Is Deregulated Energy the Best Path Forward?

It’s the million-dollar question with every conceivable form of commerce – regulated, deregulated, or somewhere in the middle? Texas is about to answer that in a microcosm, with deregulated energy headed for Lubbock.

To whit, it’s a choice between (deregulated) free markets, where consumers choose their own energy provider, and a regulated monopoly, with price controls and just one choice.

Of course, it’s a lot more complex than that (as market forces often are), but that’s the gist. 12 states (and the District of Columbia) have deregulated or restructured electricity utilities, while five states have partially deregulated or restructured energy.

In my home state of NJ, that translates to a choice of Atlantic City Electric, JCP&L, Rockland Electric, and PSE&G for electric. But does choice translate to savings?

I think we can all imagine the perks of deregulated energy – competition breeds lower prices, a bigger variety of individual packages, easier switching, and technological progress, amongst other factors.

The disadvantages are the exact inverse – mainly, that when consumers have choices, they…need to choose. Also, private companies can tack on all manner of fees and administrative costs, and companies may choose to not service more remote areas.

And even the vaunted price savings of deregulated energy could be smoke and mirrors.

MIT studied deregulated energy over a 15-year period and ultimately found “substantial price increases for consumers in deregulated states relative to consumers in regulated states,” though “marginal costs declined in deregulated states, indicating that higher prices are driven by higher markups.”

Over that period, “gross markups increased by 15 dollars per MWh,” leading to a 19% price increase.

But deregulation advocates are undeterred.

The Lubbock city council approved a measure in February 2022 to switch the town over to a fully deregulated energy market. To do so, they have to switch the power supply over from the Southwest Power Pool to the Electric Reliability Council of Texas, and curiously, nearly 75% of Texas is already with ERCOT, including the vast majority of Lubbock. But the town will now have absolute choice in the matter.

And there’s reason to believe this particular instance could unable price savings and even spur the growth of renewable energy, which has already been a huge boon for Texas during this heatwave.

The state’s grid hasn’t buckled, even with peak demand of nearly 81,000 megawatts (MW), largely because of solar, wind, and grid-scale battery storage added within the last two years. Texas has even surpassed California in total installed solar.

So this couldn’t be a better time to introduce fully deregulated energy to Lubbock.

Citizens of Lubbock can start choosing their provider as early as January 2024.