When gas prices spike, drivers can see the change instantly at the pump and adjust their behavior accordingly. But when electricity costs surge, utilities continue charging a flat rate, giving consumers no way to avoid higher expenses. Michael Giberson over at the R Street Institute is out today with a commentary on how this outdated system, rooted in century-old regulations, shields price signals from consumers—preventing them from making cost-saving choices.
Electricity production costs fluctuate significantly throughout the day. On hot afternoons, utilities fire up expensive “peaker” plants that operate just a few days a year but drive up overall costs. However, instead of reflecting those price spikes in real time, utilities spread the cost across the entire year. This means that even if you use less electricity during peak times, you’re still paying the same as someone who cranks their air conditioning all summer.
Giberson points out that because most utilities operate as state-sanctioned monopolies, they have little incentive to help customers lower their energy use when it matters most. Many states even guarantee utilities a return on investment for costly peaker plants—further discouraging efficiency. The result? Excess infrastructure, inefficient power use, and higher bills for everyone.
With today’s digital technologies—smart thermostats, water heaters, EV chargers, and home batteries—electricity pricing could be dynamic and consumer-friendly. Studies show that real-time pricing can lower bills by 10–15% while reducing overall system costs.
Texas, which has a competitive retail electricity market, demonstrates how this works. Suppliers offer flexible rate plans that allow customers to adjust usage in response to price changes—helping them cut energy costs by 20% or more while avoiding extreme price spikes. Consumers who prefer stability can still choose traditional flat-rate plans, but no one is forced to subsidize someone else’s high energy use.
Unfortunately, in many states, outdated regulations block these consumer-friendly options. Monopoly utilities and rigid rate structures keep electricity pricing in the dark ages—forcing customers into one-size-fits-all models that lead to higher bills.
A recent report from the American Enterprise Institute highlights the barriers preventing a more modern, consumer-driven electricity system. It lays out clear policy reforms to introduce choice, transparency, and competition into the power sector—giving consumers more control over their energy costs while improving grid reliability and affordability.
By pulling back the curtain on electricity pricing and embracing competitive markets, we can empower consumers, lower costs, and build a more efficient energy future.
Read Giberson’s full piece at RStreet.org.