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May 19, 2011

Participation lags in most electricity retail choice States

Source: Energy Information Administration, Form EIA-861 - Annual Electric Power Industry Report

Electric power retail choice programs have failed to get off the ground in a number of States, and early successes in three States have not continued. Fifteen States and the District of Columbia have active retail choice programs for residential electricity customers. Yesterday's Today in Energy article described the high retail choice participation rate in Texas and growing participation in New York, Connecticut, and Massachusetts. Today's article looks at the low participation rates in other retail choice States. Tomorrow's article will look at natural gas programs.

Pennsylvania, the District of Columbia, and Ohio saw participation rates grow to appreciable levels only to see precipitous drops (see chart). Retail choice programs are subject to conditions in wholesale markets and State regulatory policies. Wholesale prices rose significantly between 2002 and 2006. In attempting to soften likely rate increases to retail customers, State regulators set the rates for customers not choosing a competitive supplier so low that competitive suppliers could not compete.

Also, high participation rate data may misrepresent the initial health of competition in the residential market. In the District of Columbia and Ohio, the competitive suppliers with the majority of the sales were affiliates of regulated utilities. Regulated utilities promoted retail choice because they reaped regulatory benefits when retail choice reached certain threshold participation levels. Most of the early growth in participation in Ohio was due to local governments being able to sign up their residents as a group. As retail electricity rates rose, local governments changed their mind about participating.

Similar issues affect retail choice in other States. Residential retail choice participation in Maryland, New Jersey, and Delaware has not exceeded 4%, and the data show little activity in New Jersey since 2005 . Participation in residential retail choice programs is too low to chart in Oregon, Illinois, Michigan, Rhode Island, New Hampshire, and Maine.