Lower Prices for Electric Power

Michael Giberson

Platts reports on statements made by Compete Coalition counsel William Massey:

A sharp reduction in US power prices that was tied to lower fuel costs “should put to rest the shallow arguments suggesting that competitive markets aren’t working because electricity prices increase,” the Compete Coalition said Wednesday.

Compete, which represents customers, suppliers, generators and others, pointed to recent reports of falling power prices in organized markets around the country: a 54% drop in New York Independent System Operator’s footprint since June, a 28% drop in Electric Reliability Council of Texas since July and price cuts from 10% to 14.6% for customers in parts of ISO-New England and PJM Interconnection.

“The thing about markets is that prices go up and prices go down, and the prices are tied in large part to the cost of generation fuel,” William Massey, counsel to Compete, said Thursday. “I suppose the opponents of markets just thought that prices would go up and stay up regardless of the cost of fuel, but it doesn’t work that way.”

As it turns out, the most recent EIA data supports the conclusion that electric power prices have dropped since fuel costs peaked last July.  Unfortunately, the only EIA data I can turn up quickly provides monthly averages for the nation as a whole, not state-by-state numbers.   And while that data does show prices falling through October 2008 (the latest readily available data), electric power prices typically peak in Summer and drop through Fall and Winter.  Layer on top of that the macroeconomic conditions that worsened over September and October, and you get another reason to expect prices to fall.  So, Compete should marshal up some detailed data to demonstrate their point, or keep their powder dry until such data is available. (One suggestive bit of information Compete links to in its news release comes from the Association of Electric Companies of Texas, which reports that retail offer prices have dropped by over 28 percent since July.)

Still, I’m looking forward to watching the data come in as fuel costs remain low, to see which retail customers capture the most in the way of lower prices. Advocates for a more competitive industry, and I am one, tend to expect restructured states to show lower prices faster, while defenders of the traditional regulated utility have an opposing view.

I just can’t wait for the next Power in the Public Interest report on electric prices.