American households are facing increasingly burdensome electricity bills, a trend that is sparking debate about the effectiveness of decades-old deregulation efforts. While initially touted as a means to lower costs through competition, electricity deregulation appears to have had the opposite effect, introducing complexities and, in many cases, higher prices for consumers.
The issue is gaining prominence as a key election concern, with over half of U.S. Adults expressing significant worry about the price of electricity, according to a January 2026 survey. The rising costs aren’t easily attributed to single factors like geopolitical events or changes in energy policy, though those are frequently cited. New research suggests a significant, and often overlooked, contributor: the proliferation of middlemen created by the deregulation process.
For much of the 20th century, the electricity system operated under a relatively straightforward model. State regulatory commissions set prices for all aspects of electricity service – generation, transmission, and distribution – provided by a single, vertically integrated utility company. These commissions were legally obligated to ensure rates were “just and reasonable.” This system, while not without its drawbacks, provided a degree of price stability and predictability.
Beginning in the late 1990s and continuing into the early 2000s, several states began to deregulate their electricity markets. The core premise was that introducing competition into the generation segment would drive down prices. Deregulation split the generation component from the transmission and distribution networks, creating competitive wholesale markets for electricity generation. However, this competition didn’t fully translate to lower retail prices for consumers.
The regulatory commissions retained their rate-setting authority over transmission and distribution, which remain largely natural monopolies. But the generation side became fragmented, with numerous companies competing to sell electricity into the wholesale market. What we have is where the “middlemen” emerged. These entities, often energy service companies (ESCs), act as intermediaries between the wholesale market and the consumer, offering various electricity plans and services.
The expectation was that these ESCs would leverage their purchasing power and market expertise to secure lower rates for consumers. However, the reality has often been different. The added layer of complexity and the marketing costs associated with attracting customers have, in many instances, contributed to higher overall costs. Residents in deregulated markets, on average, pay $40 more per month for electricity than those in states with traditionally regulated systems, according to data from .
The Ohio State University’s Energy Markets and Policy Group’s recent research highlights this dynamic. The study suggests that the introduction of these middlemen, rather than fostering genuine competition, has created opportunities for increased profit margins and administrative overhead. The research points to a situation where consumers are often unaware of the true cost of generation and are vulnerable to complex pricing schemes offered by ESCs.
The situation is further complicated by the fact that many consumers lack the time or expertise to effectively compare plans and understand the intricacies of the deregulated market. This information asymmetry allows ESCs to capitalize on consumer inertia and offer plans that may not be the most cost-effective.
The increase in electricity prices is particularly acute in some areas. For example, the generation portion of a standard residential electric bill in Columbus, Ohio, has increased by 110% over the past five years. This example illustrates a broader national trend, indicating that deregulation’s promise of lower prices has largely gone unfulfilled.
While the initial intent of deregulation – to reduce bureaucracy and promote efficiency – may have been sound, the unintended consequences have created a system that is often more expensive and less transparent for consumers. The debate over the future of electricity regulation is likely to intensify as energy affordability becomes an increasingly pressing issue for American families.
The core issue isn’t necessarily the concept of competition itself, but rather the way deregulation was implemented and the lack of effective oversight. The existing regulatory framework may need to be re-evaluated to ensure that consumers benefit from the competitive forces that were intended to be unleashed. This could involve greater transparency in pricing, simplified plan options, and stronger consumer protections.
The historical context of electricity regulation is also relevant. Prior to the late 1960s, economic conditions supported the effectiveness of traditional regulation, allowing for a period of smooth rate-of-return regulation. However, changing economic forces and evolving energy markets have challenged the traditional regulatory model, leading to the push for deregulation. The current situation suggests that a simple shift to deregulation wasn’t a panacea and that a more nuanced approach is needed.
