Study Finds Benefits of Innovation Often Overlooked in Evaluation of Competitive Electricity Markets

Washington, DC - The benefits of competition-driven innovation are often overlooked when restructured electricity markets are evaluated, resulting in an incomplete and distorted picture, according to a National Economic Research Associates (NERA) study.

“Much of the debate about competitive electricity markets centers on the issue of price without considering or evaluating other characteristics important to consumers. Few consumers make decisions based solely on price, yet much of the public debate over electricity restructuring assumes customers care nothing about the characteristics of the products and services they buy,” said Dr. Karl A. McDermott, Vice President, NERA. “The success of restructuring can be more completely measured when you include innovation, customer satisfaction, environmental benefits and customer control over usage in the equation.”

The study cited evidence from advanced retail electricity markets indicating customers are less interested in the “plain vanilla” electric service provided by traditional monopoly utilities.

The NERA paper, sponsored by COMPETE and the Alliance for Retail Choice (ARC), explores the nature of innovations that customers have demanded and that competitive suppliers are providing. The report finds that consumers are benefiting from market innovations in four broad categories: financial arrangements, business practices, technological solutions and variations on standard energy products.

“Innovative financial arrangements are providing customers with access to forward markets, spot markets and other financial solutions because of electricity market restructuring. Some of the key aspects of innovation in the retail market are clean energy products that go beyond the simple selling of electricity produced by environmentally benign sources,” said McDermott. “Retailers are providing customers with services that allow them to brand their own products, integrate a new ethic into production processes, and to take advantage of environmentally beneficial cost-saving opportunities such as demand response and energy efficiency.”

The study found that retail markets are delivering technology solutions that include the use of Internet-based and computer software solutions for energy management, as well as more traditional technology solutions. They are also providing variations on standard energy products and services, including re-bundling, partial bundling or variations of energy-only products.

“The study’s findings reinforce the fact that competitive providers are responding to customers by tailoring services to meet their needs,” said Joel Malina, executive director of COMPETE. “Competitive markets are still evolving, but it is clear from this report that customers in the states and regions that continue to support competitive retail electricity markets benefit as suppliers innovate and compete to provide customers with the products and services they are asking for.”