Would Less Competition Lead to Lower Electricity Prices?

After wholesale prices on the PJM grid surged above $1,800 per MWh during January’s deep freeze, concerns about resource adequacy and market structure quickly followed. Exelon responded with a study arguing that PJM’s competitive design may be contributing to volatility and that expanding utility-owned generation could stabilize costs.

PJM operates as a competitive wholesale market where independent power producers bid for generation in auctions. When demand spikes during extreme weather and the available supply tightens, prices rise sharply. PJM saw that this winter. Texas experienced similar volatility during Winter Storm Uri, when prices reached ERCOT’s then-cap of $9,000 per MWh, later reduced to $5,000. During January’s Winter Storm Fern, wholesale prices peaked at around $1,800 per MWh.

Exelon’s Case for More Utility Ownership

Exelon’s study estimates that allowing utilities to build and own more generation within PJM could reduce total wholesale electricity costs by $9.6 to $20 billion in the 2028–2029 delivery year. For context, PJM’s total wholesale costs were $43.6 billion in 2024. If realized, that projected reduction would represent a meaningful share of overall market costs. The study also estimates that outage risk tied to energy shortages could decline by roughly 85% under this model.

The logic is structural. Independent power producers operate in competitive auctions where revenues fluctuate with market prices. Tight supply leads to price spikes. Excess supply pushes prices down. Utilities, by contrast, earn regulated returns approved by state regulators. When they build power plants or batteries, they recover costs gradually through customer bills. That framework produces more predictable revenue streams and, proponents argue, supports long-term planning.

Exelon’s view is straightforward: if utilities own more generation, the system becomes more stable and less exposed to sudden market volatility.

The Case for Competition

Critics dispute that conclusion. The Electric Power Supply Association, representing independent generators, argues that competition is what disciplines prices. They point to the electricity reforms of the 1990s, when many states moved away from vertically integrated utility monopolies and opened generation to independent companies. Supporters of those reforms contend that competition improved efficiency and lowered wholesale costs compared to monopoly-era structures.

Former Pennsylvania Public Utility Commissioner John Hanger makes a similar argument. He notes that some customers in Pennsylvania who shopped for competitive suppliers in 2024 paid less than customers did under the regulated utility system in the mid-1990s. In his view, competition expanded customer choice and constrained pricing. He also argues that rising transmission costs, which remain largely under utility control, have been a significant driver of higher electricity bills.

Critics worry that reducing competition could concentrate generation, transmission, and distribution back into traditional monopoly utilities. That shift, they argue, could weaken competitive pressure that has historically helped contain generation costs.

What This Debate Is Really About

This discussion extends beyond a single winter price spike. It centers on who should build and own the next wave of power generation as electricity demand rises due to electrification, data centers, and industrial growth.

The structure chosen will shape how volatility is managed, how investment risk is allocated, and how customers ultimately pay for new infrastructure. Competitive markets prioritize price signals and private capital risk. Regulated models prioritize cost recovery and revenue stability.

Whether less competition would lower prices depends on which risks customers are willing to bear: market volatility in competitive auctions or long-term cost recovery through regulated utility ownership. That choice will influence electricity pricing for years to come.