Brattle Principal Examines Whether Electricity Competition Works For Residential Consumers

Brattle Principal Agustin J. Ros has published an article in the Journal of Regulatory Economics titled “Does Electricity Competition Work for Residential Consumers? Evidence from Demand Models for Default and Competitive Residential Electricity Services.”

Residential electricity competition is under investigation in a number of US states that permit residential consumers to choose their electricity supplier. Some policymakers in those states are proposing complete elimination of retail choice for residential consumers on the belief that residential consumers are worse off due to market imperfections that make it difficult for residential consumers to select the lowest cost options.

In this article, Dr. Ros assesses the arguments and analyses calling for the elimination of residential retail choice and discusses the working of residential electricity competition and alleged imperfections. Empirically, he uses a panel data of distribution utilities in Illinois from 2011–2017 to econometrically estimate demand models for regulated and competitive electricity services.

Dr. Ros found that residential electricity consumers in Illinois are acting in a manner consistent with standard consumer behavior theory. Importantly, he observed that customers served by competitive supplies are sensitive to the regulated default service price and switch in the face of lower cost options, a finding that calls into question some of the critiques of residential electricity competition.

The full article, “Does Electricity Competition Work for Residential Consumers? Evidence from Demand Models for Default and Competitive Residential Electricity Services,” is available below.