Written by Original Writer | Posted in Business |

Eye on the Price

In deregulated states, electricity consumers and businesses have already begun shopping for retail electric providers as they embrace their new power to choose. In almost every instance, electricity shoppers are comparing one factor over all others – price. And while it’s true that price is certainly important, will it really benefit the market (and ultimately, all consumers) if price is the only factor given significant weight in comparisons? It’s becoming rapidly apparent that such a near-sighted focus on price could stifle the growth and restructuring of our energy markets.

Residential Consumers Want Value

When most residential customers compare electric suppliers in deregulated states, they are of course keenly interested in price. However, studies have shown that they also exhibit a significant amount of concern over the value of service and reliability of their supplier. One report issued by the Distributed Energy Financial Group, LLC in December 2010 notes:

“Small consumers traditionally assess the market for electric service by looking at two issues: the price of electricity per kilowatt‐hour and the value of the service they receive, with a focus on reliability. Times are changing: small residential consumers are becoming more sophisticated and product offerings are differentiating. “

The ‘average consumer’ is getting smarter, perhaps as a result of successful dissemination of information and education about electric choice. They are catching on, and these are steps in the right direction.

The Illusion of Average Pricing Data

The fact that residential consumers are starting to consider more factors other than price is a good sign for the energy industry. Everyone should be encouraged to look at all the options when leveraging the choice between electric suppliers in a deregulated market – not just price. Especially when you’re looking at average pricing.

Not only is average pricing a poor indicator of the energy markets for consumers, it’s also somewhat flimsy data for the energy market and its analysts (despite the fact that average pricing is very widely considered credible data). Average pricing for electricity is inherently flawed as a deregulated market indicator for three primary reasons:

1. It presumes that electricity prices by state represent restructured prices, when in fact restructured prices may only be a fraction of the state-wide average.
2. Focus on average pricing assumes that electricity prices are the most important, or perhaps even the ONLY measure of success in the electric market.
3. It deduces (incorrectly) that consumers actually buy at the average price.

The less reliance we place on electricity pricing data as a performance indicator of the market, the greater visibility we have to the true nature of prosperity (or lack thereof) in changing energy markets. The growth of restructured energy markets can be vastly improved when more factors beyond price can be used to measure the progress.

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