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Regulatory policy limits growth in electric competition

February 1, 2012 — 8:07am ET | By Barbara Vergetis Lundin

According to a recent report from Pike Research, the competitive market is poised for further growth in the coming decade, as competitive electricity purchases will nearly double from $29.4 billion in 2009 to $55.9 billion by 2020. Regulatory policy, however, remains the single biggest limiting factor on the development of an open and competitive market for electricity supplies to commercial and industrial customers.

Since the California power crisis a decade ago, no additional states have opened their markets to competitive providers, and several states and regulators have imposed limits and financial requirements, as well as increased scrutiny of competitive players.

In states that already have policies favoring competition, market activity should increase over the next five years. For those states in which policies need reexamining, don't expect to see market activity increase until around 2015 to 2020.

"Even though some 20 jurisdictions have enacted restructuring laws and policies designed to open their electricity market to new competitors, only about a dozen states allow for full-scale access to competitive markets for all customers," said Vice President of Research for Pike Bob Gohn. "Even in these states, laws and regulations tend to impose costs that are meant to ensure that expenses caused by the departure of other customers to competitive suppliers are not passed on to customers who remain with incumbent providers."

A decade after suspending new retail competition in the wake of the power crisis, California has begun opening the door slightly to further access to competitive providers in regulated utility territories. Following California's lead, several other states that have frozen their efforts, such as Arizona and Michigan, may restore competitive options for larger customers.

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