Why do we need electricity retailers?; or, can you get it cheaper wholesale?

Abstract

The opportunities for retail electricity competition to provide new value-added services to retail electricity consumers are discussed. The physical attributes of electricity supply make many of the traditional "convenience services" provided by retailers in other industries irrelevant in electricity. In addition, these attributes provide a low-cost way for electricity consumers to buy directly in the wholesale market. In this way, retail consumers can receive the commodity price related benefits of competitive generation markets without incurring large increases in advertising, promotion and customer service costs. Electric distribution companies (UDCs) can easily provide a Basic Electricity Service (BES) that makes it possible for all consumers to buy commodity electricity in competitive wholesale electricity markets at the spot market price. The availability of BES is especially important for residential and small commercial customers for whom few new retail value-added services are evident. BES also provides an excellent competitive benchmark against which consumers can compare the value added associated with competitive supply offers from competing Electricity Service Providers (ESPs), helps to protect residential and small commercial customers from exploitation by ESPs, and mitigates wasteful expenditures on marketing and promotion by rent-seeking ESPs that will increase prices.