Deregulation Is Still Wrong for Consumers

EV Use Is Growing, But Where Are The Chargers?
October 28, 2022

For years, Energy Fairness has warned of the various dangers of deregulating the electricity marketplace, offering evidence to policymakers and the public that deregulation makes electricity more expensive and less reliable for consumers. Now, an article from The New York Times underscores those warnings.

What is electricity deregulation? Deregulation simply means that energy generation, transmission, and retail distribution are handled by separate entities rather than by a single, regulated provider. In such markets, consumers can choose their electricity provider, with other entities responsible for delivering that power through the grid and handling tasks such as storm repair. The thinking behind such markets is that competition will result in lower prices.

The deregulated marketplace differs from regulated markets mostly in the sense that utilities in a regulated market are responsible for all facets of electricity, from power production to transmission to distribution. In exchange for the right to serve as a vertically integrated power provider, the price of electricity is controlled by state regulators, often elected by voters and sometimes appointed by state officials. But while “energy choice” sounds good on the surface, data shows that consumers in deregulated states consistently spend more for their electricity.

In fact, since efforts by some states to deregulate their electricity markets began in the 1990s, power prices in the 35 states that have partially or entirely deregulated their markets have skyrocketed. Consumers in these markets pay an average of $40 more monthly than those in regulated states. This isn’t a recent phenomenon either; data shows this has been the case going back as far as 1998.

“After the numbers are that far apart for this long you have to wonder if something isn’t working very well,” says Robert McCullough, an energy researcher and consultant who analyzed electricity rate data for The New York Times. “If your car hasn’t been working for 20 years, maybe you should take it to the dealership.”

Why is there such a stark difference in pricing? A major cause is the fact that utilities in deregulated states must spend more on power lines to carry energy over hundreds of miles. Those costs, which ultimately will be paid by consumers, are subject to only minimal oversight by regulators. On the other hand, regulated utilities tend to spend less on transmission because they don’t need to purchase power from providers outside of their market. Also, utility spending in regulated states must be approved by elected officials. Deregulated states have less accountability, with utilities doing only what is best for their bottom line and not necessarily what is prudent for consumers in the long term.

This lack of oversight also makes power grids less reliable. The clearest example of this is the famous and spectacular failure of the Texas power grid during Winter Storm Uri two years ago. Millions of Texans suffered blackouts during the Arctic blast, with hundreds even losing their lives. At the time, Energy Fairness pointed the blame squarely at Texas’s deregulated energy market, especially the failure by state officials to ensure the state’s power grid had sufficient capacity to handle extreme conditions. Sadly, not much has changed in Texas since 2021 and the threat of blackouts in the face of extreme weather still looms large.

Time and time again, deregulation has proved to be the wrong move for consumers. The consequences have been expensive and even deadly. It’s time for policymakers to acknowledge that deregulation isn’t working and take action to re-regulate those energy markets that were deregulated in recent decades. Anything less could once again rob consumers of both their money and their peace of mind.