June 1, 2010

KEMA Conference Report: Competition Strengthens as Wholesale Power Prices Fall

Mark Axford

Since the collapse of Enron and the wholesale power markets, the vitality of competition in retail markets for electricity has waned in most regions of the U.S., with the exception of Texas. At KEMA’s 21st annual Executive Forum in late March, 300 attendees converged on Dallas to discuss and debate the dynamics and changes now facing residential and commercial customers in most regions of the U.S. and Canada. Founded in 1927, KEMA is a global provider of business and technical consulting, operational support, measurement and inspection, and testing and certification for the energy and utility industry. A summary of the many presentations follows.

During 2009 overall consumption of electricity in the U.S. fell by 4.2%, the largest one-year drop in 60 years. Concurrently, the average prices of natural gas (Figure 3) and wholesale electricity (Figure 4) followed suit and fell more than 50%. Business and residential customers alike are looking for a better deal on their electricity purchases, further invigorating an already competitive buyer’s market. Although Texas is still the largest competitive market, 2009 brought some significant changes in other competitive power markets across the U.S.

3. Dipping gas prices. The average U.S. regional price of natural gas dropped from 2008 to 2009. Natural gas prices are shown in $/million Btu. Source: Derived from Intercontinental Exchange data

4. The electric slide. Wholesale electricity prices also declined over the past year. Data shown are 2009 wholesale prices compared to 2008 prices. The electricity price shown is in $/MWh. Source: Derived from Platts data

Maryland

The call for “re-regulation” has subsided in Maryland. With the sharp fall in wholesale prices, buying electricity from the default providers now costs about 15% more than competitive power. The rate of residential customers switching providers is gaining momentum.