Setting the Record Straight: Electricity Rate Increases Unrelated to Competition

A new analysis published in the most recent issue of Public Utilities Fortnightly supports the conclusion that the price comparisons cited by electricity competition detractors as ‘evidence’ of the failure of electricity markets and restructuring are misleading and inaccurate.

The analysis by authors with the Brattle Group found that price increases in some markets are mostly a function of expiring retail rate freezes at a time of significantly higher fuel and wholesale power prices, and that while it is correct that rates in restructured states are higher than in non-restructured states, this difference already existed prior to restructuring.

The study’s authors – Johannes Pfeifenberger, Greg Basheda, and Adam Schumacher of the Brattle Group, an economic and energy consulting firm based in Boston – concluded that average retail rates in both restructured and non-restructured states have increased at the same rate over time.

Former U.S. Senator Don Nickles, COMPETE’s chairman, hailed the study for its contribution to the growing body of evidence refuting the idea that recent price increases are the result of electricity markets and restructuring.

“This analysis is but the latest in a long line of studies offering clear and compelling evidence that electricity rate increases are unrelated to competition,” said Sen. Nickles.

Rate increases in traditionally regulated states may have happened more gradually, through measures such as fuel cost adjustment clauses, with overall increases similar to competitive market states, but with less public outcry and fewer political repercussions. Over the last decade, average rates in regulated states have increased as well - Washington rates increased 53 percent, Florida rates increased 45 percent, and Louisiana experienced a 42 percent rate hike.

“The majority of recent studies over the past few years, including this one, have found that restructuring – retail competition, centralized wholesale power markets, or the combination of retail and wholesale restructuring – has produced significant benefits for consumers,” said Sen. Nickles. “These benefits include promoting renewable generation, environmental improvement, energy efficiency, demand response, enhanced operational efficiencies, and technological innovation. Critics of competition looking to roll back the clock are not looking at the big picture.”

To learn more about The Brattle Group and “Restructuring Revisited,” please visit www.brattle.com

Attachment	Size
Press_Release_060707.pdf	74.61 KB