Americans are blaming the wrong part of their electric bill

OPINION:

In Texas, the company that sends your electricity bill is not the same one that generates or delivers your power. These are separate companies. Generators produce the power, regulated utilities deliver it and retail providers sell it to you.

This setup is important because when prices go up, people often blame the wrong part of the system. Many also hold the unsupported belief that electric rates are rising quickly due to data center demand.

It’s true that there is rising demand for power, but prices are rising in specific regions where lack of supply is a problem.

While demand has increased, supply has remained flat in regions such as the Northeast, which nearly 58 million people call home, and power producers there prefer it that way.

A recent analysis by Charles River Associates underscores the point. Across most of the country, electricity prices have been relatively stable and the narrative of runaway electricity prices is largely driven by a smaller group of states — concentrated in California, the Northeast and parts of the mid-Atlantic.

This PJM Interconnection region, which includes states such as Pennsylvania and Maryland, is a great example to follow. Unlike Texas, the main issue in PJM is not confusion about roles. Instead, it is a deeper problem: Utilities in many PJM states are largely not allowed to build or own power plants, even if that could lower costs and improve reliability.

Utilities must buy power through PJM’s marginal price auctions. These auctions set prices based on the most expensive unit required to meet demand. This means all power is priced at the highest cost, even if cheaper options are available. Consumers end up paying that price set by individual power plant companies.

It’s important to note that utilities do not profit from these increases. Purchased power costs are passed onto customers without any markup. The companies that send your monthly bills are not the ones making money from higher wholesale prices.

Instead, the system is producing exactly what it was designed to produce: higher prices when supply is tight. That’s the wrong way to do things if you ask me.

This is where comparisons to Texas are instructive. The ERCOT market, which serves most of Texas, is also a competitive system. But it operates differently.

Texas regulators have made policy decisions that prioritize ensuring sufficient supply, even if that means higher upfront costs or stronger price signals to incentivize investment. The result is a system that, while not perfect, has largely served consumers well by maintaining a closer balance between supply and demand.

In PJM, the situation is different. Supply growth has not kept up with rising demand, even though the region has grown steadily for years. Market rules have stopped utilities from building new power plants in places such as Pennsylvania, while older plants have closed.

Independent power producers have not replaced them, even though they have made record profits. These power plant owners know that the current structure rewards scarcity instead of new supply.

Utility-owned generation can often provide power more cheaply than purchasing it through volatile wholesale markets. In fact, allowing utilities to build generation can act as a hedge against independent power plant owners backed with private capital – not taxpayer oversight – that keep power supply low and prices high.

It introduces another source of supply, increases competition and reduces dependence on price spikes to trigger investment.

The goal is not to get rid of independent power producers, which are important to the energy system. Instead, we should aim for a level playing field where both utilities and independent generators can compete to build the power plants needed to meet demand.

This will result in greater electricity supply and help reduce prices in the PJM region, unlike the situation we’re experiencing today.

Electricity demand is growing, which shows economic strength, not a problem. The real challenge is making sure supply keeps up. When it does not, prices increase and consumers end up paying more.

In Congress, I supported all efforts to let companies that know what they are doing build more to meet the demand my constituents needed to build their own businesses and American dream.

If state policymakers want to stabilize prices, they should stop limiting who can build power and focus on bringing more supply online. And if American families are the ones footing the bill, then the source of their power should be the cheapest option in a truly competitive market.

• Joe Barton is a former Republican member of Congress representing Texas who served as chairman of the House Energy and Commerce Committee from 2004 to 2007.