Why Power Prices Are Rising Faster in Deregulated States
Hyman is an economist and financial analyst specializing in the energy sector.
He headed utility equity research at a major brokerage house and… Back in the last century, when neo-liberalism, deregulation, and privatization were all the rage, we, in the USA, decided to restructure and deregulate the electricity industry, on the theory that such action would bring about the same benefits to electricity consumers as it did for consumers of transportation, natural gas, and telecommunications.
The idea took hold mainly in states where consumers paid high prices for electricity.
The other states decided to leave well enough alone.
The introduction of competition and industry restructuring to the electricity business, it was believed, would lead to lower generating costs, greater incentives to build needed transmission, freedom of choice for consumers and innovation.
Those improvements, then, would drive down prices in deregulated states, bringing them more in line with prices in states that eschewed the benefits of the new wave of economic thought.
In fact, in recent years, the gap between deregulated and regulated prices seems to have widened.
That brings us to the big problem, as we see it.
In deregulated states, the market price for all electricity is determined by the offering price of the last generator needed to fulfill hourly demand for power, usually a gas generator.
In simple terms, this means the price of natural gas (the determinant of cost to that last generator) sets the price of electricity and all generators selling power that hour receive that (elevated) price.
It doesn’t matter if 90% or 10% of electricity is generated by natural gas.
mainly set by the price of natural gas.Related: UK Clean Tech Firms Plan Europe's Biggest Direct Air Capture Project Some experts, in fact, argue that changes in the gap between regulated and unregulated prices is largely determined by the price of natural gas.
| Product | Price | Change |
|---|---|---|
| Brent Crude | $102.14/bbl | +0.34% |
| WTI Crude | $96.90/bbl | +0.21% |
| EN590 Diesel | $846/MT | +0.18% |
| Jet Fuel A-1 | $1090/MT | +0.55% |
| Mazut M100 | $450/MT | -0.15% |
| Bitumen 60/70 | $470/MT | +0.08% |
| Sulphur Gran 99.5% | $470/MT | -0.44% |
| Urea 46% Gran | $650/MT | +1.12% |
| NPK 16-16-16 | $460/MT | -0.28% |
| Nat Gas TTF | $15.42/MMBtu | +0.92% |
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