Twenty‑Five Years of Lessons on Electricity Competition in the United States
What R Street’s rankings reveal, and why it matters now
[Note: My recent posting hiatus was WAY longer than I anticipated! Nonstop travel and my lack of time consistency—June 2024 Lynne agreed to more things than April-May 2025 Lynne could deliver on—meant that something had to give. I plan on getting back into a rhythm here that I hope is interesting and thought-provoking!]
Why the Electricity Competition Debate Just Flipped—Again
In 1998 California’s Power Exchange wholesale power market went live, symbolizing the then-new impetus for efficiency through electricity markets. The promise then was disarmingly simple: generation prices that reflected actual costs, customer choice, and an information revolution that would make your toaster as smart as your telephone. California, Pennsylvania, New England, and the UK each promised a brave new market in both wholesale and retail power. Readers who have followed Knowledge Problem since the dot‑com era will remember my running commentary on what worked, what melted down, and why. The original case for competition was about three things: letting retail prices tell the truth, letting consumers choose, and letting innovators experiment.
Twenty‑six years later, many observers concluded the experiment had failed, especially for residential customers. Even economists and other friends of markets warned that small‑customer risk, thin hedging instruments, high customer acquisition costs, and clumsy billing systems made full retail choice a bridge too far. Better, they argued, to integrate time‑of‑use (TOU) rates into the vertically‑integrated utility and call it progress.
That critique was right—for the technology of the day. It is wrong for the technology of 2025. Digitalization has pummeled every friction those early critics identified: the cost of metering, the hassle of switching, consumers’ limited ability to respond, have all fallen due to two decades of digital progress. Implementation of these technologies has been slow, and slower in some places than other, but the change is real and the potential is even larger.
The newest state‑level evidence comes from R Street’s State‑by‑State Electricity Competition Scorecard, released this month. R Street’s authors (Chris Villarreal, Kent Chandler, and Mike Giberson) grade every jurisdiction on ten practical factors—from supplier‑consolidated billing to smart‑meter data access—and the pattern is unmistakable: states that embrace full retail choice and participate in wholesale power markets in an RTO dominate the top tier. Texas earns the lone A‑, while Pennsylvania, Illinois, Ohio, Delaware, the District of Columbia, and New England’s hybrid reformers cluster in the B range. Traditional monopoly states outside an RTO sink to the bottom, some all the way to an F (Alabama).
The findings are consistent with the framework my colleagues and I laid out earlier this year in AEI’s Innovating Future Power Systems: From Vision to Action —digitalization, decentralization, democratization, dependability, decarbonization, and justice. That report focused on innovation but implicitly argued that each of the six dimensions is both an outcome of and an input to effective competition. R Street’s granular grading rubric now supplies the empirical muscle behind that claim. Below, I walk through the R Street scorecard’s highlights, map them onto the "six‑D" (really 5 Ds and a J but ...) lens, and reflect on what two and a half decades of writing about this topic have taught me.
Digitalization: The Cost of Coordination Has Collapsed
The turn‑of‑the‑century objection to real‑time pricing hinged on metering expense and consumer hassle. Today, advanced meters are the default in competitive states, and R Street rewards jurisdictions that pair AMI with open, Green Button Connect‑certified data portals. Texas scores high because competitive suppliers settle every kilowatt‑hour on interval data and, crucially they, not the wires utility, own the billing relationship. Most other states with retail choice use utility consolidated billing, so the utility retains the customer relationship. Supplier‑consolidated billing turns bad‑debt risk into a merchant problem rather than a socialized cost—one reason the state keeps its A‑.
Digitalization also reduces the “search and switching cost” worry. Pennsylvania’s mobile‑friendly PA Power Switch site lets you drop in a ZIP code and see an apples‑to‑apples bill comparison in seconds. Illinois posts complaint scorecards for every supplier, creating reputation pressure that a classic rate‑case cannot match. Software is doing quietly, every day, what commissions once tried to do noisily every few years (except for Alabama, which has not had a rate case since the 1970s and earned the report's only F).
Decentralization: From One Big Plant to a Million Little Decisions
In 2025 suburban household can now juggle rooftop solar, an EV charger, a 40 kWh wall battery, and a heat pump, all orchestrated by cloud services. This now-possible reality demolishes the caricature of residential customers as passive. It also demolishes the old economic objection that household demand is too inelastic to justify the hassle of retail choice. Automation is turning price response from manual labor into software, even if in theory more than in practice. Again, the (incremental) change is real and the potential is even larger.
Where vertically-integrated monopoly advocates see “fragmentation,” I see something Edison could never imagine: the potential of an edge‑driven grid whose stability improves with every new device. The R Street scorecard credits states that allow DER aggregators to bid flexibility directly into wholesale markets . That rule alone differentiates a B state such as Illinois from C‑minus hybrids that still fence off household resources.
Democratization: Choice Is a Consumer Right, Not a Technical Luxury
Skeptics insist that many residential customers “don’t want to think about electricity”. Competitive states handle that reality with default products that hedge price risk while leaving the opt‑out door wide open. R Street’s grading reflects exactly that philosophy: states get points for easy shopping sites, simple enrollment rules, and multilingual consumer education . They lose points when they hide competitive offers behind utility‑centric portals or bury the “price to compare” in a PDF three clicks deep .
Democratization also means contract variety. Ohio lets suppliers experiment with multiyear, green‑energy bundles, or peak‑shaving rewards; its B+ grade reflects the absence of product caps that plague Maryland and parts of New England . Customers who do care can find a bespoke plan. Those who don’t, still pay a competitively benchmarked default. Either way, their dignity as individual economic agents is honored.
Dependability: Markets as Feedback Algorithms
Reliability has always been the trump card for monopoly defenders: “You can’t gamble with the grid”. Yet monopoly track records are hardly spotless, as last week's outage in New Orleans demonstrated.
The issue of reliability associated with a monopoly utility has long been rooted in New Deal commitments to universal service and the social‑contract rhetoric of vertically integrated regulation, reinforced by the emotional reassurance of a single company “keeping the lights on”. From this communitarian perspective, because we all share a moral stake in the electricity system, individual choice should yield to collective security. Yet what citizens truly prize is not monopoly itself but the dependability and fairness they associate with it, outcomes that next‑generation digital platforms can often deliver more efficiently and transparently than utilities locked into cost‑of‑service logic.
Decentralization reduces the political salience of the communitarian argument that a single utility must “keep the lights on". In practice, reliability and resilience both come from diversity, not homogeneity. Diversity of type and scale of resources makes systems more robust.
R Street’s methodology weights institutional learning and approaches like retailer hedging and demand flexibility heavily, because a system with many risk managers adjusts faster than one with only a regulator and a vertically‑integrated utility. R Street finds that RTO participation alone offers reliability and cost checks, but the biggest gains for dependability come when retail competition forces diverse hedging and flexibility portfolios.
Dependability also thrives on transparency. States that publish supplier complaint outcomes earn grading bonuses, on the theory that sunlight is a cheaper regulator than litigation. Retail choice decentralizes not just engineering decisions but oversight.
Decarbonization: Competition Makes Innovation Possible and Clean Cheap
In the early 2000s, wind and rooftop solar were rounding errors in the generation technology portfolio. Today they are mainstream, but their economic logic still hinges on precise coordination. Retail markets supply that precision. Dynamic pricing tells a battery when to charge; supplier innovation packages renewable PPAs with EV‑charging plans; community‑choice aggregators (CCAs) source local solar for city customers. Competitive procurement inside monopoly footprints can still accelerate clean‑energy innovation and adoption, but transparent price discovery works faster and cheaper.
The R Street scorecard's highest grades cluster where retail choice meets RTO wholesale power market liquidity, driven by investment primarily in gas-fired, wind, and solar (and solar+storage) generation. Texas, Illinois, and Pennsylvania have all logged record renewable additions while keeping customer prices below the national average, an outcome vertically-integrated monopoly advocates said could not coexist.
Justice: Procedural, Distributive, and Commutative
Justice may feel abstract compared with kilowatt‑hours, but the concept has meaningful substance. Procedural justice demands open dockets and published data. Distributive justice asks whether low‑income customers share in the spoils of innovation. Commutative justice insists that rules be applied universally and not harm voluntary exchange. These principles of justice, grounded in the Aristotelian concept of universal justice, have been part of Knowledge Problem's analytical DNA for all of its 23 years.
R Street’s ten‑factor rubric encodes each dimension. States gain points for active consumer advocates, public complaint tracking, and low‑barrier supplier switching. They lose when utilities cross‑subsidize affiliates or hide metering data. In short, justice in the modern grid is not about picking winners or compensating victims; it is about letting more people participate.
Where the Scorecard Leaves Us
R Street’s study concludes with a blunt warning: states that cling to the traditional model leave money and resilience on the table. The evidence aligns with the AEI framework’s prediction that systems flourish when competition is allowed as a coordination and learning process that fosters innovation. The scorecard also lists practical lever points—supplier billing reform, Green Button upgrades, complaint transparency—that even low‑grade states can implement tomorrow.
For regulators, the choice is no longer between abstract “competition” and comforting monopoly. It is between static rules that hope for adequacy and dynamic rules that enable flourishing and adaptation to change. For legislators, the political bet is simpler: voters are already embracing digital choice in every other sector. Denying it in electricity looks increasingly anachronistic.
The Road Ahead
When I launched the Knowledge Problem blog in 2002, my recurring theme was “markets are the best engines we have for turning disagreement into discovery”. Two decades later, we have a scorecard that measures how well each state lets that engine run. The AEI report's framework provides the conceptual compass; R Street’s grades give us the mile markers.
Persistent skepticism about full retail competition rests on two technical propositions: (1) default service hedges small‑customer risk more cheaply, and (2) price signals without automation can backfire. Both points as historically accurate, but technologies have eaten this premise. Watts of computation now cost micro‑cents; AI controls can arbitrate exposure minute‑by‑minute; and retail hedging can be embedded in contracts that pool thousands of homes the way ISPs bundle bandwidth risk. In other words, the fixed‑cost problem has migrated from the meter to the cloud.
Markets are learning processes for power systems, and the learning rate accelerates as digital observability expands. Each kilobyte of granular consumption data makes price discrimination more surgical, which makes hedges cheaper, which in turn widens feasible risk‑sharing arrangements. Monopoly forecloses that feedback loop.
The future grid will be decided less by kilowatts than by kilobytes. The faster we let digital markets learn, the sooner we all get the reliable, affordable, clean power we have envisioned. Power systems sit on the cusp of the most radical shift since Edison strung wires over Pearl Street.
Whether regulators embrace retail competition is not a question of if consumers can handle choice; it is a question of whether policy will allow the digital revolution to finish the job it started. Every misaligned tariff and monopoly‑delimited franchise boundary is a tax on innovation, and on the widespread aspiration for reliable, affordable, clean power.
As I just posted on the site formerly known as Twitter, I learned something about our Scorecard from your essay and I was one of the three co-authors of the Scorecard! The "Innovating Future Power Systems" framework made a great lens.
Good writeup. The biggest question I have is about Texas. ERCOT had some well publicized problems with systemwide outages. My understanding is that this was a function of a failure to pay for capacity combined with a lot of renewable energy. I didn't see that addressed in the article.