Why Power Prices Are Rising Faster in Deregulated States

Why It Matters

Higher, volatile electricity costs strain consumers and businesses in deregulated states and could accelerate shifts toward renewable investments and new market participants such as tech firms.

Key Takeaways

• Deregulated states' electricity prices now outpace regulated states.
• Gas‑fuelled marginal pricing ties power costs to natural‑gas swings.
• AI demand and export‑focused policies may amplify price volatility.
• Renewable adoption and tech‑driven metering could reshape the market.

Pulse Analysis

The United States began deregulating its electricity markets in the 1990s with the promise of competition, lower rates, and innovation. Three decades later, data from the EIA shows that the weighted average price of electricity in deregulated states now exceeds that of regulated states by a record margin. The original goal—to align prices with those in markets that retained traditional utility structures—has not materialized, and the gap has widened as natural‑gas prices have surged.

At the heart of the price disparity is the marginal‑cost pricing model used in most deregulated markets. Each hour, the most expensive generator needed to meet demand—often a gas‑fired plant—sets the market price for all electricity, regardless of the fuel mix. Consequently, when natural‑gas prices climb, every megawatt sold inherits that cost, inflating bills for residential, commercial, and industrial customers alike. Recent policy signals from the federal administration, which aim to boost natural‑gas exports and prioritize fossil‑fuel generation, risk further tightening supply and amplifying price volatility across these markets.

Looking ahead, two forces could reshape the landscape. First, AI‑intensive data centers and other high‑consumption technologies are driving unprecedented electricity demand, intensifying exposure to price swings. Second, the growing economic case for solar, storage, and decentralized generation offers a hedge against gas‑linked pricing and aligns with emerging tech‑driven metering solutions. As utilities confront shrinking margins and tech firms eye energy as a data asset, the sector may see a wave of restructuring that favors renewable integration, demand‑side management, and new market entrants, potentially restoring price stability for consumers.