Electricity rates have been rising throughout the country, not only in restructured states. These increases are largely a result of rising costs for the fuel used by generators to produce electricity. In fact, fossil fuel costs have increased over 150 percent since 1999. Fuel costs are rising due to global demand for fossil fuels, the impact of supply interruptions from the hurricanes in 2005, and insufficient domestic production. The push for cleaner, more reliable and efficient power plants drive costs higher as well. Despite this pressure, if one takes into account price increases over the same time-frame in other consumer goods like food, housing and health care, electricity price increases are mostly modest by comparison. In addition, wholesale prices actually declined last year in some regions.
Electricity rates are not rising because of the competition brought about in those states that restructured electricity. Many of the states that introduced retail competition incorporated rate freezes that kept rates unchanged for a period of years even as the input costs for generating electricity increased dramatically. These artificial price freezes are not sustainable in the face of these economic realities, particularly when they have been in effect for many years.
Make no mistake – retail customers in states that do not allow customer choice have experienced higher rates as well – often in the form of an automatic increase on their bill. In these states, steady increases over a number of years have been passed through to consumers. These regular, smaller price hikes can add up to dramatic changes in price over time. Recent reports by several state utility commissions document that prices in competitive markets are lower than what would have been the case in a rate-regulated environment had those states not restructured.