For all of my adult life, I have believed that free markets incentivize innovation, generate lower costs, and improve services. Indeed, confidence in the value of free markets is one of the foundations of conservatism, and why I align with the Republican Party.
I have also always felt that conservatives need to be on the lookout for industries that try to co-opt the free market movement, to take advantage of their customers, and do so under the guise of competition. Giving customers options is a good thing, but only if they actually deliver innovations, better services, and lower prices.
Speaking of lower prices, electricity is an issue that is getting a lot of attention. Even our President has weighed in on ensuring the American people are protected from rate increases tied to data centers. Another issue that is impacting how much people pay for electricity is how utilities are, or are not, regulated.
Specifically, it’s worth asking if three decades of deregulation across the country, which has forced utilities to compete to sell power to customers, has delivered lower prices. Or have the deregulated states allowed utility customers to be overcharged by fraudsters masquerading as competitors to regulated utilities?
After taking a hard look at our energy sector, specifically how Americans get electricity, I think it is becoming increasingly clear that the old-fashioned, regulated electricity model with a single incumbent electricity provider makes a lot more sense than the so-called deregulated markets. The bottom line is that fully regulated electric utilities consistently provide customers with lower-cost power. In other words, deregulation has not delivered lower prices, innovations, or better services to utility customers. Instead, the opposite is true.
Don’t take my word for it, though.
A pivotal Wall Street Journal story found that: “U.S. consumers who signed up with retail energy companies that emerged from deregulation paid $19.2 billion more than they would have if they’d stuck with incumbent utilities from 2010 through 2019…”
The New York Times agreed, reporting: “California and the 34 other states that have deregulated all or parts of their electricity system tend to have higher rates than the rest of the country.”
Why are deregulated states forcing customers to pay more for electricity? It turns out that the companies that compete with the utilities to sell power to customers are ripping people off.
Consider a recent report from the John Glenn College of Public Affairs at the Ohio State University, titled “How Deregulation Made Electricity More Expensive, Not Cheaper.” The leading cause of higher rates identified by the report is a group of middlemen called retail suppliers that promise to help customers secure lower-priced electricity. They do this by taking customers off of the regulated rate charged by the incumbent utility – known as standard offer service – and transferring them to a system of competitive rates.
But the problem is that while these retail suppliers might initially offer a rate lower than the standard offer service, the contracts allow them to auto-renew the agreements into variable-rate plans that consistently raise prices.
Some might call this style of marketing by retail suppliers a “bait and switch” or a scam. Whatever you call it, it’s not a free market, and retail suppliers should stop pretending they care about utility competition. According to one watchdog, in 2024 alone, retail suppliers overcharged 11.4 million customers in the U.S., a whopping $4 billion more for electricity than what those customers would have paid if they had simply stuck with their incumbent utility.
Now, even though President Donald J. Trump has eliminated many of Joe Biden’s programs that exacerbated inflation, millions of Americans are still struggling with affordability. With that in mind, I think it’s time that lawmakers and policy experts around the country come together and help the American people with lower electric bills by promoting sensible utility regulation that blocks retail suppliers from overcharging their customers.
Ken Blackwell is the President of the Council for National Policy in Washington, DC.
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