How Poor Utility Leadership Contributes to Rising Electric Costs

Electricity Prices Are a Leadership Outcome, Not Just a Market Outcome

Electricity prices do not rise in isolation. They are the cumulative outcome of years of leadership decisions regarding planning assumptions, capital investment priorities, fuel procurement strategies, and risk tolerance. While external factors such as fuel markets and inflation influence costs, they interact with internal governance choices that either amplify or dampen their effect on customers. Utilities facing similar market conditions often experience markedly different rate outcomes, demonstrating that leadership—not markets alone—plays a determinative role.

Leadership failure in this context rarely appears as a single catastrophic decision. Instead, it emerges through incremental deferrals: postponing infrastructure upgrades, delaying diversification of generation resources, or choosing short-term rate stability over long-term resilience. These decisions compound over time, narrowing future options and increasing exposure to volatility. When external pressures finally materialize, utilities are forced into reactive spending that is both more expensive and more visible to the public.

Energy Source Selection and Its Impact on Rate Stability

One of the most consequential leadership responsibilities is generation portfolio management. Decisions about fuel mix shape not only reliability but also price stability. Overreliance on a dominant fuel—particularly one subject to commodity volatility—creates structural exposure that cannot be easily mitigated once embedded in the system. Natural gas provides a clear example: its operational flexibility has driven widespread adoption, but inadequate hedging, insufficient storage, or failure to diversify generation sources increases vulnerability to price spikes.

Effective leadership treats generation planning as a risk management exercise, not merely a least-cost calculation. This includes evaluating long-term fuel price trends, supply constraints, regulatory risk, and system flexibility. Poor leadership often manifests as delayed diversification or excessive reliance on short-term market conditions, decisions that appear rational in isolation but produce instability when conditions change.

Deferred Infrastructure Investment and Emergency Cost Transfer

Electric costs are also driven by leadership decisions surrounding capital investment timing. Deferred maintenance and postponed modernization initiatives may temporarily suppress rates, but they increase the likelihood of equipment failure, congestion, and inefficiency. When failures occur, utilities must respond through emergency procurement, accelerated construction, or short-term contracting—measures that carry significantly higher costs.

These emergency expenditures are routinely transferred to ratepayers, framed as unavoidable responses to system stress. However, the underlying cause is often leadership unwillingness to invest proactively. Strong leadership recognizes that disciplined, anticipatory investment reduces total lifecycle cost, even if it requires near-term rate adjustments.

Price Volatility as a Governance Failure

Persistent or extreme price volatility should be understood as an indicator of governance weakness. Utilities with strong leadership frameworks—clear accountability, structured planning processes, and disciplined oversight—demonstrate greater cost stability over time. Where these frameworks are absent, customers bear the financial consequences of reactive decision-making.

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References
Borenstein, Severin. “What Happens When Electricity Prices Spike.” Energy Institute at Haas, November 7, 2023.
National Renewable Energy Laboratory. The Role of Strategic Resource Planning in Electricity Markets. Golden, CO: NREL, 2022.
U.S. Energy Information Administration. Electric Power Monthly. Washington, DC: EIA, 2024.
Cramton, Peter, and Steven Stoft. “Market Behavior with Supply Function Bidding.” Journal of Regulatory Economics 10, no. 1 (1996): 61–78.