Deregulation raises electricity costs, experts tell NYT


Mexico City / 09.01.2023 12:57:38

The areas of the United States that have a deregulated market in generation, transmission and distribution of electricity they pay more for this power than entities where it remains in the hands of a single controller, experts told The New York Times.

They found that residents living in an unregulated market pay $40 more (about 800 pesos) per month for electricity than those states that allow individual utility companies to control most or all parts of the grid. Deregulated areas have had higher prices since 1998.

“After the numbers are so far apart for so long, you have to wonder if something isn’t working very well,” said Robert McCullough, a researcher and energy consultant who analyzed electricity rate data at the request of The New York Times.

One of the main reasons that deregulated areas have higher rates is that utility companies spend more on power lines to transport electricity over hundreds of kilometers, while private ones do not.

The private or deregulated entities have minimal reviews by state and federal authorities; while in non-regulated areas control is much greater.

In addition, wholesale energy prices tend to be higher in the deregulated markets because the profits that energy providers (companies that are separate from the utilities that deliver electricity to homes) make more than make up for any savings to consumers from greater competition and efficiency.

In regulated markets, the only utility companies manage all or most of the network, including the Energy production and its supply to homes and businesses.

The deregulation of electricity markets is the subject of intense debate among academics, analysts, regulators, and utility industry executives. For critics like McCullough, lhe gap between electricity rates is a powerful argument against deregulation.

But many energy executives and academics, including William W. Hogan, professor of energy policy at the Harvard Kennedy School, argue that allowing more companies to generate electricity and trade it in wholesale markets makes the system more efficient.

Some officials, including in the president’s administration Joe Bidenargue that regional approaches to electricity are essential to combat climate change by making it easier for many companies to build wind farms and solar and connect them to the grid.

According to advocates of deregulation, relying on a few large utility companies it would make the effort much longer.

Another reason fees are high in deregulated areas is that wholesale energy markets are designed to pay all electricity providers in a given area the same rate.

That cost is tied to a relatively expensive supplier, often a utility power plant. gas naturalto ensure there is enough electricity to meet demand.

In practice, that means that even the lowest cost power producerssuch as solar or wind farms, receive the same compensation as expensive providers.

“Competition should have brought down the price of energy, but effectively has left consumers paying more for energy that should have been relatively cheapsaid Tyson Slocum, who heads the energy program at Public Citizen, a research and advocacy group founded by Ralph Nader. “These markets are actually not very efficient. They are not always the lowest cost option.”

Brien Sheahan, who was chairman of the Illinois Commerce Commission, said that energy costs could continue to rise rapidly for years to comein part because utility companies will spend hundreds of billions of dollars on the grid to address the climate change and deal with more devastating weather extremes.

While that expense could eventually lead to savings and a more reliable network, it probably will increase rates in the short term.

Sheahan said that costs are likely to rise more in deregulated states, like Illinois, because there will be fewer checks and balances on how utility companies spend money than in regulated states. “It’s just going to get worse,” she said.


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