The Fed study reflects growing pessimism among aspiring homebuyers — especially young homebuyers — as prices have ballooned over the course of the pandemic.
skynesher/Getty Images
In over 20 states, families have some choice over where their home’s energy comes from.
In today’s volatile energy market, a wrong decision could cost them hundreds of dollars.
Increasing in prevalence in the 1990’s, deregulated energy markets have pros and cons, experts say.
Faced with rising costs, Americans are shopping for the best deals on not just food, housing, and flights — but the energy powering their homes.
In over 20 states that include New York, Illinois, and California, energy markets have been deregulated or restructured to varying degrees. It means consumers aren’t simply stuck with a single local energy company. Some can shop around for the best offer before deciding on their electricity and gas providers.
Many are even faced with the decision of whether to lock in a fixed energy rate for a period of time or roll the dice with a variable rate — which can be subject to demand, production, weather, and other factors. In today’s volatile energy market, a wrong decision could cost them hundreds of dollars.
While more consumer choice is typically regarded as good thing, the recent volatility in the energy market — and households’ lack of knowledge about how to navigate this — are making these choices much more difficult.
“It’s almost analogous to the stock market,” Joshua Basseches, an assistant professor of public policy and environmental studies at Tulane University, told Insider. “It’s putting a lot of these decisions into the hands of consumers, sort of betting on what’s going to happen to these different prices of these different fuels.”
In August, electricity bills rose at their fastest rate in 41 years, with natural gas prices rising 33% vs. the year prior. These increases have been driven by the reopening of the US economy, the energy crisis in Europe, and heatwaves across the country. With prices at the gas pump easing in recent months, Americans are turning their attention to their energy bills as prices spike. And things could get even worse this winter.
Whether they like it or not, consumers in deregulated states deciding which provider to use and what kind of plan to sign up for are effectively betting on the future of energy prices. That would be a tall task even for energy experts.
“You are being asked to play the market out a year to three years, and that is not a comfortable decision,” Floyd Stanley, a 66-year old in Texas, told Bloomberg.
“If you’re low income, then every dollar counts”
When it comes to consumer choice in energy markets, Basseches says “none of this was possible” 20 years ago: “The utilities made all the decisions for you. They sent you your bill.”
But in the 1990s, some states with high electricity costs began opening up their energy markets to new companies, with the goal being to make them more competitive and reduce costs. It allowed some Americans to choose not who owned the electricity wires connected to their homes, but where this electricity was being generated. Today, there are as many as 28 states offering some choice, although choice is very limited in some states — making a precise number difficult to determine.
In theory, consumers were in a position to benefit, but stakes, particularly as inflation grips the economy.
“If you’re low income, then every dollar counts,” said Basseches. “But if you’re middle or upper class, these are probably going to be relatively minor differences in costs, depending on whether you take advantage of these different packages.”
And stakes were even higher for large industrial companies that consume huge amounts of electricity. They lobbied for deregulation in the hopes it would lead to lower operating costs. For these companies, the choices they make in today’s volatile energy market can have “hugely consequential” financial implications due their significant energy usage, says Basseches.
Pros and cons of deregulation
In general, Basseches says he thinks deregulation can help lower a state’s energy costs. In Texas for instance, among the “most deregulated” states, he says energy costs are generally “very low.” It’s also opened up the market to new sources of energy, making it easier for states to take steps towards renewables.
That said, Basseches hasn’t seen conclusive evidence that deregulation has produced lower costs more broadly — some have even argued it’s produced higher energy bills in some states. Additionally, there can be “issues of reliability and of system maintenance” in these markets that can contribute to blackouts and spiking costs during extreme weather events.
For instance, while several factors led to the Texas blackouts in February of 2021, deregulation likely played a role. In the past, a monopoly utility would have been responsible for the maintenance of the state’s electric grid in the event of a weather crisis like the one that hit the Lone Star State that winter. But in today’s competitive market, a collective shirking of responsibility may have contributed to the crisis, though experts disagree on just how much.
In the early 2000’s, California blackouts — which were partially tied to the state’s recently deregulated energy market — set the stage for the 2003 recall that made Arnold Schwarzenegger governor. The state took steps to mitigate these problems in the future, however. And it’s unclear to what degree deregulation was to blame for California’s power grid being pushed to the limit during the recent heat wave.
In the United Kingdom, the government could spend as much as $150 billion over the next year and a half to freeze household energy bills. But if energy bills continue to rise in the US, American households might not be so lucky as every dollar of government spending faces scrutiny.
If anything, state governments might be asking citizens for help with the energy crisis. During the California heatwaves, residents received alerts on their phones asking them to cut down on their power usage, which reportedly helped the state avoid any blackouts. Perhaps they’ll even be asked to shut off their Christmas lights this holiday season, as Germans are currently being urged to do.
In deregulated states, consumers eager to save money on energy bills may have no choice but to scour the options available to them and embrace their inner Nostradamus as they forecast future prices.