The retail side of electricity involves the final sale of power from an electricity provider to an end-use consumer. Sale of electricity ranges from the service for a large manufacturing facility to that for small businesses and residential households.
Some states allow for retail competition between electricity providers. Regardless of whether the state is regulated or deregulated for electric service, supply is obtained either through the open, competitive wholesale market or from utility-owned rate-based generation. In some cases retail electric energy is purchased from a combination of these means.
In states where retail competition for electricity and other energy sources exists, customers have the choice between their current electricity supplier and other competitive suppliers. Competitive retail suppliers offer a variety of service plans and can provide service to certain geographic areas.
The competitive retail market allows providers to market to customers based on price and service. These retail providers may offer payment plans that consider price fluctuations, options for alternative energy resources and innovative energy efficiency projects.
Retail electricity markets are regulated at the state level by state regulatory commissions. These commissions regulate distribution utilities’ costs and rate of return for use and maintenance of the distribution system.
States that do not allow for retail electricity competition the commissions regulate the expenditures of the monopoly utilities by allowing a rate of return on most costs. In these cases utilities may construct, own and operate power plants at the ratepayer’s expense.
Although market structures vary from state to state, there are some common functions that an electricity retailer is required to perform, either individually or by way of a contract, in order to compete effectively. These include billing, credit control, customer service and management through an efficient call center, distribution, reconciliation agreement, “pool” or “spot market” purchase agreements, and hedge contracts.
This restructuring of the retail electricity industry is transforming the historically monopolistic industry and changing the way electricity is priced, traded, and marketed in the United States. Over the past forty years retail customers have seen prices unadjusted for the effects of inflation High construction costs and increased fuel prices contributed to rising prices for retail electricity in the 1970s and 1980s but improved operating efficiencies and reduced construction costs caused retail electricity prices to stabilize in the 1990s. Currently the United States is enjoying the lowest electricity prices since the late 1960s.
Retail prices for electricity vary considerably based on geography. In general states in New England and the Northeast have the highest average retail electricity prices while Northwest states tend to have the lowest. These variations in prices are caused by a number of factors including access to low-cost fuels for generating power, state taxes, and the mix of power plants in the states
The future of retail electricity is unpredictable. Factors such as capacity, weather, fuel prices, electricity demand, and electricity generation, transmission and distribution costs will impact retail prices into the future. The effect of competition at the retail level is also unknown.