Why Power Prices Are Rising Faster in Deregulated States

Summary

Three decades after US electricity deregulation promised lower prices through competition, the gap between deregulated and regulated state electricity prices has widened to its largest level on record, driven by a market design where natural gas—as the marginal fuel for the last generator dispatched—sets the price all generators receive regardless of what share of power actually comes from gas-fired plants.

Market Impact

Analysts Leonard Hyman and William Tilles argue this price-setting mechanism means rising natural gas demand from Trump administration policies favoring gas exports and fossil fuels over renewables could push deregulated-state electricity prices higher and more volatile, since gas price spikes flow directly into wholesale power costs in those markets. The piece notes China is dramatically reducing gas-fired power plant construction even as the US ramps up, framing the US buildout as a structural risk to utility business models—particularly as power-hungry technology companies seeking megawatts for AI data centers increasingly view utility distribution infrastructure as unnecessary overhead, potentially accelerating a shift where large energy users bypass traditional utility relationships entirely in high-price, high-volatility deregulated markets.

Why It Matters

The widening gap between deregulated and regulated electricity prices, driven by gas-price pass-through mechanics, exposes a structural vulnerability that could accelerate large technology users bypassing traditional utility models in favor of direct power procurement.

Key Points

• The gap between deregulated and regulated state electricity prices has widened to its largest level on record after nearly three decades of US electricity deregulation
• In deregulated markets, the price of natural gas used by the last generator dispatched to meet hourly demand sets the price all generators receive that hour, regardless of their actual generation mix
• Trump administration policies favoring natural gas exports and fossil fuels over renewables could raise and increase volatility in domestic gas prices, directly elevating deregulated-state electricity prices
• China is dramatically reducing gas-fired power plant construction even as the US ramps up, while technology companies seeking megawatts for AI data centers increasingly have no use for utilities' broader distribution systems

Key Entities

Evidence

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... this means the price of natur...

Supports: Documents the core market design mechanism driving the price gap

after almost three decades of deregulation, the gap between regulated and deregulated electricity prices is bigger than it has ever been.

Supports: Confirms the record-wide price gap

China, by contrast, is dramatically reducing gas-fired power plant construction while the US ramps up.

Supports: Grounds the structural risk contrast with China's approach