ... in 35 states," meaning truly active retail choice states number approximately 15, which is a sound figure.

While the actual total of 21 retail electric choice states (including D.C.) is not far from erroneously stated total of 25, the report does propose to offer various recommendations and analysis on several topics in the electric industry, and it is legitimate to question such analysis if a simple fact such as the number of states with retail choice cannot be determined accurately.

While the report does not, on point, offer specific recommendations regarding the structure of electric industry and competitive markets, it does make various conclusions that innovation may not be fully supported under market structures where a monopoly provider bears the risk of innovation.

The report especially expects retail competition to offer more dynamic rate options than monopoly regulation.

The specific recommendations which are included in the report would increase electric rates, while also making retail rates more regressive. The recommendations are also inconsistent among themselves.

Specifically, a chief recommendation is that, "New legislation should grant FERC enhanced siting authority for major transmission facilities that cross state boundaries or federal lands." Arguably, this is to support remote renewable generation.

Obviously, such a rule would spur transmission investment, with costs socialized among customers.

However, elsewhere, the report notes challenges from increased distributed generation and energy efficiency measures, to the extent that fixed costs of the distribution system should no longer be recovered on a volumetric (per kWh) basis due to declining sales volumes.

If the report expects this vast increase in distributed generation, it begs the question of whether customers should be saddled with paying for billions of dollars in cross-country transmission to access generation whose need may be eradicated by distributed power.

With respect to the impact of increased distributed generation and energy efficiency on distribution system cost recovery, the report recommends that, "State regulators and those who supervise government-owned and cooperative utilities should recover fixed network costs primarily through customer charges that may differ among customers but should not vary with kilowatt-hour consumption."

Recovering costs under a flat monthly charge or per kW demand charge as recommended in the report, rather than a volumetric charge, would obviously reward high-usage customers, while penalizing small volume customers.