Electricity Competition Must Increase In North America, Direct Energy CEO Says

Innovation and competition will play an increasingly larger role in U.S. electricity markets, predicted Chris Weston, CEO of Direct Energy. Weston kicked off KEMA’s 21^st Executive Forum with an energizing keynote address on the future of retail electricity competition in North America.

Weston comes to the U.S. market from the United Kingdom, bringing a fresh perspective to our domestic competition discussion by comparing and contrasting the U.K.’s competitive market system with ours. Personally, I have been active in the U.K.’s competitive market for the past three years and can attest to its development and the sense that the British energy market is five to seven years ahead of U.S. markets.

U.S. retail electricity markets require three factors to develop into fully competitive markets, Weston said:

• A liquid wholesale market
• Incumbent utilities should no longer be the default electricity provider
• Many competing retailers

Our partially competitive markets must evolve into fully competitive markets for electricity consumers to gain full control of their power use. “Pipes and wires are the only true natural monopoly in the energy industry. Everything else should be competitive,” said Weston before addressing the state of U.S. energy markets.

Results in several markets prove “competition is undoubtedly the best mechanism for keeping rates low,” said Weston. In addition to well-documented results in New York and Texas, he went into detail in four specific states to underscore his assessment:

• Maryland – Multiple new competitive power suppliers have entered the market, and proposed re-monopolization legislation has not moved. Even more telling, state government power accounts have moved to competitive providers and are saving money for Maryland taxpayers.
• Pennsylvania – The electricity playing field has been leveled by the expiration of rate caps in PPL Electric Utilities’ territory. Commercial and industrial customers are saving up to 20 percent, and the number of residential consumers switching suppliers is rapidly expanding. Similar results are expected when the remaining rate caps in the state expire in January 2011.
• Michigan – State legislation has been introduced and promises to remove or increase the cap on retail competition to allow more customers to shop and save money.
• California – The state’s competitive markets are coming alive with the limited re-opening of direct access for commercial and industrial customers.

Weston’s insights reminded me how electricity markets are moving in the right direction to become more fully competitive. The full transition we need will not happen overnight, but with new technological innovations like smart meters and on-site solar becoming more common, customers will soon demand greater competitive access.

Ultimately electricity market innovations will have to be driven by competition and markets will have enhanced segmentation to meet customer needs. Without real-time price signals, customers will not benefit from investments in smart meters and solar, and monopoly-protected utilities will continue to limit captive customers to a one-size-fits-all approach.

By Chris Hendrix, Director of Markets and Compliance, Energy Regulation and Legislation, Wal-Mart Stores, Inc. Wal-Mart Stores is a member of the COMPETE Coalition.

Chris Hendrix, Director of Markets & Compliance, Energy Regulation & Legislation, Wal-Mart Stores, Inc. | March 31, 2010