New transmission lines in deregulated markets often get limited review by state or federal officials, which means they are less likely to be rejected on the grounds that they are too expensive or that a less costly alternative, like a local power plant, could be substituted. Regional grid managers, which are generally not subject to state regulatory review, handle transmission planning.
Another reason rates are high in deregulated areas is that wholesale energy markets are designed to pay all suppliers of electricity in a given area the same rate for their power. That rate is pegged to a relatively high-cost supplier, often a natural gas power plant, to ensure there is enough electricity to meet demand.
In practice, that means even lower-cost power producers, like solar or wind farms, receive the same compensation as more expensive suppliers.
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.”
Two economics professors reached a similar conclusion in a December working paper about electricity markets. “We find that the higher markups charged by generation companies more than offset the efficiency gains, leading to higher wholesale prices,” wrote the researchers, Alexander MacKay of Harvard and Ignacia Mercadal of the University of Florida.
One former state energy regulator, Brien Sheahan, who was chairman of the Illinois Commerce Commission, said energy costs could continue rising rapidly in the coming years, partly because utilities will spend hundreds of billions of dollars on the grid to address climate change and contend with more devastating weather extremes. While that spending could eventually lead to savings and a more reliable grid, it will probably drive up rates in the short term.
Mr. Sheahan said costs were likely to rise more in deregulated states, like Illinois, because there will be fewer checks and balances on how utilities spend money than in regulated states. “It’s just going to get worse and worse and worse,” he said.