While the headline-grabbing topic in the affordability debate is the cost of home ownership, the rising cost of electricity in certain markets is a close second.
However, rates aren’t exploding everywhere; they’re spiking in California and the Northeast. In California, in addition to all the normal California distortions like high taxes and regulations, the main factor is wildfire-related costs.
That leaves the Northeast, and the spike in power costs there is real and consequential. There are lessons to be learned.
In many parts of the country, rates have remained relatively stable due to the right balance of competition, regulation and the right mix of generation and transmission. In others, especially in the Pennsylvania-New Jersey-Maryland Interconnection (PJM), spiking rates serve as a price signal, alerting us that something is wrong.
The way we incentivize power generation, transmit it, and regulate it is one of the most complicated, arcane subjects in public policy, and we aren’t going there (whew). So let’s simplify.
Investor-owned utilities are the backbone of the U.S. electrical system, serving 250 million Americans. In many states, these utilities are vertically integrated, which means they own generation and transmission. They thus operate under state oversight with a simple mandate: plan for the long term, build what’s needed, recover costs from qualified investments in new infrastructure, and keep power reliable and affordable. It’s not glamorous, but it works. Vertical integration plus long-term planning smooths out volatility. That’s why most areas have seen relative price stability even as demand rises.
However, in places exposed to wholesale capacity auctions that spike when supply tightens, where utilities don’t own generation and must buy at market rates, those spikes flow straight through to customers.
We need market reform in places such as PJM to promote proper transparency and oversight with trusted utility partners. Investor-owned utilities have a legal obligation to serve everyone in their territory — urban, rural, wealthy, poor. These utilities have access to lower-cost capital, which reduces the financing costs that customers ultimately pay. And investor-owned utilities plan across decades, not news cycles or quarterly reports. That kind of boring competence is underrated, right up until you don’t have it.
In regions where we offloaded long-term responsibility to an opaque capacity market and hoped price signals alone would summon new power generation on command, things have not gone so well.
A terrible example occurred during the Great Texas Freeze of 2021, when wholesale electricity prices spiked to $9,000 per megawatt-hour, the maximum cap set by the Electric Reliability Council of Texas. This price surge, which was 400 times the typical rate, was intended to attract additional generation by offering extreme market rewards.
However, the spike failed to achieve its intended effect because many natural gas facilities had frozen or lost their fuel supply, rendering them unable to generate electricity regardless of price. The result was a $52.6 billion price hit on consumers. While the price mechanism was intended to function as a market signal, it instead caused catastrophic financial harm.
Some have identified data centers as the culprit for high energy prices in the northeast, but data centers are being built everywhere. That fails to explain why the price spikes seem limited to areas where utilities can only purchase power from wholesale capacity auctions and cannot connect additional power to the grid. The problem is a poorly designed market, however well-intended.
So, what’s the solution? First, it’s a regional, not a national, problem. Second, barring utilities from owning their own generation has turned out to be a mistake. Instead, grid authorities should be encouraging investor-owned utilities to invest in new generation to ensure abundant, robust sources of power for the future.
A February 2026 analysis by Charles River Associates modeled PJM’s 2028–2029 delivery year and found that expanding state-regulated, utility-owned generation could reduce total customer supply costs by $9.6 billion to $20 billion in that single delivery year. In Charles River Associates’ scenario, “utility-owned generation” means operating alongside merchant generation, not replacing markets, but adding planned, accountable supply.
When it comes to ensuring a reliable source of power at affordable rates, the evidence suggests that investor-owned utilities are not the problem; they’re a big part of the solution.