The Deregulation Paradox: How Competition Became a Middleman's Game
Twenty years after electricity deregulation promised lower prices through competition, American consumers face higher bills and an army of middlemen. What went wrong?
What if the cure became worse than the disease? In Columbus, Ohio, families are paying 110% more for the generation portion of their electricity bills than they did just five years ago. This isn't an outlier—it's part of a national trend that's making energy affordability a key election issue across America.
More than half of U.S. adults surveyed in January 2026 reported being "very concerned" about electricity prices. While experts point fingers at geopolitical events, policy changes, and AI data centers, new research from The Ohio State University reveals an overlooked culprit: the middlemen that deregulation was supposed to eliminate.
The Promise vs. The Reality
Between the late 1990s and early 2000s, several states deregulated their electricity systems with a simple promise: replace inefficient regulation with competition, and prices would fall. The pitch was compelling—why let bureaucrats set prices when the market could do it better?
Under the old system, state regulatory commissions set prices for generation, transmission, and distribution, all provided by the same monopoly utility. Federal law required these rates to be "just and reasonable." Deregulation kept this process for transmission and distribution but split off generation into competitive wholesale markets.
Here's where things got complicated. Instead of widespread retail competition, deregulation created a two-tier system. Consumers could either choose a marketer from the open market or do nothing and stay on "default service." Most chose to do nothing.
Rather than eliminating middlemen, deregulation multiplied them.
Option A: The Illusion of Choice
In Cincinnati, residents can choose from more than 50 suppliers to buy electricity on their behalf. Door-to-door salespeople, convenience store pitches, and telemarketers all compete for attention. The monthly bill still comes from Duke Energy, but includes charges from an unregulated retail supplier.
Sounds competitive, right? The Ohio State research team compiled millions of records covering every daily retail offer in Ohio for a decade. Their finding: 72.1% of open-market offers exceeded the utility's default rate. In some years, there wasn't a single cost-saving offer available for the entire year.
Even more telling, these supposedly competitive suppliers weren't setting prices based on market fundamentals like wholesale electricity costs. Instead, they were taking cues from the utility's default supply selection process. That's not competition—that's price following.
Option B: The "Do Nothing" Trap
For those who choose default service, the process seems more regulated. Utilities hold auctions to determine which companies supply electricity and at what price. But this system has its own problems.
The research team analyzed nearly 15 years of default service auctions across Ohio and found that the number of bidding companies was the key factor determining consumer costs. When fewer companies bid, prices rose significantly. Just three additional bidders could reduce default rates by 18% to 23%. Nine more bidders could deliver savings of up to 60%.
In some auctions, as few as five suppliers placed bids. Others had 15 companies competing. The difference in consumer costs was dramatic, even when underlying generation costs were identical.
The Middleman Economy
What emerges from this research is a troubling picture. The open market isn't delivering competitive prices—it's delivering higher prices based on artificial benchmarks. Meanwhile, the default option suffers from too little competition in the bidding process.
Consumers end up paying middleman marketers no matter which option they choose. The only question is whether they pick their own middleman or let the utility pick one for them. Neither choice guarantees a good deal.
This isn't unique to Ohio. The state's default service process is actually more robust than many other deregulated markets. In some states, even fewer companies bid for default service contracts, suggesting Ohio's problems may be better than the norm.
The Global Implications
As countries worldwide consider electricity market reforms, the American experience offers sobering lessons. The UK, which pioneered electricity deregulation, has seen similar issues with complex pricing and consumer confusion. European markets have struggled with the balance between competition and consumer protection.
The fundamental question isn't whether markets are better than regulation—it's whether the specific market design actually delivers competition. In electricity, the complexity of the product, the captive nature of consumers, and the essential service nature of power create unique challenges.
The answer may require rethinking what competition actually means in essential services markets.
This content is AI-generated based on source articles. While we strive for accuracy, errors may occur. We recommend verifying with the original source.
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