More On Last Week’s Cranky Electric Consumer

Lynne Kiesling

Ken Malloy at the Center for the Advancement of Energy Markets has written a rebuttal to Rebecca Smith’s Cranky Consumer column that I wrote about last week.

Why don’t residential electric customers switch? Ms Smith’s story implies that it is variously stupid marketers, high electric prices, unwilling customers, or the policy of deregulation. All wrong! Markets work. Marketers will flock to fair competitive markets. Customers will choose if they have reason to. High prices are not an impediment to switching if they are market prices and everyone is playing by the same rules. (Residential customers in the Georgia gas market have been switching actively despite at least two dramatic increases in wellhead prices over the last several years.)

When you see behavior that is counterintuitive you have to ask the question “Why?” The why has to do with the dysfunctional way that states have implemented the policy relating to the terms of service for customers who do not switch. Most states allow the utility to serve these customers at distorted regulated rates. How can fair competition emerge in that environment?

The second problem is that Ms Smith misidentifies the goal of energy competition. The goal of competition is right prices, not artificially low prices. She may be forgiven, however, because many—far too many—advocates of competition argue that prices will go down for all customers, at all times, for all uses. That is just not true! Consumer electricity on the hottest day of the year may cost 50 cents per kilowatthour to generate; yet the customer’s regulated price may be only 10 cents. In a competitive market, prices would reflect real costs, meaning higher prices in peak periods and lower in off peak.

Ken’s right. He also points out that there are attractive retail options for lots of commercial and industrial customers. Not even close to as many as there would be if, as he says, restructuring were not being implemented in such a dysfunctional manner.

If you want a fuller picture of retail opportunities in electric power, check out these articles and reports at the Alliance for Retail Choice website.