This blog is the first in a series of blogs from DOEE on the retail energy market in DC.
Are DC’s electricity consumers benefiting from retail competition?
Consumers have not traditionally had many choices in the energy supply market in the US. Energy utilities have historically been vertically integrated, meaning utilities owned and monopolized most, or all, of the energy supply chain, including generation, transmission, and distribution. In the District, this all changed starting in 1999 when broader appeal for market liberalization led to energy market restructuring. Utilities were able to sell or divest energy generation assets and new supply companies were allowed to compete with the utility’s supply service. In 2001, DC opened its energy market for horizontal retail competition among companies providing energy supply services to residential and commercial consumers. Restructuring only allowed for retail competition among suppliers in DC, but distribution is still controlled by the local utilities – Pepco and Washington Gas. There were several motivations for restructuring, including cultivating innovation in supply service offerings (e.g., providing more renewable energy offerings, introducing time-varying rates for billing, or bundling energy supply with other services, such as energy auditing or battery storage systems) and lowering costs for residential and commercial consumers. Unfortunately, neither of these motivations seem to have been fully realized after over two decades of retail competition. I focus here mainly on the electricity retail market in DC because of data availability and greater residential retail market participation compared to the gas market.
Is the retail market producing innovative services?
Evidence of innovation remains limited. Some retail electricity suppliers (also referred to as third-party suppliers) offer additional renewable energy compared to the local utility’s standard offer service, but this is not pervasive in the retail market. In fact, several suppliers were required to pay renewable portfolio standard (RPS) compliance payments to DC Public Service Commission for not producing enough renewable energy or retiring enough renewable energy credits in 2024; this indicates that many suppliers are not providing additional renewable energy for consumers, but are rather complying within minimum RPS requirements that Pepco must also satisfy.
After reviewing different contract terms available online for retail electricity suppliers in 2024, there were only five of 20 (of about 40-50 total suppliers operating depending on the month) that offered at least one contract with 100% renewable energy supply. Most appeared to be RPS-compliant only (i.e. meeting the baseline regulatory requirement). In terms of other types of innovation, there does not appear to be evidence of time-varying rate structures, other nuanced billing practices, or energy service bundling among retail suppliers in DC. Many suppliers do, however, offer incentives for customers, including reward program benefits, gift cards, or subscriptions to streaming platforms or other entertainment services. (We have yet to conduct a similar review of gas contract terms available online.)
Is the retail market saving consumers money?
The short answer is yes and no. A slightly longer answer is yes for commercial customers but no for residential customers, on average. A more deliberate answer is that it depends on the consumer and the consumer’s contract. The following findings and discussion are grounded in an analysis of 14 months of electricity market data which Pepco provided to DOEE upon request. A detailed analysis and data can be found here.
Residential consumers’ loss in welfare
Using these data, which are aggregated by supplier, I found that residential customers of retail suppliers have essentially lost an estimated $17.85 million in consumer welfare during the period from July 2023 to August 2024. This loss estimate relies on the assumption that customers would prefer to pay the lowest price for electricity, regardless of other service features, including additional renewable energy. This, of course, may be an overestimate of loss if some consumers were willingly paying higher prices for desirable service features.
The $17.85 million loss was borne by slightly more than 30,000 customers of retail suppliers during the period. This equates to an estimated $600 loss per customer account during the 14-month period. Customers of retail suppliers make up about 10% of total residential customers in DC (i.e., a little over 300,000 accounts), though this proportion fluctuates due to account disconnections and supplier switching.
The overall welfare loss is the result of significantly higher average supply prices per kilowatt-hour (kWh). Figure 1 shows estimated average supply prices per kWh for customers in master-metered apartment buildings, customers of Pepco’s Standard Offer Service (SOS), all customers of retail suppliers, and customers of retail suppliers who also receive utility assistance from DOEE’s or Pepco’s utility assistance programs. The average supply price for customers of retail suppliers is 70% higher, on average, compared to Pepco’s SOS price to compare.
The supply price premium is paradoxically even higher – 80% higher than Pepco’s SOS price – among customers of retail suppliers who receive some form of utility assistance. This is compounded by the fact that retail suppliers have much higher proportions of utility assistance customers, on average, compared to the proportion of SOS customers receiving utility assistance. During the 14-month period, about 8% of SOS customers received some form of utility assistance, but an average of 25.39% of retail supply customers received utility assistance. Higher bills for customers receiving government assistance have implications for the impact of limited annual utility assistance funding.
Figure 2 shows monthly distributions of retail suppliers’ average supply prices among customers. The vast majority of retail customers pay higher rates, on average, than customers of Pepco’s SOS (red line). Higher prices also correlate closely with higher arrears; the average monthly arrears among retail customers were $760 while average monthly arrears among SOS customers were nearly half this at $404 during the period.
Presumably, customers receiving utility assistance would be interested in paying a lower rate, which begs the question: Why have these customers signed up for a significantly more expensive service when they struggle to pay their bills?
There could be several reasons why there are inequities among different segments of customers in the retail market. As complaints to DOEE and other government offices have illustrated, there have been consumer abuses in the retail market, including door-to-door marketing pressure or harassment, fraudulent marketing or false representation of marketers as representatives of the utility, enrollment of customers without consent or knowledge (i.e. slamming), and enrollment of customers at low introductory rates that increase quickly and without explanation (i.e. teaser rates). These types of consumer abuses have been documented in other retail choice jurisdictions, such as Maryland, Massachusetts, Maine, Connecticut, New York, Pennsylvania, and several other states and countries (Baldwin and Howington, 2023; Baldwin, 2018; Tsai and Tsai, 2018). UA customers are more likely to live in densely-populated, low-income neighborhoods where in-person marketing is relatively cheap and households are more receptive (or less unreceptive) to marketing (Kahn-Lang, 2022).
Commercial consumers fare well
In contrast to residential customers, commercial customers experienced a net welfare gain during the same 14-month period (July 2023 – August 2024). Commercial customers essentially saved an estimated $193.5 million with retail electricity suppliers. Retail customers paid an average supply price of $0.095 per kWh while commercial customers of Pepco’s SOS paid an average of $0.138 during the period. Figure 3 plots monthly distributions of average supply prices by each supplier in the market. Although Pepco’s SOS price to compare dropped near the end of the period, the majority of supply prices among most suppliers remained below the SOS price.
Whereas only about 10% of residential customers had retail suppliers and consumed about 10% of total residential energy, nearly 40% of commercial customers purchased supply from retailers while consuming over 80% of commercial energy. The amount and timing of consumption patterns among commercial consumers vary much more than among residential consumers; commercial consumers can also be subject to more variable rate structures for supply and distribution. Without more information on procurement processes, contract negotiations, and available contract terms of commercial customers, it is difficult to say how commercial customers fare so well, on average, compared to residential customers. It could be due to several factors, including greater bargaining power, economies of scale, and specialized knowledge that may enable commercial customers to take advantage of the competitive supply market.
Combating the rising costs of electricity
A combination of forces is driving up the cost of electricity, including growing use of artificial intelligence (AI) computing systems that rely on energy-intensive data centers, geopolitical pressure from the Russia-Ukraine war on natural gas supply chains (though this pressure seems to have resolved at this time), costs of replacing aging energy infrastructure, and costs of building new infrastructure for more renewable and smart energy systems integration. As of June 2025, Pepco raised the SOS price to compare from about $0.12 to $0.16. This is equivalent to a $28 monthly increase in supply (before adding distribution costs) for an average household that consumes 700kWh. This is a challenging burden – financially and cognitively – for households living on the margins.
As of August 2024, about a quarter of SOS customers were behind on their electricity bills, but more than half of retail customers were behind on their bills. Evidence has shown that many retail suppliers set prices using default service rates (i.e. Pepco’s SOS price to compare in DC) as price floors, which means that we can expect retail rates to all recalibrate to prices that are mostly higher than Pepco’s new SOS price. We can assume that this will put increasing pressure on households, leading to more customers falling behind on bills.
DOEE is currently developing two strategies aimed at protecting residential consumers in the electricity market. First, DOEE has conducted data-driven market research and interviews among experts to inform a series of retail market reform proposals. Blog 2 in this series will explain these proposed reform measures in more detail. Second, DOEE is conducting an experimental randomized controlled trial (RCT) to test the effectiveness of sharing various forms of consumer protection information with sampled residents. Blog 3 in this series will present the results from the RCT.
DOEE is grateful to Pepco for its collaboration in sharing retail electricity market data with DOEE for this analysis. If you have any questions or comments, please reach out to Jen Richmond at jennifer.richmond@dc.gov.