Why Are “Retail Choice” Electricity Markets More Expensive?
Deregulation for American electricity markets was supposed to usher in cheap electricity for consumers. It has not. Far and away, utility customers in regulated electricity markets are paying less for power.
The most recent tally for 2024 shows overcharges ranging up to $480 per residential account. In aggregate, Americans in retail choice markets paid almost $4 billion in overcharges to receive the same electrons that everyone else receives.
In “Caveat Emptor: America’s $48 Billion Competitive Retail Electricity Bust,” author Laurel Peltier, using data from the U.S. Energy Information Administration, shows cost differentials in service areas where consumers can choose to buy from a chosen retailer or from the incumbent, price regulated utility, as noted in the table below.
Texas, the clear leader in overcharges, was the home of the electricity trading innovators at Enron. The Texas data comparison is between the retail electricity prices paid by consumers served by price regulated utilities and the almost 7 million households required by law to buy electricity through state licensed retailers. These Texas regulations would be like having deregulated airlines but adding a rule requiring travelers to book through a travel agent. The federal government did not do this when it deregulated the airlines.
Peltier’s report also notes that generators and retailers in Texas have essentially reconsolidated. Generation providers NRG and Vistra now control approximately 70% of the residential retail market and are not subject to having their prices regulated and approved by the Public Utility Commission of Texas. Collusion is easy with each retailer posting and matching prices on the confusing, state mandated website, which allows consumers to compare electricity retail plans serving their geographic area. It turns out residential households do not re-shop each year. Then the retailers move them to what is in effect a more expensive subscription.
The history of overcharges in the Texas grid operator ERCOT, the Electric Reliability Council of Texas, should serve as a lesson for all electricity markets. The Wall Street Journal reported ERCOT consumers had been overcharged by $28 billion from its inception in 2003 through 2019; plus $4.2 billion in overcharges directly from 2021 grid failure due to the freeze across Texas; plus $12 billion in 2023; and billions of dollars more since.
Nationally, electricity markets are facing huge growth in demand to accommodate AI data centers. States that have an electric system through the traditional regulation model, are having success bringing data centers online in a way that offers protections to residential customers. But those states that rely exclusively on retail choice have a chicken-or-egg problem. Retailers are supposed to compete for the consumers’ business in the retail market, but they never have been required to buy ahead to make sure their customers have enough electricity for next year and the years following. To avoid having the costs of the new expansion fall on residential consumers, grid operators such as PJM are beginning to require AI data centers to build their own power plants and to pay for any ancillary and precautionary services they may require from the incumbent utilities and grid operators.
According to the Energy Information Administration, residential customers nationally pay higher rates than commercial and industrial electricity users. The average residential rate rose 8.0% year-over-year between April 2025 and April 2026, far higher than the rate of inflation. The difference is higher in deregulated markets. In Texas, rates for residential consumers are almost double the rates of commercial and industrial consumers. Considering that businesses can deduct electricity costs from their taxes, the average residential consumer pays higher rates and higher taxes to subsidize businesses.
The premise that government could better operate electricity delivery to consumers was flawed. The premise that government could split a company into three or four separate, profit making parts to deliver lower cost electricity was flawed. Free market advocates have missed the irony that, at least in Texas, state government forced residential consumers into “retail choice” programs to ultimately purchase electricity from a government operated monopoly.
But irony never plays well in politics. Money plays better. And the generators and retailers in deregulated electricity markets are very effective at converting a portion of their overcharges into campaign contributions while consumers pay higher bills. Voters beware.