Less regulation, pricey power
Average electricity costs in 35 deregulated states are higher than in 15 states that are not
When California, New York, Texas and other states began deregulating their electricity markets in the 1990s, officials promised that those changes would foster competition and make energy more affordable, but it hasn’t worked out that way.
Average retail electricity costs in the 35 states that have partly or entirely broken apart the generation, transmission and retail distribution of energy into separate businesses have risen faster than rates in the 15 states that have not deregulated, including Florida and Oregon. That difference has persisted for much of the past two decades or so, including in the past year, when energy prices increased worldwide after Russia invaded Ukraine.
On average, residents living in a deregulated market pay $40 more per month for electricity than those in the states that let individual utilities control most or all parts of the grid. Deregulated areas have had higher prices as far back as 1998.
“After the numbers are that far apart for this long you have to wonder if something isn’t working very well,” said Robert McCullough, an energy researcher and consultant who analyzed electricity rate data at the request of The New York Times. “If your car hasn’t been working for 20 years, maybe you should take it to the dealership.”
One big reason deregulated areas have higher rates is that utilities there are spending more on power lines to carry electricity over hundreds of miles. That spending, which is ultimately paid for by individuals and businesses, often gets minimal review by state and federal regulators. By comparison, officials in areas that have not deregulated their energy maintain much greater control over utility spending and rates.
In addition, wholesale power prices tend to be higher in deregulated markets because the profits taken in by energy suppliers — companies that are separate from the utilities that deliver electricity to homes — more than offset any savings to consumers from greater competition and efficiency. In regulated markets, single utilities manage all or most parts of the grid, including producing energy and delivering it to homes and businesses.
In 1996, the California Legislature and Gov. Pete Wilson deregulated the energy market. The state’s three large utilities — Pacific Gas & Electric, Southern California Edison and San Diego Gas & Electric — would still deliver electricity, but they would buy much of that energy from independent power producers and traders on a wholesale market.
But California’s deregulation quickly turned into a disaster, with surging prices and crippling blackouts. Widely attributed to traders at Enron and other companies, the crisis revealed that the state had not put adequate safeguards in place.
California stabilized its system in the early 2000s, but analysts say the state, with its high electricity rates and recent power outages, still serves as a cautionary tale.
Competition ought to have driven down the price of energy, but it has effectively left consumers paying more for power that should have been relatively cheap, said Tyson Slocum, who directs the energy program at Public Citizen, a research and advocacy group founded by Ralph Nader. “These markets are actually not very efficient. They’re not always the least-cost option.”