Price gap for industrial customers between deregulated and regulated markets tripled since 1999


Marilyn Showalter,
Executive Director,
Olympia, WA, U.S.A. — (METERING.COM) — November 15, 2007 – The gap in electricity prices for industrial customers between deregulated and regulated states has almost tripled since 1999, from 1.09 cents in 1999 to 3.08 cents in 2007, according to a new study from the power coalition, Power in the Public Interest (PPI).

In 1999 the average price per kWh for industrial customers in the now deregulated states was 5.23 cents, compared to 4.14 cents in the regulated states, while in 2007 the average price for the deregulated states is 8.60 cents, compared to 5.52 cents in the regulated states. As a result these customers in the deregulated states are paying approximately $7.2 billion more than they would pay if they could purchase at the regulated states’ average price, compared with $3.7 billion more (in 2006 dollars) in 1999.

The survey found that since 1999, prices for industrial customers in deregulated states have gone from 18 percent to 37 percent above the national average, while prices for industrial customers in regulated states have gone from 7 percent to 12 percent below the national average. Thus the spread between the two prices has increased from 25 to 49 percentage points. Moreover, comparing the two groups directly to each other, since 1999, deregulated industrial prices have gone from 26 percent to 56 percent higher than regulated prices.

Of the top ten states ranked according to largest incremental increase in industrial price since 1999, all are deregulated states, except Hawaii and Alaska. These are Maryland, Connecticut, Massachusetts, Washington, D.C., Maine, Rhode Island, New York and Texas.

Marilyn Showalter, executive director of PPI, says that the main culprit behind the price gap is the wholesale market designs used by regional transmission organizations. “In RTOs, the most expensive supply, often a natural gas plant sets the price for all needed supplies, regardless of the underlying cost. In regulated, cost-based systems, a higher cost resource will not significantly affect the amount consumers must pay for a lower-cost resource.”

The study was based on U.S. Energy Information Administration data on prices through July 2007. Other states that have deregulated electricity prices are California, Delaware, Michigan, Montana, New Hampshire and New Jersey.

Says Showalter: “Deregulation is not responsible for the entire gap, but the so-called competitive electricity markets aren’t good for competitiveness.”